Industry

Healthcare

Hospital Management Company Inventory Case Study

7/26/17
Grainger Editorial Staff

ISSUE

The subject is a hospital management company whose subsidiaries own and operate more than 200 facilities across the U.S. and international locations. The facilities include acute care hospitals, behavioral health facilities and surgery centers that employ over 60,000 people.

The company has a sole source lighting, MRO and door hardware agreement with a large MRO distributor. Inventory management solutions were previously installed in nine of the acute care hospitals. The health system was considering an expansion of the inventory management program to help achieve further cost savings. The senior leadership team requested an analysis of several sites to validate the cost-saving opportunities before implementing an inventory management solution nationwide.

OPPORTUNITY GOALS

  • Document benefits of current inventory management solutions
  • Develop inventory management solutions at each acute care facility
  • Review non-stock ordering process to help reduce steps and fully utilize the hospital management company’s McKesson information system

APPROACH

Conduct a baseline analysis of one of the hospitals that had an inventory management installation and to provide recommendations for the company’s acute care hospitals.

OBSERVATIONS & FINDINGS

  • Frequent & Infrequent Purchase Process
    • The managed inventory solution program had been deployed at this site for several years. The Onsite Services Consultant scanned and replenished frequently used items on a weekly basis. However, items are re-entered into the company’s McKesson system to generate a purchase order. The inventory management solution process cost per transaction was $32.
    • Engineering staff identifies infrequently purchased items and researches product availability and price from suppliers using the internet or by calling suppliers. Items are submitted twice a week to the office administrator on a form entered into the company’s McKesson system. The process cost per transaction for infrequently purchased items was $68.
    • Orders go through several layers of approval in the company’s system with the CFO approving orders from $500 to $4999. It may take 3 to 5 days for purchase orders to be added by the Buyer.
    • Suppliers
      • Supplier data for one year was provided from the company’s McKesson system with analysis of 209 suppliers
      • 30% of products were purchased using the inventory management solution
      • 68% of spend went to the company’s top 10 suppliers

RECOMMENDATIONS & IMPACT

  • eProcurement deployment: Integrate a Punchout catalog within the organization’s McKesson system for infrequently purchased items and allow catalog access to all Engineering staff
    • Completed implementation of Punchout catalog, EDI purchase order and electronic invoicing, eliminating all paper invoices
    • Developed joint training document
    • Impact: Process for infrequent purchases decreased to $53 (22% reduction)
    • Integrated a Punchout catalog, McKesson system and inventory management solutions to facilitate approval of orders and population of purchase order data
    • Stocking an additional 800 items using the inventory management solution
    • 41% of products purchased now run through inventory management solutions
    • Impact: A 60% reduction in transaction cost to $13 per transaction
METRIC 2013 2014 LOCATION FORECASTED IMPACT IMPROVEMENT
Non-stock process cost $68 $53 22% Reduction
Inventory management solution process cost $32 $13 60% Reduction
Inventory management solution items managed 1900 2200 Added 800 items
Suppliers 209 37 $120,000 potential supplier management cost reduction

 Note: Savings may not be typical for all customers. 

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