Inventory control overhaul saves $1 million a year

Savings attract 'best practice' designation

As part of a hospitalwide focus on improvement, the surgical services department at Barnes-Jewish Hospital (BJH) in St. Louis, MO, began looking into its supply-chain processes. And it wasn't pretty.

"Virtually all aspects of our supply-chain had defects in them that required attention," notes David Jaques, MD, vice president for surgical services at BJH.

For example, while the hospital had an oversupply of many items, there were also times when a clinician would need an item quickly, and it would be out of stock, explains Jaques. The process the department used to assess inventory was time-consuming and tedious. It essentially required someone to count items from all product lines every day, which took about six hours.

Staff examined their supply-chain processes in a process called value stream analysis. One first step involved weeding out supplies that they didn't need. The results were stunning. "When we first stripped out some of that overstock, I think we identified something like $700,000 worth of overstocked supplies that were on our premises, and that is essentially the same as waste," says Jaques. "The other part of this cleansing was identifying not just overstocks, but things we never even use."

In fact, these types of items are not uncommon in a surgical setting because research and development often renders products obsolete fairly quickly, explains Jaques.

Once department staff had cleared away the excess inventory, unused items, and expired products, they began to implement a new system of inventory control called kanban (pronounced con bon). Borrowed from Japanese manufacturing techniques, the term refers to a visual cue or signal that it is time to reorder, says Jaques. The kanban approach reduces what originally took six hours to complete at BJH to a 30-minute task, he says. (For more information, see story, below.)

"It allows you to understand at a glance that something requires reordering, and this signal is sent exactly when it is needed and not before," adds Jaques. "For us, the visual signal is actually an empty bin, so where we used to have one big bin that was oversized and allowed us to get overstocked, now our bins are really small."

Each bin contains a specific amount of product, and it is divided in half. Personnel know that they should always pull product from the left side of the bin first because that's where the product is more dated, explains Jaques. Instead of counting product daily, staff know to start reordering when the right side of the bin goes empty.

"We run through our storeroom, and we identify through visual cues which areas need resupply," Jaques says. "We do that at a set time of the day, and then we get all of that product coming in late in the day so that it can be restocked overnight and ready for the next day."

Result is smaller inventory

The department has repurposed staff members who used to spend hours counting supplies, and it keeps a much smaller inventory on hand. The department also avoids such problems as expired goods or stockouts. "I know that through a combination of all these efforts, we are most certainly saving $1 million dollars or even more sometimes per year," says Jaques. "And that's just in the perioperative area."

The department is dubbed a best practice site by the Oak Brook, IL-based University HealthSystem Consortium, an alliance of 107 academic medical centers that acts as a group purchasing organization.

The primary advice that Jaques has to offer is quite basic, but he points out that it is also, for many facilities, the hardest step. "It is really to get rid of all the excess, the unnecessary, because you won't be able to see your defects unless all of the unimportant visual cues are separated out," he says. "This starts with just sustaining a clean workplace."

5S Lean Tool makes supplies a 'model area'

Beginning in 2006, administrators Barnes-Jewish Hospital (BJH) in St. Louis, MO, began to embrace lean and Six Sigma approaches to improvement, not only to become more efficient, but also to make strides in patient safety, clinical quality, service, and financial performance. Such efforts are ongoing, but results achieved thus far include a 26% improvement rate in operating margin at a time when many hospitals are suffering setbacks.

One of the most basic lean tools is 5S, a term that stands for a process designed to strip away waste and optimally organize the work process. While the term, 5S, actually stands for five Japanese words, they have been roughly translated into English words that outline the steps that are involved:

  • Separate the items you need from the items you don't need.
  • Simplify, or arrange the items you need to complete a task.
  • Scrub or clean up your work area.
  • Standardize or sort and simplify on a daily basis.
  • Sustain all of the above activities.

5S forces everyone to get involved, and when 5S is applied in concert with the value stream process, the savings can be impressive. For example, perioperative services now saves roughly $1 million dollars a year, as a result of getting rid of unneeded supplies and instituting a process for ordering supplies at precisely the time they are needed, explains David Jaques, MD, vice president for surgical services at BJH.

"We now have what I consider to be a fairly model area for supplies," says Jaques. "It has helped us from the standpoint of labor productivity as well as our overall expenses because now the process [of assessing inventory] has been reduced from something like a six-hour event of counting thousands of lines down to about a half hour to do the same task."

Representatives from other hospitals are constantly coming through to see firsthand what BJH has accomplished, says Jaques. Such visits are helpful, says Jaques, because otherwise many people don't quite grasp what successful looks like, he says.

"This can appear very daunting to people who have not started on this journey," Jaques says. "Most places are just so off the mark that they almost can't understand how they can clean their process up. That's why we enjoy having visitors."