How the Right Metrics, Combined with the Right Inventory Management Technologies, Ensure Accurate Data Collection and Analytics that Enable Providers to Optimize Their Inventory and Supply Spend: Case Studies from Leading Hospitals
Arnold Chazal, CEO, and Lana Makhanik, COO, VUEMED
The Problem: Inadequate Metrics and Poor Inventory Management Tools
Typically, supplies and devices represent the second largest line item in the budget of most hospitals’ specialty procedure or interventional areas (ORs, Cath Labs, etc.). Yet, in the majority of organizations, the management of these pricey supplies is the responsibility of each individual department, which too often has inadequate inventory management expertise, resources, processes, tools, and technologies to enable it to perform well and get measurable results.
Moreover, hospital supply chain organizations have traditionally focused on basic inventory management metrics or measurements (e.g., turnover, order fulfillment), or financial metrics (e.g., % supply cost per patient discharge) to guide them in the control and management of their stock. However, these metrics largely fail to show the subtle and informative data that can affect change and reveal opportunities and symptoms of not-so-readily visible issues that could otherwise be addressed. These metrics are also typically focused on the supplies perpetually managed by the supply chain organizations, which include med-surg products, and typically exclude specialty (aka “non-stock” or “physician preference or PPI”) items utilized by the surgical and other procedural departments. Also, typically, the majority of metrics in use are not geared towards reporting the intimate connections between supplies and performance, such as how the spend on specialty items is actually serving the corresponding departments’ needs, or how to quantify the opportunities for supply optimization and consolidation.
The reason for the lack of true guidance from metrics also finds its root in the data itself that feeds the metrics which often is incomplete or not fully reliable, and thus taints the overall information and its true meaning. As a result, the right metrics must also be used in conjunction with an automated inventory management technology that is proven to capture, timely and accurately, all relevant information about products (product ID, lot/serial number, and expiration dates), their deliveries, availability on the shelves, and exact usage for patient care, down to each individual item.
Asking the Right Questions
How are our supply purchases supporting the changing case mix and volume? How quickly are unused or obsolete items being identified and substituted? How effectively are expiring items being identified and removed? How well-aligned are purchases with the actual clinical need? These are some of the key questions that diligent specialty procedure departments seek the answers to in order to improve their ability to make effective decisions and undertake results-oriented change.
Applying the Right Metrics
To develop a truly successful inventory management program, departments must use metrics and techniques that provide meaningful data that is directly related to making well-informed decisions and taking strategic actions aligned with their inventory optimization objectives. Some metrics and their objectives that are particularly helpful include:
- Expiring or expired inventory as a percentage of on-hand inventory value – for expiration management.
- Unused inventory as a percentage of on-hand inventory value – for inventory excess reduction.
- Purchased inventory vs. consumed inventory over the same time period.
- Ratio of consumed to added inventory and dollar value of inventory purchased compared to case volume and consumed inventory – for purchase reductions.
Case Studies from Leading Hospitals
In the course of providing RAIN RFID and barcode scanning technologies to specialty procedure and interventional departments to manage their clinical inventory, we have accumulated data that illustrates the ways in which these hospitals’ inventory optimization and bottom line objectives have been achieved using such metrics and benchmarks.
For example, one key objective for these departments is waste reduction and the elimination of expirations. A key metric for achieving this objective is to examine expired inventory as a percentage of on-hand inventory value. Using our software, an Interventional Radiology department at a large teaching hospital in Washington, D.C. ran weekly reports using this metric and was able to decrease its expiring inventory by 95%, from ~10% of its on-hand inventory value in 2013 to <0.5% by 2016.
Another case study at a GI department in a large urban teaching hospital in New England showed the achievement of expired inventory levels being maintained at less than 5% of the total inventory value over a 3-year period, again due to their use of the expiration tracking reports which provided the data to identify and monitor slow-moving and obsolete inventory. And at a large teaching hospital in New York, both the Interventional Radiology (IR) and the Cath Lab departments showed significant waste reduction: The former maintained its expiring owned inventory at below 1% of its total inventory value over an 18-month period and the Cath Lab reduced its expiring owned inventory to <0.5% of its total inventory value, as measured over a 6-month period.
