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.