The Role of Inventory Management in Healthcare

Over the past several years, our supply chain at Providence (the Resource, Engineering and Hospitality Group) developed and applied some basic inventory management tools and techniques that have proven to be extremely helpful. Many of these tools have been used in other industries for years, but generally not seen a lot of application in health care. This article outlines two of these tools that we are currently using. These tools and techniques proved to be vital in our efforts to provide PPE over the past years of the COVID Pandemic, and to optimizing our stock levels for perpetual inventory items overall.

One of the first tools to be created and employed was a basic Material Requirements Planning (MRP) system. The system, a simple spreadsheet model, allows insight into future periods and their corresponding estimated demand and inventory levels. Given this information, the strategic sourcing team at Providence now had a clear view into the units they needed to source via spot buys in order to meet demand. It also gives our operations department leaders a better understanding of units on order and when they are expected to arrive. This information proved very useful in understanding rebalancing needs for existing stock in order to keep all of our ministries (hospitals and clinics) stocked. Finally, the MRP allowed for the very effective facilitation of a weekly SOP type review, with members of all areas of the supply chain including Strategic Sourcing, Clinical Resource Integration (CRI), Operations, Purchasing, Central Planning and our Client Executive teams. That meeting also proved to be very effective, both in allowing clear views into future inventory positions as described above, but also in fostering quality conversations and communication between all areas of supply chain. This allowed for very quick decision making and course corrections, with buy-in from all affected areas of the supply chain. The MRP is viewed as a very effective tool which has been extremely helpful during this time of shortage in critical categories of goods.

Another tool that we have created and implemented in the past year at Providence is our Store-Room Optimization tool. Although not developed specifically as a response to the COVID pandemic, it is also a good example of proven supply chain technique applied in a health care setting. The Store-Room Optimization Tool is a Tableau based tool that was developed by our Central Planning and Business Information groups within REH.

Based on standard safety stock calculations, the tool reviews the historical demand patterns and lead-times for each item/location that is held in our perpetual inventory systems. It calculates values for average usage, lead time, and the degree of variation in the underlying data (standard deviation).The system also allows for user input for desired service-level as well as desired replenishment period. Based on these calculated values and user inputs, the system then calculates a recommended order-point and order-up-to level for each item/location. Output from the system is a CSV spreadsheet that compares current ERP system settings to the calculated recommended settings, with variance and percent variance fields for sorting. The report has a lot of other data points that help to inform the inventory technician or manager as they review to make changes to the order point settings such as total units received and issued from that location. Progress on settings is tracked back to the tool via an “item completed” check-box column on the report. The tool also allows for simulations with different service levels or target replenishment intervals, with views to the item/location level. Finally, the tool also facilitates a very effective partnership between our Central Planning team and our Operations partners in each of our ministries.

These are two examples of how standard supply chain techniques from one industry may well be helpful in another, especially during times of great disruption. Both examples also not only provide clear and compelling data and recommendations, but they facilitate conversations and very effective communication between critical parties. This, I believe, is an even more compelling reason to implement these strategies.