How Steward Health Care reallocated $16M in excess inventory

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Excess inventory is an issue for many industries, and healthcare is no exception. Each year, between 15 and 30 percent of every hospital's on-hand inventory and up to 3 percent of their annual inventory spend will be thrown away. That equates to $5 billion worth of medical product that expires on hospital shelves and is sent to landfills every year. 

Steward Health Care, a 41-hospital health system based in Dallas, worked with Z5 Inventory, a healthcare inventory management company, to prevent the expiration of more than $16 million worth of its inventory within six months. Michael Prokopis, senior vice president of supply chain at Steward Health Care, and Carl Natenstedt, CEO of Z5 Inventory, detailed how Steward was able to reallocate its inventory in a Feb. 17 webinar hosted by Becker's Hospital Review and sponsored by Z5 Inventory. 

3 key takeaways from their discussion: 

  1. There are three main causes of excess inventory: Fear of shortages, advancement of technology and changes of contract. Especially in times such as the COVID-19 pandemic, hospitals overstock product rather than run the risk of running out. As clinicians move on to the newest and best product, old products become obsolete. Conversions in contracts also often leave in-stock products unused. These excess medical and surgical supplies are then ignored until they expire.

  2. Many hospitals don't know how much excess inventory they have. Mr. Prokopis said before working with Z5, his health system estimated that about 10 percent to 15 percent of its inventory was excess, but found out through an analysis conducted by Z5 that roughly 30 percent of its inventory was excess. That meant $24.1 million worth of its inventory was estimated to qualify for reallocation in 2019.

  3. Z5 conducted more than 100 analyses driven by artificial intelligence to identify the best outcomes for each of Steward's SKUs. It determined that it would be best to move $16.9 million of the inventory between Steward facilities, sell $6.8 million worth to other systems and donate $2.7 million worth of its inventory. Because of Steward employee consultations and enthusiasm, that donation amount ultimately increased to nearly $3 million. 

By partnering with Z5 Inventory, Steward Health Care was able to free up more than $16 million to be used for other projects in the health system. 

To view the full webinar, click here

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