How Service Center system maximizes savings and efficiency - AHRMM Ideas

If you think you've squeezed all the savings and efficiencies you can from your materials management and distribution functions, take a closer look. Seven years ago, here at Wisconsin Valley Health Network in Wausau, WI, we presented an innovative supply chain management program to our administration with the goal of achieving significant cost savings for our four (now five) hospital network and at the same time, improving efficiencey in our supply chain. Today, the Service Center concept is a permanent part of our supply chain and our institution has picked up more than $5.5 million in savings (and counting).

To implement the Service Center we partnered with a major manufacturer and distributor of medical supplies. The partnership started in September 1996 when the distributor assumed the lease of our existing warehouse and hired our employees. Initial functions they provided were:

* Transportation of all products

* Distribution management

* Inventory management

* Deliveries to the hospital dock five days a week -- since expanded to seven days a week. (Wausau employees then deliver product to individual nursing units.)

Major initiatives of the program

Cost Sharing/Operations and Logistics Savings: We developed an innovative concept of having a percentage of the entire distributor's brand sales to Wausau Hospital, clinics, physician offices, etc., offset the total cost of running the Service Center. Any shortfall would be billed to the hospital. To date, this has yielded $1.75 million in savings.

Enhanced Distribution Services: The distributor provides enhanced distribution services at a substantially reduced fee compared with a typical distributor. This service has helped to significantly reduce our inventory within the hospital, improve product utilization, and has upgraded service levels to the end-user. Savings-to-date are $2.7 million.

Manifest Billing: This billing method has proven to be very beneficial since it includes a weekly, consolidated summary of all shipments broken out by invoice, cost center and purchase order. Without this specialized billing, Wisconsin Valley Health Network would be deluged by hundreds of invoices a month, and would generate only a small amount of usable information for cost traking. Other cost saving initiatives include:

* Conversion to the distributors brand products: Whenever we convert a non-distributor brand product to the distributor manufactured brand equivalent, we save on average between 5 and 10 percent. Savings-to-date on converting products have been $411,965.

Other cost saving initiatives include:

-Inventory holding cost: When the distributor assumed control of the warehouse, it also bought back the majority of the products in it. This cut our investment in product inventory and to date has resulted in savings of $338,249.

-Product obsolescence: We were losing on average about 5 percent of our inventory due to obsolescence. The distributor no wowns and manages the majority of the inventory, resulting, so far, in savings of $242, 186.

- Bulk distribution: The distributor is delivering products at a reduced fee compared to Wisconsin Valley's previous distributor, which has provided us with savings of $96,089.

-Complete Delivery System: CDS is the distributor's procedure-based supply management system that combines all sterile and nonsterile supplies required for a specific procedure and puts them in one container. CDS helps capture lost charges, cuts inventory costs, standardizes products and reduces the time to pick and set up the items. As a result, we now have just a single container and a single cost per procedure. Although each CDS is different, the program has averaged 17 percent savings on each procedure totaling approximately $150,000 a year. We initially started with the heart, hip and knee CDS and are close to converting all of our custom packs (more than 25 different procedures) to the CDS program.

- Storeroom savings: As more products are distributed from the Service Center, we have been able to virtually close down the storerooms in each of the four hospitals, slashing inventory dollars and freeing up the physical space for other uses such as offices.

Conclusions/Results

It has been almost seven years since the Service Center officially opened and by almost all measures, it is achieving the objectives we first developed in 1995 when we started this process. These include: Bottom line savings of more than $5.5 million Consolidation of warehousing and materials management functions

Cutting investment in inventory

-Reducing product obsolescence

-Maintaining or improving high quality and service standards

-Minimizing FTE reductions

By building in mutually aligned incentives in the agreement, we have become time partners with our distributor, working together to continually search for ways to enhance our service to the end-user and improving our processes in the most cost-effective manner possible. HPN

Enabling hospital and Wisconsin Valley members to focus on core competencies of providing healthcare fur our patients.

Kent Demien is director of materials management and Meg Wissmueller, R.N., B.S.N. is OR nurse and specialty team leader, for Wisconsin Valley Health Network, Wausau, WI.

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