Managing "A" Inventory Items in the OR

Imagine this: You walk into a local bank to open an account. As you're speaking to a bank representative, you notice that there are no tellers. Instead, customers seem to be walking into the unguarded vault and helping themselves, either depositing or taking the cash. The bank rep explains: "We can't really afford to hire people to just keep track of the cash, so we operate with the honor system. When you take some cash or drop some off, you are supposed to leave us a note. Once a month we'll do a count and reconcile the balances. Most people are pretty good at following the system, but we always have some variances to write up or down. But paying tellers to just keep track of the cash is a waste we just can't afford." By this time you're running for the door.

As ridiculous as this seems, this is exactly the way that many (most) hospital OR's handle their supplies and materials. Much of the material in the OR falls under the inventory classification of A items, items with a high dollar value. Examples of A items include implants, stents, and grafts. The dollar value of this material in the OR can easily total several million dollars or more, and represent 70% of your total inventory investment.

How do we keep track of all of these dollars, in the form of supplies? Very few OR departments actually maintain a perpetual inventory system, that keeps track of material like a bank keeps track of cash. In other words, at any given point in time the OR doesn't really know what is in stock without physically looking. Complete physical inventories are done periodically, sometimes as infrequently as every six months, and there are significant accounting write-ups or write-downs whenever this is done. Needless to say, this is a source of heartburn for the hospital financial department as well.

So why is this apparently common state of affairs, something that would be unacceptable in a bank or even a manufacturing company, allowed to continue in hospitals? Here are some of the reasons we hear:

1. Our focus is on the patient. We can't expect nurses and doctors to become "bean-counters". They're too busy.
2. Supplies and materials are often needed urgently. We can't slow down to fill out paperwork or transact what we need, because it's too time consuming.
3. We can't afford to hire any new FTEs to track materials, because that's just another overhead expense, and we need to control costs.
4. That's not the way things are done in a hospital.

Before we offer some suggestions for improvement, let's take a look at the hard costs related to lax inventory management. In that way we can make a more informed decision about what we can afford, or what level of attention to supplies might be needed. Here are some of the symptoms:

1. Shortages. If we don't know with precision what we have, then an inevitable results will be a higher level of shortages. The results can be serious for our patients, and also drive high expediting and overnight freight costs.
2. Inaccuracies in billing. Not everything gets billed out correctly if we don't have tight reins on inventory management.
3. Excessive supplies handling. The "par level" method used to assess inventory needs is horribly inefficient. It should be replaced with the system used by most world-class organizations, kanban. See my ezinearticle on Par and Kanban.
4. Inaccurate financial statements. The accounting rules tell us that if we don't really know what we have, we also don't really know what our costs are for any given financial reporting period.
5. Excess inventory. If inventory records are not accurate, we tend to compensate by overstocking. In a recent improvement project, we removed over $500,000 in excess inventory from an OR, without breathing hard.

What should you do about managing A items? There are several possibilities, ranging from the very manual to the high tech. The simplest suggestion is to do what most high performing organizations do: have a quick-response stockroom in the OR, with individuals assigned to inventory control, inventory transactions and patient service for materials. Set a goal of being able to put your hands on any item within 10 seconds, and set up the storage area to be able to accomplish this. Plan to staff the area for hours that match the schedule of OR need.

An intermediate-level solution would involve the use of bar-codes to speed up transactions and reduce errors. Nurses and techs can be trained to use the bar-code system, and reduce the workload on the materials staff. Barcoding is not a new technology, and virtually every inventory system supports it.

On the high-tech side, install RFID-based cabinets. An RFID cabinet is a locked storage container that is able to track what is inside via a Radio Frequency Identification tag attached to each high-dollar item. In order to unlock the cabinet an employee badge and a patient case number are needed. The RFID cabinet has the advantage of being able to capture billing information in addition to inventory information, and greatly reducing human error.

Regardless of the path you choose to follow, it is important to make a commitment to a high level of inventory control for A items in the OR. This effort will pay for itself many times over.

Richard Rahn is a Senior Lean Consultant with Leonardo Group Americas, an international Lean consulting and training company based in Colorado. Since 2002 Leonardo Group Americas has been introducing Lean thinking and methods to hospitals, and they are the founding members of the Lean Hospital Group. Richard can be reached at 303-494-4404, at rrahn@leonardo-group.com and at the website http://www.leonardogroupamericas.com and http://www.leanhospitalgroup.com