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10 Quick Tips to Improve Your Inventory Management
Protect the stacks of cash on your shelves.
Amanda Llewellyn
Publish Date: November 4, 2008

When you look around your supply room, you should see stacks of cash on the shelves where surgical supplies sit. Each product, instrument and piece of equipment represents money that's already been laid out. A little piece of your bottom line crumbles with every wasted supply. With an eye toward avoiding waste and increasing efficiency, here are 10 quick tips to improve your inventory management.

1. Get organized
As simple as it sounds, organization is a key factor in controlling inventory. First, make sure that you have enough storage and shelving for all your supplies and equipment. Limit yourself to one location, if possible. With fewer possible locations for an item, you're less likely to duplicate orders, lose track of expiration dates or have confused staff. Consider high-density shelving that will let you store more items on a smaller footprint.

2. Get suture trees
Suture trees help manage one of the most expensive items in a surgery center: sutures. In facilities with multiple operating rooms and procedural areas, boxes of sutures are just about everywhere. Creating a cart with a variety of sutures stocked for specific surgeons, specialties or procedures eliminates the need to stock the same suture in multiple rooms. A specialty suture tree — such as one for ophthalmology, plastic surgery or sports medicine — could hold sutures for specific procedures and can be rolled into exam and procedure rooms for post-operative care.

3. Keep expensive supplies secure
Point-of-use systems have traditionally been used in the acute care setting for security and availability of pharmaceuticals, charge capture and medical documentation. These systems can also be used effectively in an ambulatory surgery environment. In the Johns Hopkins outpatient surgery unit, we use a closed system to store expensive specialty products, consignment implants and patient-specific implants. By locking these items behind glass in a closed system, we can create an electronic record with the date, patient and physician that used the supplies. This also improves security and decreases the shrinkage of expensive items while electronically monitoring expiration dates. A point-of-use system can interface with existing systems for billing, inventory control and clinical documentation.

4. Don't buy in bulk
Practicing just-in-time purchasing and stocking by the lowest unit of measure are two ways to keep excess inventory off your shelves. The key is to purchase the lowest unit of measure of everything you use. This saves you from having to purchase and store a case of high-flow tubing for arthroscopic procedures that might take you months or even years to finish. With fewer items on the shelf, you'll have more storage space, less waste and you'll save money. Your vendors or institutional partners may be able to help you get started. Major distributors and health systems often have programs and formularies established that you can easily adapt.

5. Automate your inventory
Materials management software automates inventory processes and helps streamline procurement, receiving and finances. You can use handheld computers for inventory, order placement and receipt tracking. Many systems now have Web-based applications and electronic requisitioning that let you follow your orders, limit paperwork and improve financial accountability. If your facility is part of a large health system, an integrated delivery network or a hospital-supported organization, you might already have access to such a system.

6. Run cycle counts
By reconciling the number of items on the shelves at the start of the week, month or quarter with what was used according to the perioperative software or billing system, you can determine how much inventory shrink, or loss, you've incurred. This ensures that you're billing for all the reimbursable supplies that were used during each procedure.

Depending on staffing, volume and size of your facility, the frequency of cycle counts should vary from daily to quarterly. Count expensive items that you use often, such as cooling systems for sports medicine procedures, more frequently than less frequently used items such as screws or portacaths, which you could count quarterly. Most materials management software adjusts the inventory count as soon as you scan an item. You can also use an electronic spreadsheet or your perioperative documentation system. Make cycle counts a routine procedure assigned to staff rather than an ad hoc task.

7. Reprocess whenever possible
The FDA is becoming more supportive of reprocessing. We reprocess whatever the FDA allows. This way, when items expire or are opened and not used, they're no longer just expensive trash. By contracting with a reprocessor, you'll pay a fraction of the original replacement cost on the product and keep waste out of the landfill.

Many physicians are lukewarm to the idea of using reprocessed supplies, so go slowly. When you introduce reprocessing, begin with expired items and supplies in which the package was opened by mistake but never used. You can also bring up the "going green" aspect of reprocessing. Once the physicians are comfortable with the concept, move on to reprocessing such used items as trocars, burs, bits, blades and harmonic scalpels. When using a reprocessing vendor, check with your facility's clinicians and legal team to ensure you're in compliance with quality standards and purchasing contracts.

8. Consign
Stocking expensive supplies on consignment lets you leave someone else's money on your shelves and keep your money in the bank. A common practice in general ORs throughout the country, consignment is becoming more popular in outpatient surgery, especially for breast implants, IOLs and orthopedic implants.

If you're a part of a large organization, find out which vendors the inpatient surgery department is using for consignment. Otherwise, look at your most expensive supplies and determine which would be good candidates for consignment. Generally, the more expensive the item, the more suitable it may be for consignment. You'll want to set aside shelf space or locked cabinets for consignment items.

You may need to establish a credit account with the vendor for consignment and return your current inventory. In the long run, consignment lets you do real-time cost accounting and limits your financial outlay. Keep track of what you use. Create a monthly or quarterly as well as year-end reconciliation plan with the vendor to ensure accurate accounting. One pitfall with consignment is that since you don't own the stock on the shelves; the vendor can come and get it if he needs it.

9. Use trunk stock
A close cousin to consignment is trunk stock, or products delivered by medical device sales reps. Having a vendor bring in different sizes and styles of devices as needed reduces your facility's financial outlay and provides more accurate cost accounting, since the surgery unit only pays for what it uses. Using trunk stock can also work as leverage with vendors who are reluctant to start a consignment program.

However, using trunk stock can cause problems. Some physicians and reps may abuse the concept in order to use more expensive devices, off-contract devices or devices that haven't been approved by your institution. But when used appropriately, and sparingly, trunk stock can become a money-saving inventory strategy. Make sure that you discuss using trunk stock with your physicians and vendors and have policies in place. Only let approved vendors bring approved trunk stock into your facility. Whoever delivers the trunk stock should be scheduled in advance and have appropriate clearance, have signed the necessary releases and have all their immunizations up to date.

10. Standardize
Product standardization and clinical value analysis in the supply chain are at the highest level of inventory management. Paring down your selection of implants, supplies, instruments and equipment to a standard set can create strong cost reductions and cost containment. But this is no quick fix. It takes strategic planning and physician buy-in. One of the risks of standardization is physician turnover. Most likely, you'll need a physician champion to set the tone and lead standardization. Your vendors can help by standardizing suture lengths, reducing the selection of gown sizes or slimming down procedure packs to basic commodity packs.

Clinical value analysis is a fancy term for working with your clinicians to analyze the true value that a product offers. Does it save time? Can it help prevent infection? Does it eliminate the need for one or more products? You may learn that a more expensive product ends up saving you money in the long run.

Track your progress
As you integrate these 10 tips to improve your inventory management into your daily operation, keep a record of how each step saves you money, or how it doesn't. In a healthcare facility, the supply chain is the second largest expense after labor. So any change you make can result in noticeable savings. But you need to measure your progress. Otherwise, you won't make any.