Mastering Inventory Management in Healthcare Supply Chains

• Jeff Elmhurst, Inventory Solution Specialist

Healthcare inventory management in hospitals, and supply chain in general, has grown in importance as hospital administrators and medical personnel better understand the critical role of medical supplies to their costs, patient care quality and overall financial outcomes.

Let's examine the importance of inventory management in the healthcare industry today, challenges in current hospital inventory management processes, strategies for effective inventory management practices, the role of technology in hospital inventory management, best practices from leaders in this area and expert opinions on the future of inventory management, specifically AI-enabled inventory management systems.

Table of contents

1. The importance of inventory management
2. Common issues with healthcare inventory
3. Strategies for effective inventory management
4. Inventory management technology
5. Case studies on inventory best practices
6. Trends in healthcare inventory management

Why is inventory management important?

Medical supplies are critical to patient care delivery, and the cost of these products have skyrocketed in recent years; therefore, inventory management should be a top priority for healthcare organizations.

The ability to track inventory from the time a product is ordered from a supplier through to when it is used on a patient, not only enables a healthcare organization to ensure clinicians have the supplies they need when they need them, but also empowers the hospital supply chain team to maximize inventory assets for less waste and lower inventory costs.

It all comes down to visibility. The ability for healthcare supply chain management to see what has been ordered, what has been delivered, what is in stock where, when it has been moved, and when it has been consumed within an inventory management system facilitates inventory control and provides insights to guide data-driven decisions.

Poor hospital inventory management, on the other hand, where supply chain management has little visibility into actual inventory, including the location of inventory items in the hospital setting, and no inventory tracking capabilities, leads to costs and waste - over-ordering, excessive inventory sitting in storage areas, recalled/expired items - and/or stockouts that disrupt care delivery.

In an era of value-based care delivery and payment, healthcare systems are being held accountable for dollars spent. With supplies being the second largest area of cost, behind only labor, healthcare facilities must have control over their medical inventory. Waste reduction in healthcare has become a strategic imperative.

Common inventory management challenges

The most significant challenge to hospital inventory management is manual processes. If a healthcare facility is relying on people using pen and paper, basic excel sheets, or manually keying item data into an inventory management system as their inventory management processes, it's a given that they are challenged with significant inefficiencies, human errors, unnecessary costs and waste.

Consider the vast number of medical supplies that arrive at a hospital's warehouse or receiving dock and then circulate throughout the hospital setting (in central storage, throughout clinical departments, etc.). While hospital inventory managers can see in their enterprise resource planning (ERP) system what the facility has purchased, they don't have visibility into what has been received, where it went and whether it was used.

Worse yet is when healthcare providers are responsible for inventory management tasks, taking time away from patient care. With labor costs for healthcare organizations at historic highs, the healthcare business can't afford to burden medical staff with extra administrative work.

In some hospitals and health systems, staff spend 58% of their workday on indirect activity, such as searching for supplies needed for patient care activities. Consider the findings of a survey of 100 nurses on the burden of inventory management:

• 86% said their supply chain documentation system causes them stress

• 85% encounter challenges with documenting supplies

• 67% experience supply shortages often or occasionally

• 18% have considered leaving their current role due to supply issues

• 12% said their OR wastes supplies in more than one-quarter of cases

Then there is the patient safety element of poor hospital inventory management practices. With regards to lack of inventory control in healthcare and impact on quality patient care, the survey found:

• 86% of nurses leave procedures to hunt for supplies occasionally

• 25% don't always check product expiration or recall information

Strategies for effective inventory management 

Many hospitals are pursuing new ways to manage inventory effectively to reduce human error, gain visibility to inventory data, boost staff efficiency, enhance patient safety, achieve cost savings, and improve waste reduction in healthcare. Here are key elements for medical facilities to adopt as part of their medical inventory management strategies:

• System integration: Select inventory management software that integrates with the medical facility ERP and electronic health record (EHR) systems to exchange data among these systems.

• From dock to doc: The best healthcare inventory strategies encompass inventory workflows from the time a medical facility receives an item through to when it is used by medical personnel use it.

Technology and inventory management software

An automated system and processes for medical inventory tracking and management is the gold standard in healthcare systems today when it comes to healthcare inventory optimization. Hospital inventory management automation drives healthcare supply chain efficiency, visibility into medical supply inventory, and alleviates medical staff from inventory management burden.

When hospitals supply chain teams can seamlessly track and manage items through automated inventory management, and capture and store data in the ERP system, they have the power to generate actionable insights to maximize medical supplies and demonstrate to hospital administrators and medical personnel the importance of cost-effective inventory management practices.

Here is a typical process flow for leveraging technology in healthcare inventory management for automated tracking, data capture and supply management:

• As suppliers or distributors deliver medical equipment to the medical facility warehouse or receiving dock, receiving personnel use a handheld barcode scanning device to capture inventory data and automate receipt in the inventory management system, wirelessly communicate it to the ERP system, and verify that what was ordered was delivered.

• Hospital inventory managers use handheld barcode scanners to record when medical supplies are moved from the warehouse/dock to storage areas. They use the same technology to track and record when items are moved from one storage area to another. The inventory management system automatically records this information in real-time.

• At the point of use, medical personnel use the scanning technology to capture items used in patient care, which is transmitted via the inventory management system to the ERP and EHR systems.

