Materials management team cuts special labs’ inventory need in half
Sharing inventory management proves best approach
Four years ago, searching for supplies at Atlanta-based Emory University Hospital’s special procedure labs was a lot like looking for a needle in a haystack. The facility stashed supplies in numerous storage rooms and scattered products haphazardly among cluttered shelves. The inadequate storage not only resulted in wrong inventory counts but also wasted costly minutes as clinicians wandered back and forth in search of the right items.
To bring order out of this chaos, Emory recruited the help of the hospital’s materials management department, hoping that the experts could offer some much-needed advice. The help paid off: The special procedures lab now has an efficiently organized central supply area and has cut its on-hand inventory in half, saving about $600,000.
"We had an extremely out of control inventory," says Mary Kay O’Brien, RT, CV, manager of interventional radiology at the hospital. "There were no PAR [periodic automatic replenishment] levels and no material managers involved in [the ordering process]. The clinicians ordered supplies only on visual inspection. There were three or four of the same [products] from four different companies. Everyone got what they wanted because they ordered all of the items themselves; it was a real mess."
A consultant brought in to advise the lab on inventory re-engineering in 1993 got the hospital’s own material management department involved.
"Materials management is almost always part of [a hospital’s] best practices, so it’s important to move that into other areas of the hospital, particularly special procedure areas" says Dee Donatelli, RN, BSN, MBA, senior management consultant of Concepts in Healthcare Inc., the Denver-based health care consulting firm hired by Emory. She put together a quality improvement team consisting of lab personnel and material managers.
"Health care reform is putting the squeeze on costs in special procedure labs, and [like other areas of the hospital], they are having to standardize on products, consolidate [product] manufacturers, and reduce their inventory. This is a great time for material managers to go in and help [clinicians] look at their inventory and streamline costs," she adds.
Despite the apparent logic behind the marriage, however, O’Brien admits she didn’t exactly embrace the materials management concept initially.
"I wasn’t sure I wanted someone who didn’t understand much about our jobs in there telling us what to order and what to have on our shelves," she notes. "But once I realized how much we needed to improve and how they could help us improve our [areas], I changed my mind."
But before any real changes could be successfully set in motion, the clinicians and material managers had to first develop a positive working relationship. That meant setting aside their differences and merging their expertise to get a better understanding of "both sides of the purchasing fence" and work toward a common goal having the right product in the right place at the right time in the most cost-effective manner.
"Material managers and clinicians are of two very different mindsets, so it isn’t easy to just move material managers right in the special lab [areas] with the clinicians," explains Donatelli. "Materials managers are comfortable with PAR levels and the business side of health care, while most clinicians are mainly interested in getting the best products for the best care. But it can’t be one-sided. Material managers can’t always just look at [the bottom line]. They have to put on [scrubs] and go in and see what the products do and how they work. That’s the best way to achieve [cost-effective supply management] without [forfeiting] high quality products."
Phase 2: Storage areas
With the departmental relationships firmly in place, Emory implemented the second supply management phase. That included a complete overhaul of supply storage areas.
"The number of obsolete products we had sitting on our shelves added up to more than $200,000 at the start [of the re-engineering process]," says O’Brien. "We also had supplies of the same type in different storerooms, which made finding products a real challenge. And because our orders were based only on visual needs, it was hard to tell which supplies were out of stock."
The material managers and clinicians began the process by first designating and organizing a centralized supply area for cardiology and diagnostic radiology. Like items were grouped together and inventoried, and obsolete products were identified. Once the supplies were organized, the team reviewed the number of lab procedures performed and devised minimum and maximum supply inventory levels according to product demand. The team also allowed for "just-in-case" items for emergencies.
"Before, most of our inventory was [just-in-case], which is good for unpredictable or emergency situations," O’Brien explains. "But just-in-time [inventory resupplying] is good for a lot of supplies, and it can be very [cost-effective]."
But the move toward cost-effectiveness didn’t stop there. The hospital also developed a product review committee, made up of physicians, corresponding service area managers, and a radiology administrator. The committee met every quarter, or as needed, to evaluate new products and determine which items should be added or deleted from the inventory list.
"Technology typically drives clinical areas, but it also tends to become obsolete very quickly. That can become very expensive," Donatelli notes. "We need to look at what is really necessary and what is just going to end up wasting space, and see what can be eliminated."
Some costly equipment, however, is worth the price if it improves quality and patient outcomes, O’Brien adds. And while no new product can be purchased without the product review committee’s approval, physician’s may be able to add an item as long as it will prove cost-effective in terms of quality.
"It is more important for us to have the right quality product when we need it. Everything can’t be based on initial cost," she explains.
William Torres, MD, clinical vice chairman for Emory’s department of radiology, agrees. "Technology doesn’t have to be initially cost-effective to result in cost savings. Sometimes it’s better to bite the bullet in terms of cost, especially if it’s a [device] that will help [a physician] get an answer more quickly and efficiently. Then it becomes cost-effective."
When the committee adds a new item, the group completes a new product evaluation form that includes outcomes and cost-based data. After the item has been used by at least two committee physicians, its effectiveness is discussed further during the following meeting, where members decide if they should continue providing the product.
Although stricter inventory counts and storage room restructuring certainly helped slash excess supply costs, some of the biggest savings came from the addition of information systems.
In 1993, the labs used a paper system to track procedure outcomes and product usage, which resulted in wasted time and resources. The following year, Emory adopted Inscan, a simple computerized information system that enabled clinicians to track product utilization via barcoding.
"In 1993, three-quarters of the inventory process was being done [by hand] by a supervisor because materials management was just moving in. That system cost $48,000 [annually] just to manage the department," O’Brien notes. "By 1994, material managers were helping us with half of the inventory, which cut [inventory managing costs] by 35%."
By 1994, materials management had taken charge of three-fourths of the inventory. And in 1996, the special procedure labs adopted a more sophisticated information system, called the TS2000. The system allowed clinicians to track product usage in relation to procedures performed, as well as monitor outcomes. Because of the increased efficiency, procedure counts jumped from 3,807 to 5,611, and employees’ hours dropped significantly. (See graph, above.)
"It took 26 hours to take a weekly inventory when we first started in 1993. This year, we cut that time down to 12 hours," O’Brien adds. "We added another full-time employee, which helped us reduce the amount of time material managers and supervisors spent taking inventory. We were able to add a [cost-effective] inventory technician, who managed half of the inventory. Supervisors and material managers each handled one-quarter."
Emory anticipates even greater results. By 1998, the facility plans to link the TS2000 information system to material management’s NOVA inventory tracking system. The merger of the two systems will help clinicians take a more active role in the purchasing and inventory process, while relating it directly to their procedural outcomes data.
"The computerized systems have helped us save time, and that automatically translates into money. By next year, we expect our procedure counts to exceed 7,000 and our inventory times to total only 7 hours per week," explains O’Brien. "We also expect our [on-hand] inventory to hit the $500,000 mark in 1998. (See graph, p. 127.) Our opportunities seem endless."
[For more information, contact Dee Donatelli, Concepts in Healthcare Inc., 28333 Evergreen Dr., Conifer, CO 80433. Telephone: (303) 816-9560. Or at Emory University, contact: Mary Kay O’Brien, RT, CV, Manager of Interventional Radiology, Emory University Hospital, 1364 Clifton Rd. NE, Atlanta, GA 30322. Telephone: (404) 712-7021. Or contact: William Torres, MD, Clinical Vice Chairman, Department of Radiology. Telephone: (404) 712-7021.]
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