Healthcare Inventory

Hospitals are being pushed to reduce their costs, from this need a fantastic opportunity can be found – reduce inventory in their stores to Zero (excluding drugs). Massive savings can be made by not purchasing and ‘storing’ inventory in any quantity. The amazing part of this, is that it will cost nothing to implement, although it will require a little more work with the vendors and drafting new supply agreements up front.

The savings can be achieved by having Vendor Managed Stock (VMS).  The scenario is: the VENDOR places a quantity of stock that they own in the Hospital’s imprest cupboards, with initial quantities being agreed to. As hospital staff consume the products, they are in reality “purchasing” the stock at that time. The appropriate invoices will be based on usage at time of replenishment. In effect you have just removed ALL your inventory costs.

The next trick is to ensure you never go into an ‘out of stock’ situation. For VMS to work effectively there needs to be a financial penalty for stock-outs, saying sorry by the vendor does not help the patient and there is no incentive, apart from losing your custom (albeit a strong incentive), to ensure stock is ALWAYS available.

A penalty clause included in the supply agreement eg: “stock-outs will attract a $1,000/day penalty fee, payable by the vendor”, will give the vendor the appropriate incentive to ensure adequate stocks are on site at all times.  Airlines use a similar clause based around ‘AOG’s  (Aircraft on Ground).  Remember, overstocking can be managed, out of stocks are critical, if not life threatening, and are never ‘managed’.

This method also takes an extra link out of the chain so there is even less chance of running out of stock. There are a few other provisos that need to be included to ensure the process is fair, robust and is appropriately measured. And, if followed correctly by all parties , everyone is a winner from the hospital, the vendors, the staff and ultimately the patient.


Is the Healthcare system sick?

Well, the Logistics and Supply Chain folks would just love to move in and see what they can do. I too believe most of the problems are traceable back to poor processes and planning. I am not saying the processes are wrong – they have been deliberately designed around providing care for the patient. This was all fine and well when you are talking small scale but as the numbers increase, inefficiencies and bottles necks tend to increase exponentially.

A secondary issue, but probably the one that is restricting progress, is the attitude towards “streamlining” these processes. I have personally been told by a doctor (albeit a couple years ago) that “we are here to care for patients; we are not a production line”. I did try to explain that improvements can be made without affecting the quality of care and would probably reduce the amount of work placed on the medical staff. As you no doubt guessed, this was of no avail.

My 80 year old father was recently in hospital for some tests, he was annoyed to say the least, as in his words he was taken from the waiting area down a very long hall to the test room and returned. This was repeated for the second and third tests. Each test was in an adjacent room. His question: “why would I want to waste over half a day walking up and down a hall, when they could have taken all the tests together? Plus the fact that a nurse came with me every time – don’t they have better work to do!

Now there may be valid medical reasons for doing this but, I am guessing that the reasons are not medical in nature at all.

I know of particular hospitals that have embraced the whole idea of reviewing their processes as just that, a process, using lean and six sigma and other process analytics. The outcome – costs were radically reduced; patients received better care and staff numbers were reduced through attrition as the work load decreased.

Simple changes in procedures (not medical) can have immense changes in Patient outcomes – eg: they are seen to quicker, they stress less, they feel they are being respected and they can leave sooner.

Although there is a favourable ground swell to the idea of looking at the Healthcare system as just a number of processes, yes very important processes, it is far to slow. It remains a huge cost to everyone – the Government(s), the staff and most of all the patients. The marketing of the concept of improved Healthcare (Lean?) needs to be targeted to the different sectors to allay their fears of service degradation and increased work loads.

As with any sickness, when things that were once great are now tired and stressed (if not failing) specialists need to be brought in. When people’s lives are under threat (or dying), URGENT action needs to be taken. Patients and Politicians berating Doctors and other medical staff will not improve the service or the costs – probably the opposite. Placebos pushed by politicians have been shown not to work either. Therefore, the person(s) to get this action going is….the public?

That’s my two cents, what would you suggest?