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To the materials manager and to the financial minds of a hospital often fall the sort of work that most call tedium, the kind of planning, strategizing and measuring that seldom goes recognized and rewarded. The work involved with inventory control fits snugly within that description.

It's a simple matter for inventory to run amok in a hospital. Too many people with too much access to too much product procurement can overstuff a facility with a range of costly supplies and equipment. While the blame for over-ordering is frequently pointed at nursing staff, famous for squirreling away unseen, hut paid-for stocks of goods, they are not the only offenders. More accurately, when it comes to inventory, it's the system that fails a hospital, not its people, over what is essentially an asset management issue.

Some hospitals and systems are making some excellent headway toward taming the inventory lion. They rarely, however, accomplish that feat without some outside help.

One of those is Memorial Sloan-Kettering Institute, the famed cancer care and treatment facility on New York's Upper East Side. Approximately $82 million is spent annually on medsurg supplies including pharmaceuticals at the facility, which also operates 10-12 offsite clinics. According to Barbara Cassera, manager of financial systems for Sloan-Kettering, the hospital uses a procurement system with central purchasing from the Manhattan campus and through a hospital-owned warehouse in the Bronx.

Sloan-Kettering for years used a "homegrown," mainframe-based inventory system, says Cassera that involved mostly manual processes. But in 1994, the hospital began a relationship with Geac, a Canadian-based enterprise software firm that developed an application known as SmartStream. The hospital already used financial applications from Geac, including purchasing and receiving modules. But since Sloan-Kettering had been using the old card method of tracking inventory, big changes were needed.

Now, says Cassera, Sloan-Kettering uses the SmartStream application with a Web-based front end that features a paper-saving catalog of all inventory. Today, users order from the Web-based catalog, the orders are then transmitted to the warehouse for pick-list distribution, says Cassera. Pick lists are generated by the SmartSiream system, including generating automatic purchase orders as part of completing the full replenishment cycle.

The system automatically sets up a reserve of supplies based on minimums and maximums, though she says that par levels are not taken on the floors. Orders are then scheduled automatically by the system. A system of carts is used, manned by supply clerks, who generate requisitions from the floor on a daily basis. That system is currently being upgraded, says Cassera, and one that uses hand-held technology is in the not-too-distant future.

Naturally, Sloan-Kettering's med-surg distributor partners play a role in the hospital's inventory and logistical systems and contribute to overall performance. Cassera says that the hospital has no sole distributors, but uses the services of both Caligor Hospital Supply, Pelham Manor, NY, and the local unit of McGaw Park, IL-based Cardinal Health for distribution.

Because of an ambitious construction program, one that will eventually result in the opening of some 20 new operating rooms, it is doubly critical for the hospital to maintain control over its inventory. Also on the horizon is the choice of a group purchasing organization affiliation. Sloan-Kettering has historically operated independent of a GPO, but according to Cassera that will end with an announcement expected sometime in this year's third quarter. The hospital is giving time for its new materials manager, Steve Harvey, to participate in the decision. Harvey joined Sloan-Kettering only this spring.

In Colorado, a streamlined supply chain

Centura Health, a nine-hospital integrated delivery network based in the Denver area, has been successful in automating its supply chain, and with it, gone a long way toward controlling its inventory. Like Sloan-Kettering in New York, Centura Health enlisted assistance from a partner, in this case St. Paul, MN-based Lawson Software.

Derek Rushing, director of materials management information systems for Centura, and Clay Johnson, the system's vice president of corporate materials management, worked together to trim inventory and streamline the supply chain for a system that spends nearly $100 million annually on supplies. Each of the nine hospitals in the network has its own director of materials management.

According to Rushing, Centura "has been migrating" to a system of online requisitions through Lawson, and has already converted its purchase orders to the Lawson system. The actual orders are sent through Global Health Exchange, the Colorado-based e-commerce exchange. Rushing calls GHX, "a single pipeline to our vendors." He says that the target is to have the 75-100 vendors who account for 80 percent of Centura's supply spend on the system, although for now, there remains a small amount of faxing and telephoning between the hospitals and their suppliers. Centura utilizes a large volume of contracts from Consorta Inc., the Rolling Meadows, IL-based group.

As for inventory and distribution, Rushing says that Centura "shares" warehouse space with Cardinal Health, its med-surg distributor. The Centura network operates hospitals in a wide swath across the Front range from Broomfield, CO, about 25 miles north of downtown Denver, to Pueblo, CO, about 90 miles south of town, making things like contract management, solid logistics and concise inventory even more necessary. He says that feedback from those hospitals is given to Lawson as part of the vendor's continual upgrading of the system.

"I'm in the business of creating efficiency in the purchasing process," says Rushing. To him, that means at least in part reducing time spent by buyers on the phone and the fax machine and allowing them to spend more of their time on value analysis processes.

