5 ways to build your case for inventory management technology

It's no secret that many hospitals and health systems struggle with supply chain spending and waste reduction.

Supply chain managers have to deal with reimbursement concerns and constant pricing pressure, as well as the enormous amount of waste associated with the supply chain. In fact, a 2011 PNC Healthcare study found that the industry wastes an estimated $5 billion per year on high cost medical devices. This monetary deficiency doesn't even account for other key problems, such as loss of clinicians' and nurses' time, product recalls and the risk of non-compliance with the Food and Drug Administration and its Unique Device Identification system regulations.

One potential solution to these problems is making a switch to an automated inventory management system. Before making this switch, however, you must help your colleagues see the significance of current problems in the supply chain. Building a case for new inventory management technology or automation takes forethought.

"You might get a sense that [your colleagues] are hesitant to move forward. Change is hard," said Cindy Measurall, director of supply chain strategy for Cardinal Health, in a webinar Jan. 26. "You have to put a plan together to build your case."

Ms. Measurall outlined five steps for supply chain leaders to make their case for inventory management technology.

1. Show how the current state isn't working
Traditionally, the supply chain is managed through six key techniques, each of which have specific flaws.

  • Consignment inventory. The customer possesses consignment inventory, although the items are still owned by the supplier. Though it's preferred by many physicians, consignment isn't an effective way to manage the supply chain. "It's expensive for manufacturers to manage," said Ms. Measurall. These expenses are then passed along to customers. Not only is it an inefficient delivery method, but it also causes limited visibility in the supply room.
  • Bulk purchases. Buying products in bulk can lead to misused space, wasted products and the possibility of a financial net negative. "For ages, we've been talking about having the right product with the right price at the right time," said Ms. Measurall. "But we don't often talk about having the right amount."
  • PAR method. In the PAR method, items are replenished based on their PAR level, or the amount of items necessary to have on hand to meet demand. While some hospitals and health systems utilize printed paper for the PAR method, others use a scanner. Either way, PARs are typically determined by employees rather than analytics. The lack of analytics means PAR levels are rarely — if ever — reviewed or adjusted.
  • Closed cabinetry. Using closed cabinetry is time-consuming. "This method was built with the attempt to automate the inventory management process, but what was missed was the impact on clinicians," said Ms. Measurall. Because items in closed cabinets are not easily visible, it is difficult to detect expired supplies, which leads to low regulatory compliance.
  • Tribal knowledge. Relying on tribal knowledge — information and processes that are stored in the minds and habits of employees — can be dangerous. If a hospital's expert supply chain manager or OR coordinator leaves, the rest of the supply chain team is out of luck. Ordering products based on tribal knowledge is not data-reliant and is driven by a fear of running out.
  • Paper templates. Utilizing paper templates requires a combination of tribal knowledge and manual entry into an MMIS system. The required manual counting process is tedious and, like several of the other methods, time-consuming.

Take the time to outline how the current system is falling short. Identifying as many details as possible will make it easier to build your case in the long run.

2. Articulate your vision
"After you identify the challenges with the current state, you want to be able to articulate what you see for the future," said Ms. Measurall. A clear vision should summarize the most important aspects of a new system. Ms. Measurall pinpointed six key qualities an inventory management system must have.

  • Ease of use. A variety of different individuals, from physicians to OR specialists to nurses, will use the inventory management system. If the system is not fairly straightforward and intuitive, it is challenging to get others on board with your proposal.
  • Accuracy. A system must be as precise as possible — even a 95 percent accuracy rate isn't good enough. This error rate could result in a significant amount of financial loss.
  • Real-time tracking and charge capture. "Even with full visibility, tracking is pointless if the appropriate items aren't accounted for at the patient's bedside," said Ms. Measurall. Inventory levels should be sufficient at all times, and products should be accurately tracked.
  • Trending analytics. Trending analytics can assist systems struggling with excess PAR levels or insufficient inventory. Using data can help excess PAR levels translate into valuable capital. On the other hand, product losses and insufficient inventory problems can be prevented by looking at historical trend data.
  • Futureproof. As all leaders know, healthcare — especially healthcare IT — is constantly shifting. A solid inventory management system should be able to quickly adapt to changes.
  • Scalability. "Systems need to be scalable and adaptable to multiple levels of use," said Ms. Measurall. There are multiple tools to manage inventory, such as smart cabinets and the 2-Bin Kanban system. No matter what, the system must account for supply diversity while also keeping accurate total inventory.

