Having a successful supply chain relies on successful inventory management. Managing inventory requires striking the right balance between supply and demand. Fulfilling the demands of customers must be balanced with maintaining an adequate yet cost-effective supply of goods and materials. In the healthcare industry, this balance is even more critical. Imagine not having the appropriate surgical equipment you need for an upcoming surgery. While it seems smart to err on the side of excess with medical inventory, the costs associated with excess are hefty.
When hospitals and healthcare systems employ inventory management software, identifying what amount is “just right” becomes easier. With that information available, you can start to reduce inventory to eliminate waste. This article details how to effectively use an inventory management system in the healthcare field to reduce inventory while keeping supplies adequately stocked and production unhindered.
If you’re searching for the right inventory management software for your healthcare organization, use our Inventory Management Product Selection Tool. You’ll get a shortlist of software recommendations that are tailored to your needs.
Balancing inventory
While having an excess in stock may bring peace of mind that a shortage won’t occur, it also brings financial ramifications, along with other issues. Problems with an excess of inventory include:
- High carrying costs: You’ve invested money in the stock sitting in your warehouse. If this stock has little demand, that money is wasted and may never generate revenue. Sometimes, the best case scenario to get rid of excess inventory is lowering prices, resulting in reduced profits.
- Perishables: Excess stock, namely perishable medicine, will deteriorate. In 2007, over $1 million in drugs, vaccines, and other medical supplies were found spoiled, stolen, or unaccounted for in a Health Department of Chicago warehouse.
- Storage issues: More inventory means needing more space to store it. The cost of warehousing can include the space itself, utilities, maintenance, and potentially temperature control if your goods warrant it.
On the flip side, reducing inventory by too much also poses a couple large problems:
- Stockout: This one may seem obvious, but if there’s not enough inventory, an organization may not have what it needs to operate (literally, in the case of healthcare systems). According to a Cardinal Health survey of surgical staff and hospital supply chain heads, about 40 percent of respondents revealed they’ve canceled a case, and 69 percent have delayed a case because of missing supplies. 27 percent have seen or heard of an expired product being used on a patient, while 23 percent have seen or heard of a patient harmed due to a lack of supplies.
- Cancelled orders: If there isn’t enough inventory, an end customer may choose to cancel the order altogether, meaning a significant loss of profits and potentially bad effects on the patients.
Also read: The Top 5 Medical Practice Management Software Solutions For Your Independent Practice
Inventory reduction methods
An inventory management system can play a big role in leaning out inventory without causing stockouts. If you want to reduce your stock, try using one (or more) of these methods:
Demand forecasting
Demand forecasting uses historical data to make estimations about future supply chain and inventory needs. With an accurate forecast, there is less need to carry a high volume of safety stock. It also ensures that no one is going without stock when you have insight into when to restock and how many units to order.
Inventory management software such as Eazystock classifies inventory into different categories depending on volatility and life cycle maturity. It uses past data and statistical algorithms to calculate future demand. Using demand forecasting will allow you to safely lean out your warehouse without sacrificing fulfilling orders.
ABC analysis
The ABC analysis is an inventory categorization method that assigns a class to each item based on consumption values, where:
- ‘A’ items are the most valuable to an organization. They have a high usage rage, high price, or both.
- ‘B’ items are less valuable because of their lower dollar amount or lower consumption rate.
- ‘C’ items are the lowest focus of an organization. While most organizations have a high number of C items, these items are the lowest portion in inventory value.
Conducting an ABC analysis will help optimize inventory levels while avoiding shortages by allowing for different management techniques to be applied to each category of the inventory. Most inventory management or warehouse management tools (often integrated into an ERP or SCM solution) such as Fishbowl Warehouse will have an ABC analysis feature.
Reduce lead times
Being able to cut down the delay between the purchase order date and the actual delivery date is a great way to avoid overstocking. The less time you have to hold inventory, the less safety stock is needed. And no one ever complains about supplies arriving earlier than expected.
To reduce lead times, use an inventory management system that automates the stock ordering process, such as Envi. (This one is healthcare-specific, too). With a system that stores supplier information, it’s easy to order or reorder specific components. Automatic ordering reduces lead time and costs by automatically making inventory requests when stock is low.
Consigned inventory
With traditional inventory practices, the seller — such as a healthcare company — pays for a product at the time of possession, then regains the money when it’s sold to a customer or patient. With the consignment inventory model, the producer of the stock retains ownership until the product is sold to the end consumer. So, while the healthcare company buys the product from the producer, it does not pay for the product until it’s sold.
The healthcare industry generally prefers this method because they can offer a wider array of products they would otherwise not be able to afford to stock. The supplier is able to reduce inventory holding costs with the consigned method. In addition, it’s a great way to get pricier products in front of customers. To offer consigned inventory, you need a specialized system to track the inventory and payments. Inventory management software such as eTurns offers the ability to manage consigned inventory.
Also read: The Best Supply Chain Management Software & Tools
Choosing the best healthcare inventory management software
Running a leaner warehouse doesn’t have to mean you run the risk of stocking out. If you do it right, you can effectively and safely reduce your inventory and costs. If you’re looking for an inventory management solution to help you with that, use our Inventory Management Software Product Selection Tool to get tailored recommendations sent to you.
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