Another key goal for specialty procedure and interventional departments is the reduction of supply costs, measured as a reduction in purchases, and then the subsequent maintenance of a lean inventory in line with consumption needs. We have observed that supply purchases typically tend to be higher than supply utilization by anywhere between 20% and 40% (in $ value) over a given period of time, without any changes in case volumes or mix – leading to overstocking, accumulation of excess, and waste.
When departments systematically collect data to measure purchased versus utilized value, as well as unused inventory as a percentage of on-hand inventory value, they are able to identify specific purchasing behaviors and usage patterns that lead to bloated inventory levels.
These metrics guide the decision-making process to streamline the inventory and establish correct par levels for each SKU that corresponds to the actual documented usage patterns. This process identifies the opportunities to correct outdated or flawed buying patterns, and adjusts purchasing contracts and/or consignment programs to the actual reality and needs of the clinical departments to serve them better.
Our case study at the IR department in D.C. mentioned above also showed that from 2013-2016, it decreased its value of on-hand owned inventory by nearly 50% following the implementation of our inventory management system and the use of metrics as a technique to monitor and improve financial results. Similarly, at the New England GI department described above, there was approximately a 15% decrease in on-hand inventory value in less than 6 months. And the New York State IR department above saw a 17% decrease in on-hand inventory value over the 18-month case study period.
The Cath Lab at this same New York hospital showed consistently higher consumed versus purchased inventory value each month, while supporting a ~4% increase in case volume, resulting in an ~11% decrease in on-hand inventory value within 8 months. Finally, a Vascular OR department in a New England hospital was able to increase their on-hand inventory by only 87% while increasing their case volume by nearly 200% and their supply utilization by over 120%.
Conclusion
These and other key metrics and benchmarks provide actionable data that, together with effective inventory management solutions and data collection tools, enable specialty departments to achieve their inventory optimization and cost savings objectives.
Authors
Arnold Chazal is the CEO and Co-Founder of VUEMED, a global healthcare Information Technology company committed to providing innovative and transformative technologies to healthcare organizations, such as VueTrack-RF, VUEMED’s RAIN RFID technology. He has built VUEMED as a Software-as-a-Service (SaaS) company, the focus of which is to help hospitals and medical product/device manufacturers improve their performance and data accuracy throughout the healthcare supply chain, from manufacturing to point of care. Prior to VUEMED, Arnold was a Founding Partner at the medical market research and consulting firm Kieris Solutions and spent 12 years in the management consulting and business intelligence industry, providing strategic advice, technology implementation, and lean process improvement solutions to Fortune companies, primarily in the healthcare field in the U.S. and Europe. He holds a B.A. from Nanterre University in Paris and a J.D. from the University of Sorbonne Law School, and completed graduate studies at Oxford University and Harvard Law School.
EMAIL: achazal@vuemed.com; TEL: 239-784-8292
VUEMED is based in Seattle, WA www.vuemed.com
Lana Makhanik is the COO and Co-Founder of VUEMED. As its Chief Operations Officer, she is responsible for overseeing Implementation and Support Service teams and ensuring quality control in the execution and delivery of VUEMED’s services. Lana works closely with key customers and partners, including clinical, financial, and supply chain leaders. She has also been involved with industry-wide supply chain initiatives through such organizations as the Association for Healthcare Resource & Materials Management (AHRMM) and Strategic Marketplace Initiative (SMI). Prior to VUEMED, Lana was a Founding Partner at the medical market research and consulting firm Kieris Solutions for eight years, where she focused on process optimization, organizational mapping, customer values alignment, benchmarking, and best practices research. She has evaluated numerous technologies and product opportunities in the cardiovascular, urology, and gastroenterology fields of clinical practice, for clients such as Cordis (J&J), Bard, Boston Scientific, and Medtronic. She holds a B.S. in Cognitive Science from Wellesley College.
EMAIL: lmakhanik@vuemed.com; TEL: 617-216-7749
VUEMED is based in Seattle, WA www.vuemed.com