Rushing says he is a big believer in the ability of e-commerce as with GHX and information technology as with Lawson to create efficiency in the purchasing process. "This is where the e-commerce hoopla of the late 20th century has led us today," he says. "It has led us to a refined, sophisticated fairly elegant, though still somewhat imperfect system for placing orders with our vendors.

"It's not nirvana, not just yet, but it is a no-frills approach that over time looks a lot like a viable, single-connection solution to some of the chief complaints that dogged earlier e-commerce ventures, most importantly the link between the purchasing decision, the supply chain and a hospital's back office functions, while giving hospitals and vendors a chance to capture efficiencies, improve work flow and actually cut costs."

RELATED ARTICLE: Inventory: Treating the plague within healthcare

by Christopher Holt

Most healthcare providers pay more attention to the product than to how it got there. Doctors, nurses and other critical care providers should be focused on their patients -- not on the cost of sutures, bandages, or pharmaceuticals.

But many hospital executives, while consumed with cost controls within their facilities, are suffering the ill effects of what the're overlooking: inventory. Unchecked, inventory becomes a secret enemy, a sort of plague that's thriving within the healthcare industry.

This industry has, after all, mastered research and development, and sales and marketing. Now that needs to be replicated with supply chain expertise, an area largely under-appreciated or lacking in investment. Where do all those med-surg supplies, pharmaceuticals and linens come from? And what is the inventory carrying cost of these items?

A variety of mitigating factors explains, at least in part, why healthcare lags so far behind other industries in gaining control over inventory.

In short, the vital nature of healthcare generates more pressing daily battles: saving lives, wrangling with an inefficient regulatory structure, and keeping up with ever-changing insurance coverage. Where among priorities does the supply chain rank?

Supply chain, heal thyself.

It sounds simple enough. Address a single supplier issue. Resolve delivery schedules with a lone distributor. But worrying only about what's in your own backyard or backroom just perpetuates the problem, particularly for a large organization. It creates excess stockpiles all over the place -- in storage rooms, at nurse's stations, at centralized distribution centers. You never know where it all is. That wastes time, effort and money.

Healthcare organizations must master inventory -- or else succumb to it. But first, facilities must know who all the players are and who is doing what before they can evaluate what components actually add value to their organizations. It's an arduous task. The healthcare supply chain is a complex network of relationships that includes distributors, manufacturers, insurance companies, group purchasing organizations, hospital administration offices, nurses and physicians -- all with their own product preferences, accounting and reimbursement systems.

The industry is making some strides as healthcare facility executives work to become more sophisticated buyers. Procurement professionals are assessing the role of GPOs. Tracking purchase price and spend is recognized as important. GPOs have provided some opportunities for lower costs per unit, but have brought along both practical and regulatory pitfalls. From a practical standpoint, since many facilities can't track what was paid for each item, they can't determine what the best cost actually is.

That's due in part to the lack of a single individual to maintain and manage the supply chain system wide. But that is changing, too. Particularly within larger organizations, the professional supply chain manager is emerging to consolidate a myriad of processes, databases, personnel and physical locations that handle purchasing. They're making the link between purchasing and inventory. It's a trend that needs to be accelerated.

There is no quick fix, but there are a number of ways that facilities of any size can better manage inventory. Following are five tips that can make immediate, meaningful, and measurable impact without jeopardizing high service levels critical to patient care.

1. Understand your spend. Knowing exactly what you are keeping in inventory, where it comes from, and how it's received, handled and stored is critical to inventory reduction efforts. There are many programs that can gather and track this data, but technology is an enabler -- not a solution. There must still be business processes in place to analyze this data to make it worthwhile.

2. Rationalize SKUs. This requires data about what SKUs are being used, by whom, and for what. This is the biggest challenge, but armed with this information, you'll be able to impact inventory levels, SKU proliferation, leverage substitutes and alternates -- or even the need to stock certain materials at all.

3. Leverage key strategic partners/distributors for information and just-in-time services which will substitute inventory stockpiles. This means you get only what you need. And, should you need more of a product on occasion, you know exactly where to find it.

4. Look to your transportation network for "transportation vs. stocking" trade-offs. Strategically locate centers both domestically and globally to service the network in a most cost effective way. While "transportation" is not a line item on your bill, it does impact overall supply costs.

5. Re-examine how -- and from whom -- product is sourced. With all the changes in the industry including the role of GPOs, disintermediation, etc., it's time to reassess these issues -- using a total cost of ownership approach that considers acquisition cost, rebates, commissions and incentives, value added services, logistics, inventory costs, order management and customer service.

Bloated inventory damages the healthcare supply chain by weakening its core. Alleviating that burden renews strength and flexibility. Supply chains are, after all, like the human vertebra: If they can't bend, they break.

Christopher Holt is a vice president with UPS Consulting, and a supply chain management specialist working largely within the healthcare and life sciences sectors. He may be contacted at CHolt@ups-consulting.com.

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