Inventory Management

1. Inventory Management Dr. J. Domenech

2. Objectives: As a result of successfully completing this chapter, students will be able to: •  Review the importance of effective inventory management, and explain basic inventory management concepts •  Explain common inventory replenishment systems: • Par-level systems • Automated supply replenishment systems • Exchange cart systems • Requisition systems • Case cart systems • STAT orders

3. Objectives: • Review the use of bar codes and radio frequency identification to track inventories •  Describe procedures for effectively distributing supplies to clinical units and the operating room •  Review important inventory management concepts • Perpetual inventory systems • Alternative inventory control methods • Total acquisition costs • Inventory turn rates and service levels • Inventory information systems • Space utilization

4. Terminology • Inventory- Reusable equipment and consumable items that are used to provide healthcare services for patients • Consumable Inventory- Items which are purchased, used and discarded • Reusable Inventory- Assets that are relatively inexpensive that such as medical devices and sterilization containers that can be reused as healthcare services are provided to patients • Stock out- A condition that occurs when inventory items that are needed to provide healthcare services to patients are unavailable • Capitol Equipment- Assets that are relatively expensive such as sterilizers or washers that require significant advance planning for purchase • Asset- Something of value that is owned by an organization or person

5. Consumable Inventory Cycle(Disposable Items)

6. Central Service Consumable InventoryItems • Detergents • Cleaning Supplies • Disposable Wrappers • Processing Chemicals • Sterilizer Quality Assurance Testing Products

7. Inventory • Must be managed to prevent Stock Outs • Must be managed to provide equality patient care • Must be managed to control operating costs

8. Inventory Management Concerns • Official Inventory • Unofficial Inventory

9. Official Inventory Consumable products found in Central Service and other storerooms, warehouses, and satellite storage areas Can be counted as an asset on the facility’s balance sheet (financial statement) Unofficial Inventory Consumable products found in user areas such as surgical locations and labs. These items have usually been expensed (charged) to the user departments are stored in unofficial location Inventory Management Concerns

10. InventoryManagement • Hospitals must strive to find the balance between adequate supplies and cost-effectiveness

11. Too much Too much cash invested in excessive stock levels May need to borrow $ to pay suppliers More storage space needed Greater Risk of Damage, Loss, Obsolescence or pilferage/theft Requires more time to Manage Too little Supply Shortages Emergency Purchases Negative Effect on Patient Care Leads to Hoarding in User Departments Frequent Handling to Move Inventory to Point-of-use Too Much/Little Inventory

12. Inventory Facts: • Facilities spend approximately 30% of their operating budget on consumable supplies • Facility inventories of consumable supplies represent an average of 50 days’ usage requirements • Facilities typically have a greater value of unofficial inventory than official inventory

13. Managing Consumable Inventory Good Work Practices

14. Storage Standards • Storage locations must be kept clean • Clutter or overstocking can lead to package damage • Packages must be protected from “events” that can contaminate them

15. Carts and Totes used to Transport Sterile Items Must be Kept Clean

16. Expiration Dates • Some commercially sterilized items have expiration dates • Those dates must be checked and outdated (expired) items must not be dispensed for use

17. Expiration Dates are Located in Different Places on Packaging

18. “Contents Sterile Unless Damaged or Opened” Packages with this type of statement are determined to remain sterile unless their barrier is compromised by an event

19. Event-Related Sterility Applies to all packages. Even packages with expiration dates can have a shortened shelf-life if they are compromised by an event (i.e. moisture, holes, tears, etc.)

20. Interpreting Product Information What does the label say?

21. Common Package Information Manufacturer’s Product Reference Number Lot (Batch) Number Identifies product to a specific production run Product Expiration Date

22. Package Symbols • Do Not Reuse – Single Use Only • Date of Manufacture

23. Manual and Automated Inventory Systems

24. Manual Use a paper method to document and track transactions Automated Use a computerized method to document and track transactions Automated systems yield more data because the information is more easily managed and stored Manual and Automated Inventory Systems

25. Automated Inventory Systems

26. Inventory Replenishment Systems A variety of systems used to replenish consumable supplies in patient care areas

27. PAR-Level Systems • Periodic Automated Replenishment (PAR) • Establish a standard stock level for each department • CS/MM employees inventory each area and restock quantities to the established quantity

28. Exchange Cart Systems • A system where a specified amount of supplies are placed on a cart that is stored in the user unit. A duplicate cart is kept in another location and the full cart is exchanged for the used cart on a routine schedule

29. Requisition Systems • An inventory distribution where items are requested (requisitioned) by the user department and dispensed from a central storage location

30. Case Cart Systems • An inventory control system primarily used in the operating room, that uses a cart that is specifically prepared for one procedure

31. STAT Order Abbreviation for the Latin word, “Statim,” which means immediately or at once

32. Automated Inventory Tracking Systems • Used to facilitate the accurate tracking of inventory • Usually done using Bar Codes or Radio Frequency Identification

33. Bar Codes • Machine-readable rectangular bars and spaces arranged in a specific way to represent letters, numbers, and symbols

34. Radio Frequency Identification • A tracking system in which identify of an item is wirelessly transmitted with radio waves • Commonly abbreviated as: RFID

35. ABC Inventory Control • An inventory management strategy that indicates storeroom controls should first address the relatively few items with the greatest value (A Items), and should lastly address the many items with the lowest value (C Items) • For example, more attention and time should be tracking a total joint implant (A Item) than a gauze sponge (C Item)

36. Alternative Inventory Control Methods Other methods that may be used to manage inventory in a healthcare facility. Inventory control methods are selected based on the needs of the specific facility

37. Min/Max System • Stock is ordered when a predetermined minimum quantity is reached

38. Economic Order Quantity Products are purchased in the quantity that is most economical. For example, by the case, box, or dozen

39. Stockless Supplies The supplier (vendor) provides complete inventory, storage, and distribution services to the facility

40. Just-in-Time (JIT) System A system in which minimal stock is kept on site and most orders are delivered when needed

41. Consignment System • Items are stored at the healthcare facility, but owned by the supplier • The supplier does not charge for the inventory until it is used • Implants are commonly consignment items

42. Pick-n-Pack System • Products are ordered from a vendor and are prepacked for specific departments • Office supplies and forms are often handled with a pick-n-pack system

43. Total Acquisition Costs • Purchasing, Materiels Management, Central Service, and other departments must analyze costs to assure that costs are minimized without sacrificing quality

44. Acquisition Costs are more than the Purchase Price of items • Other Costs Associated with Acquisition include: • Physical Storage Costs • Disposal of Expired Items • Theft/Pilferage • Obsolescence • Freight and Delivery Charges • Stock Outs • Overstocks (the costs of more-than-required quantities of products on hand)

45. Inventory is Constantly Changing • New Items are constantly being introduced • New Equipment and Technologies often require disposable components • Planning is important to ensure that CS is made aware of the new items and educated about them

46. Inventory Turnover Rate The number of times per year that inventory is purchased, consumed, and replaced

47. Inventory Service Level The percentage of items filled (available) when an order is placed

48. Inventory Service Level • An order is placed to 100 items • 92 items are available. 8 are out of stock • The Inventory Service level is 92% (100-8=92) • The Stock Out Rate is 8% (100-92=8)

49. Inventory Stock Out Rate The percentage of items that cannot be filled (are not available) when an order is placed

50. Inventory Information Systems • Inventory is the same as cash • When it is managed improperly it costs the facility money • Inventory information systems help manage inventory