• Documentation in the ERP deducts the items from hospital inventory, triggers replenishment, and supports perpetual inventory management.

• Documentation in the EHR supports charge capture and patient billing through integration with the hospital's financial system and processes.

Many hospitals use a 2 bin Kanban approach instead of traditional manual counting of medical inventory because it is a more effective way for healthcare facilities to manage consumables and other medical supplies. Integration of 2 bin Kanban with the healthcare inventory management software can automate bin replenishment - with a scan on the empty bin, the healthcare inventory management software communicates the data to the ERP system where supply chain team members can take action - refill the bin and/or place an order with the supplier to replenish low inventory levels.

Benefits of healthcare inventory management with automated inventory management software and ERP/EHR integration:

• Optimize use of both the ERP and EHR systems

• Improve hospital supply chain accuracy and efficiency

• Better manage inventory for lower costs (e.g., avoid excessive inventory)

• Support PAR inventory practices in medical facilities to ensure supplies are available for care

• Provide stakeholders (e.g., supply chain, healthcare providers, value analysis, administrators) with data on inventory usage in care delivery and link it to the cost of care and patient outcomes

Case studies: best practices in inventory management 

In addition to automated processes and data capture, one of the most important factors in inventory management best practices is establishing the ERP system as the source of truth for medical inventory data. While hospital inventory management systems are leveraged to automate data capture from the point of receipt through the point of use, all inventory data captured should be maintained in the ERP system.

That way, supply chain managers in healthcare organizations have all inventory data in one place and are not attempting to manage data in multiple databases. This not only streamlines inventory workflows but also facilitates the ability to perform accurate and timely analysis, such as forecasting and demand planning.

Let's look at two healthcare organizations that have leveraged automated medical inventory management software in alignment with healthcare industry inventory management best practices.

Enterprise-wide supply chain efficiency

In this webinar, Dave Graul, Director of Supply Chain Management at Rady Children’s Hospital, shares the benefits his hospital achieved through a phased approach to inventory management optimization, starting in distribution where processes were previously 100% manual (e.g., printing count sheets, counting PAR areas, logging the counts, keying them into the ERP system).

A nurse's take hospital supply chain management

Deena Carney, RN, BSN, MHA, CNOR , Director of Surgical Services, Good Samaritan Medical Center in West Palm Beach, Fla., and Ariam Yitbarek, MS, BSN, RN, NEA-BC, Vice President, Nursing Operations , MedStar Washington Hospital Center in Washington, D.C., present on why a supply chain management approach that isn’t nurse-centric adversely affects patient care, decreases efficiency and fails to achieve other, inherent benefits of supply chain-enhancing technology. 

They discuss how leveraging an automated inventory management system can complement established workflows and ensure nurses have the supplies needed to provide safe patient care, while enhancing supply chain accuracy and streamline supply documentation. 

Trends in healthcare inventory management 

The digital revolution of the healthcare industry, including the adoption and use of artificial intelligence (AI), is quickly permeating all aspects of healthcare business, including hospital inventory management. AI has been called "the next link in the chain" referring to the power of machine learning (ML) enabled real-time analytics to cut supply chain costs. For example, a McKinsey study found that using artificial AI to enhance supply chain management could cut forecasting errors by 20% to 50%.

The authors of a white paper on the topic published by Syft, a GHX company, identify these seven areas where health systems can realize the greatest cost savings by using ML and analytics:

1. Supply standardization

2. Inventory level optimization

3. Cost per case capture

4. OR throughput

5. Procedural throughput

6. Expired and recalled supply management

7. Labor efficiency

Common FAQs on healthcare inventory management

Q. Why is inventory management important in healthcare? 

A. In an era of value-based care delivery and payment, healthcare systems are being held accountable for dollars spent. With supplies being the second largest area of cost, behind only labor, healthcare facilities must have control over their medical inventory. Waste reduction in healthcare has become a strategic imperative.

Q. What are the common challenges in inventory management? 

A. The most significant challenge to hospital inventory management is manual processes. If a healthcare facility is relying on people using pen and paper, basic excel sheets, or manually keying item data into an inventory management system as their inventory management processes, it's a given that they are challenged with significant inefficiencies, human errors, unnecessary costs and waste.

Q. What are some best practices for inventory management in healthcare? 

A. An automated system and processes for medical inventory tracking and management is the gold standard in healthcare systems today when it comes to healthcare inventory optimization. Hospital inventory management automation drives healthcare supply chain efficiency, visibility into medical supply inventory, and alleviates medical staff from inventory management burden. The inventory system should be integrated with the hospital ERP system so the ERP serves as the single source of truth for inventory management data.

Sources

1. Beth Jo Ricchio & Lee Smith, Managed Healthcare Executive, "Hospitals Aren't Investing Enough in the Supply Chain, and They're Paying the Price" (2022).

2. GHX, "A Nurse's Take: How To Improve Hospital Supply Chain Management".

3. Jorge Amar, Sohrab Rahimi, Zachary Surak & Nicolai von Bismarck, McKinsey & Company, "AI-Driven Operations: Forecasting in Data-Light Environments" (2022). 

Disclaimer: The contributor of this piece is solely responsible for its content and accuracy, and the views expressed do not necessarily reflect the opinion of GHX.

Jeff Elmhurst

Inventory Solution Specialist