Inventory Management

Chapter 17

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

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

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

Consumable Inventory Cycle(Disposable Items)

Purchase

StoreUse

Discard

Central Service Consumable Inventory Items

Detergents Cleaning Supplies Disposable Wrappers Processing Chemicals Sterilizer Quality

Assurance Testing Products

Inventory Must be managed to

prevent Stock Outs

Must be managed to provide equality patient care

Must be managed to control operating costs

Inventory Management Concerns

Official Inventory

Unofficial Inventory

Inventory Management Concerns

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

Hospitals must strive to find the balance between adequate supplies and cost-effectiveness

Too Much/Little Inventory

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

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

Managing Consumable Inventory

Good Work Practices

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

Carts and Totes used to Transport Sterile Items Must be

Kept Clean

Expiration Dates Some commercially

sterilized items have expiration dates

Those dates must be checked and outdated (expired) items must not be dispensed for use

Expiration Dates are Located in Different Places on Packaging

“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

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.)

Interpreting Product Information

What does the label say?

Common Package Information

Manufacturer’s Product Reference Number

Product Expiration Date

Lot (Batch) Number

Identifies product to a specific production run

Package Symbols

Do Not Reuse – Single Use Only

Date of Manufacture

Manual and Automated Inventory Systems

Manual and Automated Inventory Systems

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

Automated Inventory Systems

Inventory Replenishment Systems

A variety of systems used to replenish consumable supplies

in patient care areas

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

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

Requisition Systems An inventory

distribution where items are requested (requisitioned) by the user department and dispensed from a central storage location

Case Cart Systems An inventory

control system primarily used in the operating room, that uses a cart that is specifically prepared for one procedure

STAT Order

Abbreviation for the Latin word, “Statim,” which means immediately or at once

Automated Inventory Tracking Systems

Used to facilitate the accurate tracking of inventory

Usually done using Bar Codes or Radio Frequency Identification

Bar Codes Machine-readable

rectangular bars and spaces arranged in a specific way to represent letters, numbers, and symbols

Radio Frequency Identification

A tracking system in which identify of an item is wirelessly transmitted with radio waves

Commonly abbreviated as: RFID

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)

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

Min/Max System

Stock is ordered when a predetermined minimum

quantity is reached

Economic Order Quantity

Products are purchased in the quantity that is most

economical. For example, by the case, box, or dozen

Stockless Supplies

The supplier (vendor) provides complete inventory, storage, and

distribution services to the facility

Just-in-Time (JIT) System

A system in which minimal stock is kept on site and most orders are

delivered when needed

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

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

Total Acquisition Costs

Purchasing, Materiels Management, Central Service, and other departments must analyze costs to assure that costs are minimized without sacrificing quality

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)

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

Inventory Turnover Rate

The number of times per year that inventory is purchased,

consumed, and replaced

Inventory Service Level

The percentage of items filled (available) when an

order is placed

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)

Inventory Stock Out Rate

The percentage of items that cannot be filled (are not available) when an

order is placed

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

Card Systems Manual System Keeps information cards on items Cards contain the following information:

Item description, vendor source, unit(s) of measure

Information on orders placed Receipt Transactions Issue Transactions Adjustments

Computerized Systems Process inventory

transactions quickly

Provide well-organized and analyzed data that is helpful in decision-making

Require a substantial investment

Keeping Things Organized

Stock Locator Systems

Assign a specific location to every item in the inventory system

Techniques for Effective Space Utilization

Storage space is always in high demand. Every effort must be made to utilize existing space efficiently

Cubic footage (volume) should be utilized to take advantage of all available space

Make sure bins and items fill the space from the front to back and top to bottom of shelves

Place items of like size and type along side each other Add additional shelves where there is additional

space Leave space between items for future add-in items

Gravity Flow Racks Are filled from the

back and as items are pulled from the front, replacement items slide into their place

Allow easy access and efficient stock replenishment

The Importance of Inventory Management Cannot be

Understated Proper Inventory Management:

Supports quality patient care

Provides efficient support for healthcare providers

Manages the facility’s supply costs

Contributes to a patient-safe environment