10 Ideas to Improve Your Hospital’s

Inventory Management

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#1: Identify what level of supplies are needed to sustain clinical operations

• Know replenishment frequencies for each supply area set for best labor productivity

• Hint: Are supplies are replenished more frequently than necessary? Consider reducing the frequency while resetting the stock levels accordingly

• Some hospitals have realized a 40- 60 percent gain in labor productivity

• Create an accurate understanding of demand across the entire organization

#2: Understand the business and clinical processes in each area –

inventory systems are not “one-size-fits-all”

• Use lean concepts to redesign processes, eliminating redundant steps and minimizing "touches“

• Be sure you have the right inventory levels in the right places at the right times

• Hint: An example of an area with unique requirements is the ED. With immediate access needed to supplies, consider systems that specifically support a “grab-and-go” approach, while eliminating stock-outs and providing visibility

#3: Which products will be charged directly to the patient? Which won’t?

• Have the conversation among finance, nursing and supply chain leaders to determine how your organization will handle product charges

• Identify which products must be captured and charged directly to the patient, versus items that may be included as part of a procedure charge, or very low-cost items that may simply be covered by the room charge for an in-patient stay?

#4: Improve partnerships between supply chain and nursing

• Strengthen your culture and form strong

partnerships between supply chain and

nursing

• Create a leader in each major area; a super

user who knows the system and processes

• Identify a clinical champion for each area;

nurses are powerful partners in the design,

implementation and adoption of lean

processes

#5: Implement processes and technology that give supply chain visibility to

every area of the hospital

• Reducing inventory costs requires accurate, real-time item velocity, across the entire organization

• Identify technology needed to create an effective data infrastructure behind your processes; consider best-of-breed inventory management solutions to enhance your ERP capabilities

• Hint: ERPs can manage item masters, generate POs, manage contracts, support finance … but your inventory management processes may be better-supported with specifically-designed applications

#6: Remove expired inventory from supply areas

• Start with a clean slate. Actually remove expired inventory from your supply areas and work with finance to manage the write-off of these goods

• Return shelf space to productive supplies that your clinical team needs to care for patients

• Hint: Expired items aren’t “used” –instead, they should be “wasted” so they aren’t factored into supply velocity reporting

#7: Create an environment of continual performance monitoring, with

measureable, realistic goals

• Take time to set specific, measurable goals.

State your goals in dollars and language your

CFO and CEO will appreciate

• Start by measuring cost of inventory on-hand,

then compare cost of supplies after 6- and 12-

months of process improvement to validate

improvements

• Assign a leader on the supply chain team with

responsibility for measuring success. Build

KPIs to create a continuous improvement

environment

• Hint: You’ll need good velocity reporting and

visibility to your entire system of supplies

#8: Inventory Management is continual, closed-loop process

• Inventory management is not a

one-time activity

• Monitor supply usage continually

• You’ll need reporting tools that

constantly measure velocity for

every item your organization

uses, allowing you to adjust your

levels or reordering processes

based on actual demand

#9: Work your way through excess inventories

• Once you’ve got good visibility to what’s needed, work through your excess inventories; they’re the best opportunity for inventory reduction

• Reducing excess inventories reduces inventory dollars on the balance sheet and improves financial ratios

• Hint: Unlike scrapping obsolete items, there is no negative financial impact from inventory write-offs. Cash flow is improved, obsolete products are reduced, as are future write-offs

#10: Close the loop on your internal communication processes

• Communication, like inventory management, is continuous:

• Earn trust from your clinical staff to reduce problem areas, such as supply hoarding

• Involve the clinical team in planning

• Discuss how new processes will help them

• Change management is needed, including continuous review/revising of policies and processes

• Proactively communicate results, successes and lessons learned

• Hint: Teams across the organization need to know what’s working well and what needs improvement to help lead change

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“10 Ideas to Improve Your Hospital’s

Inventory Management”

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