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On the Path to Perpetual Inventory
A thriving facility is well on its way to automating its materials management system and reducing its supply cost per case.
Suzanne Rodenheiser
Publish Date: October 10, 2007

Surgical supplies will always be one of our biggest expenses, but they're no longer one of our biggest headaches - not since we quit guesstimating what supplies were rattling around our mousehole of a storeroom and started down the path of perpetual inventory, a concept in which your inventory is in constant motion, in which the supplies delivered on Monday are used that same week rather than tying up money and taking up space on a shelf for who-knows-how-long.

Key to making a perpetual inventory work is automation. Preference cards for all 38 of our surgeons and every case they perform are computerized and linked to bar-coded ordering system. If this sounds like a lot of work, you're right. It is. I wouldn't advise trying any of this without the help of a materials management services company. We've contracted with PurNet, Inc., (short for purchasing network), and it's like having a full-time materials management department off-site. The company works directly with distributors and manufacturers, placing weekly orders with the companies and negotiating with them to secure top-tier pricing. Even our purchase orders go to PurNet so that their staff can interface with our software program and update our virtual inventory.

Our conversion to a perpetual inventory is still a work in progress, but we've already seen tremendous benefits in terms of efficiency and economy. We've figured that we're saving $9,700 per month on surgical supplies. As the administrator of the facility, knowing how many supplies we have in the building on any given day and each surgeon's cost per case is invaluable. And scanning a bar code with a hand-held device to reorder supplies is pretty neat. Here's our story.

Growing pains
We at Delaware Surgery Center got too big too fast. When we opened in June 2002, we had 15 surgeons and two ORs. Two years later, we have more than twice as many surgeons, and we're about to break ground on an expansion project that will add a third OR to our freestanding, multi-specialty center.

As we grew, so, too, did the holes in how we managed our surgical supplies. We didn't know where things were or what things cost. Our distributor and GPO weren't on the same page. Nurses took to hording supplies. And we were paying overnight shipping charges for supplies for the next day's cases like we owned stock in FedEx. Our physician-owners directed me to tame our supply system. I admit I had assumed that the GPO would get us the best pricing and manage our contracts and communicate with our distributors. This wasn't the case.

The first thing we did was turn over a big piece of our supply puzzle to PurNet. The company oversees our contracts with our GPO, negotiates the best prices, places our orders weekly and adjusts our electronic inventory by interfacing with our software. Their experts came to our facility and walked us through the bar-coding process and helped us set up our storeroom to maximize use of the space.

Our contribution
Our big task in converting our manual system to a computerized system was building digital preference cards by surgeon and by CPT code. That's a preference card for each of the 70 procedures to 100 procedures each surgeon does. This has been a huge task that one of our OR techs tackles slowly but surely between cases.

PurNet likes our inventory to move once a week, so that items are in constant motion (perpetual inventory) and so that we don't buy a case of 400 IV catheter needles for $1,200 if we're only using a few per month. Much of the $9,700 per month we're saving comes from not having so much money tied up in inventory costs and from PurNet's making sure we're getting the prices we're supposed to be getting.

PurNet bases its charges to us on how many supplies it buys on our behalf and how much it's saving us. At the outset, the company did an analysis to make sure it would save us a whole lot more than it charged.

Early returns
I can already see how knowing case costs of supplies will help us make more informed decisions (it's been great to make decisions based on real data rather than on assumption).

Take block time, for example. Let's say we have four hours of block time available from 7:30 a.m. to 11:30 a.m. on Monday, and three doctors interested in bringing their cases to our center. Are we going to offer that block time to the ophthalmologist, the pain management doc or the GI endoscopist? I'd base that decision to a large degree on each doctor's supply cost per case. It's also a great help to know what it costs Dr. A to do a lap chole as compared to Dr. Z. Armed with this information, I'd have great leverage to challenge the more expensive doc.

When you consider that the average supply cost per case in surgery is $900 and that you can't make up money you're losing on every case in volume, you realize how important it is to save every dollar you can on surgical supplies.