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Best Practices in Inventory Management
Chad Richard, MBA, CMRP Executive Director, Supply Chain Management Greenville Health System
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DON’T REDUCE INVENTORIES MANAGE THEM
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Question
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Inventory is anything that is purchased and
Definition What is “Inventory” ??? Inventory is anything that is purchased and held (stored) prior to need/use
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Types of Inventory Official Unofficial On the hospital books
as an ASSET Unofficial Already expensed - Theoretically doesn’t exist
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Types of Inventory Perpetual Cyclical
Always reflects actual on-hand quantity Cyclical Periodically updated based on count
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Inventories are Costly
Inventory Carrying Costs Opportunity Costs Cost of Space Utilities/Insurance Shrinkage Pilferage Obsolescense
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No Inventories are Costly
Costs of Inadequate Inventory Emergency Shipments Excess Labor Customer Dissatisfaction Patient Care Issues
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Keeping Inventories So Why Maintain Inventories?
Have Supplies When Needed Patient Outcomes Shipping Costs Compensate for Irregularities Usage Shipping
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Why Manage Inventories?
Managing Inventories Why Manage Inventories? Reduce Costs Free Up Space Have Supplies Available Have Supplies Accessible
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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”?
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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
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to monitor and optimize inventories
Managing Inventory Controlling Inventory Techniques you can use to monitor and optimize inventories
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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
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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
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DESIRED TURNOVER RATES
Inventory Control Techniques DESIRED TURNOVER RATES Storeroom & Central Pharmacy Food Svc Lab & Radiology Surgery Cath Lab Maintenance
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The Good and the Bad Reducing Inventory Eliminate excess
Eliminate slow movers Reduce duplicate inventories Standardize Adjust levels Go stockless
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ABC ANALYSIS Inventory Control Techniques 10% 70% 20% 70% 20% 10%
# of Items Annual $ Value
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Inventory Control Techniques
Setting Levels Reorder points
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? Reorder Point ROP = + Safety Stock Inventory Control Techniques
O/S Qty = Ave. Usage * Days (order to receipt) ? Safety Stock =
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Safety Stock Inventory Control Techniques Criticality Little
Very Critical Criticality Little Non-Critical Regular Unpredictable Usage Pattern
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Setting Levels Inventory Control Techniques Use ABC Reorder points
Reorder quantities Use ABC
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Standardization – Reducing SKU’s
Inventory Control Techniques Standardization – Reducing SKU’s Lower total inventory Less waste/obsolescence Functional standardization
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Control Obsolescence Inventory Control Techniques
Rotate expiration dated items Have process for introducing new Maintain box quantities Monitor low/no movement
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Maintain Accuracy Maintain Order Inventory Control Techniques
Control access Locator system/location checks Cycle counting Maintain Order Shelf labels Straighten up
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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
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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)
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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
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Advanced Techniques Use of Consignment Just-in-Time Stockless
Point-of-Use Options
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On The Horizon Real Point-of-Use Push Distribution Full EDI RF Technologies
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DON’T REDUCE INVENTORIES MANAGE THEM
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