3. Communicate the benefits
After articulating a vision, it's important to have an answer to the "So what?" question. "Customers can explain why their system is broken, but they can't answer the 'So what?' question," said Ms. Measurall.

Be prepared to answer the question, particularly by communicating how inventory technology management can help:

Meet inventory goals. Supply chain leaders need the right product in the right place at the right time for the right price. But above all, it's key to have the right amount of supplies. A system can eliminate product waste without risking product shortage.

Maximize clinician time. Studies have found nurses can spend up to 20 percent of their time on product management. If nurses are able to spend less of their time on supply chain duties, they'll be able to spend more time with patients, potentially improving the patient experience, outcomes and HCAHPS scores.

Manage recalls and reduce expirations. Ninety-nine percent of all product recalls are handled manually. Shifting from manual supply chain management to an automated system can help more efficiently manage recalls and reduce the number of products that expire on shelves.

Make informed decisions using analytics. Utilizing inventory management technology is a perfect way to link outcomes to products and practices. In addition to reducing product costs and making waste visible and avoidable, inventory management technology allows hospitals to make evidence-based decisions to better predict demands.

Improve charge capture. According to a 2013 study, healthcare providers lose more than $1.8 billion to revenue leakage, which amounts to an average of 7 percent leakage for every facility. Inventory management technology can assist in eliminating leaked revenue while also simplifying clinician workflows.

4. Gather your allies
The next key step in the process is to reach out to others and discuss the benefits of inventory management technology. "Talk to different departments that it will affect," said Ms. Measurall. "Find out the positive impact it would have on them."

But talking to colleagues and department leaders about the system is only the first step. "Once you've sold them on the vision, you need to ask them for support and backing," Ms. Measurall added. Create a council full of supporters, and define everyone's role within the council. Additionally, name a few people as "champions," those who will continually advocate and support your vision.

"However, there are a lot of people that aren't necessarily on the same page," Ms. Measurall said. "It can be hard to get everybody on board." Therefore, Ms. Measurall recommended bringing in external support. Having an extra set of eyes can help you review your current business state and articulate your need to others.

5. Identify your savings opportunity
"To estimate your savings opportunity, you have to understand where you are today," said Ms. Measurall. Spend time digging in to calculate the cost of your current model. Ask yourself the following questions:

  • How much is lost due to expired or recalled products?
  • How much is spent on overnight shipping?
  • How much clinician time is spent on supply chain activity?
  • How much is wasted due to overstock?
  • How much wasted time is spent reordering products?

Additionally, take time to realize and review the success of others. Cardinal Health recently worked with Atlanta-based Emory St. Joseph's Hospital. After implementing the Cardinal Health radio-frequency identification (RFID) solution, the hospital immediately began to see results. In one year, Emory St. Joseph's recovered $300,000 in chargeable product costs through active alerts. Through implementation, the hospital also saved three hours in labor every day, reduced aging inventory and maximized throughput with 84% of product less than one year old through 100% tracking and control

Every hospital or health system supply chain manager knows of the day-to-day and long-term problems regarding supply spending and waste reduction. Advocating for inventory management technology can seem challenging, but it doesn't have to be complicated. By summarizing your current problems, outlining your vision, communicating the advantages, gathering supporters and discovering your savings opportunities, you'll be on your way toward building a strong case.

Click here to access slides from the presentation, and click here to listen to a recording of the presentation.

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