1. Best Practices in Inventory Management
Chad Richard, MBA, CMRP
Executive Director, Supply Chain Management
Greenville Health System

2. DON’T
REDUCE
INVENTORIES
MANAGE THEM

3. Question

4. Inventory is anything that is purchased and
Definition
What is
“Inventory”
???
Inventory is anything that is purchased and
held (stored)
prior to need/use

5. Types of Inventory Official Unofficial On the hospital books
as an ASSET
Unofficial
Already expensed -
Theoretically doesn’t exist

6. Types of Inventory Perpetual Cyclical
Always reflects actual on-hand quantity
Cyclical
Periodically updated based on count

7. Inventories are Costly
Inventory Carrying Costs
Opportunity Costs
Cost of Space
Utilities/Insurance
Shrinkage
Pilferage
Obsolescense

8. No Inventories are Costly
Costs of Inadequate Inventory
Emergency Shipments
Excess Labor
Customer Dissatisfaction
Patient Care Issues

9. Keeping Inventories So Why Maintain Inventories?
Have Supplies When Needed
Patient Outcomes
Shipping Costs
Compensate for Irregularities
Usage
Shipping

10. Why Manage Inventories?
Managing Inventories
Why Manage Inventories?
Reduce Costs
Free Up Space
Have Supplies Available
Have Supplies Accessible

11. What is the effect on the bottom line of reducing:
Reducing Inventory
What is the effect on the bottom line of reducing:
Official Inventory?
Carrying costs
Offset by “losses”
Unofficial Inventory?
Discarded obsolete
Restocking fees
Returned for partial credit
Sold to third party
Shipping costs
Carrying costs
Purchases avoided
Value of returns
Offset by “losses”?

12. The true key to inventory management is to maintain an optimal
Managing Inventory
The true key to inventory management is to maintain an optimal
inventory level

13. to monitor and optimize inventories
Managing Inventory
Controlling
Inventory
Techniques you can use
to monitor and optimize inventories

14. Economic Order Quantity
Inventory Control Techniques
Economic Order Quantity
2 U C
P I
U = annual Usage
C = Cost of issuing a purchase order (order cost)
P = Price (unit cost) of the item being purchased
I = Inventory carrying cost

15. Balance Order and Inventory Costs
Inventory Control Techniques
Balance Order and Inventory Costs
Higher
Turns
Cost
Order Cost
Inventory Cost
Lower
Less
Order Frequency
More

16. DESIRED TURNOVER RATES
Inventory Control Techniques
DESIRED TURNOVER RATES
Storeroom & Central
Pharmacy
Food Svc
Lab & Radiology
Surgery
Cath Lab
Maintenance

17. The Good and the Bad Reducing Inventory Eliminate excess
Eliminate slow movers
Reduce duplicate inventories
Standardize
Adjust levels
Go stockless

18. ABC ANALYSIS Inventory Control Techniques 10% 70% 20% 70% 20% 10%
# of Items
Annual $ Value

19. Inventory Control Techniques
Setting Levels
Reorder points

20. ? Reorder Point ROP = + Safety Stock Inventory Control Techniques
O/S Qty =
Ave. Usage * Days (order to receipt) ?
Safety Stock =

21. Safety Stock Inventory Control Techniques Criticality Little
Very Critical
Criticality
Little
Non-Critical
Regular
Unpredictable
Usage Pattern

22. Setting Levels Inventory Control Techniques Use ABC Reorder points
Reorder quantities
Use ABC

23. Standardization – Reducing SKU’s
Inventory Control Techniques
Standardization – Reducing SKU’s
Lower total inventory
Less waste/obsolescence
Functional standardization

24. Control Obsolescence Inventory Control Techniques
Rotate expiration dated items
Have process for introducing new
Maintain box quantities
Monitor low/no movement

25. Maintain Accuracy Maintain Order Inventory Control Techniques
Control access
Locator system/location checks
Cycle counting
Maintain Order
Shelf labels
Straighten up

26. Advanced Techniques Advantages Lower inventory valuation (GL)
Use of Consignment
Advantages
Lower inventory valuation (GL)
Cash flow
Eliminates obsolescence
Disadvantages
Can lead to neglect
Can get unwanted products
May pay more for product

27. Advanced Techniques Product arrives just before actually needed
Use of Consignment
Just-in-Time
Product arrives just before actually needed
Product delivered in box quantities
Based on accurate forecasting
In healthcare
Smaller quantities
More frequent deliveries (daily)

28. Advanced Techniques Stockless Same as JIT except
Use of Consignment
Just-in-Time
Stockless
Same as JIT except
Product delivered in each quantities
May include
Delivery to unit
Put-away on unit
Inventory of unit

29. Advanced Techniques Use of Consignment Just-in-Time Stockless
Point-of-Use Options

30. On The Horizon
Real Point-of-Use
Push Distribution
Full EDI
RF Technologies

31. DON’T
REDUCE
INVENTORIES
MANAGE THEM