Supply Management Strategies: Value versus Volume
The word “value” can mean many different things to many different people. For healthcare providers using Mobile Aspects RFID based supply storage and tracking systems it has come to mean impressive ROI’s and an unprecedented level of insight in the form of accurate, real-time data.
At the heart of our supply management systems design is the Pareto Principle , sometimes referred to as the 80-20 rule. The concept when applied to inventory management simply means that the vast majority of the value (or costs) of your inventory are found in a relatively small volume (or quantity) of items. The image aside illustrates the philosophy and a recent article and past blog posting goes into this topic in much more detail. With that guiding principle, Mobile Aspects has developed supply management technologies for interventional and surgical specialty settings that support the entire spectrum of supply inventory – High Cost, Moderate Cost and Low Cost. However, we fundamentally believe that when selecting an inventory management system an organization should start where the ROI stands to be the greatest, which naturally leads us to focus on value over volume.
First let us clarify the difference between Low Cost and High Cost inventory items. Low Cost items such as diagnostic catheters, gloves, gowns and gauze pads share several characteristics other than a small price tag. They generally do not expire, are ordered in bulk on a consistent basis due to organization wide need and do not get charged individually to patients. High Cost items such as implantable devices and physician preference items used within interventional and surgical specialty settings have a much different set of characteristics. Commonly these items are chargeable, many times they have shelf lives, and frequently they are non-stock items that are ordered in smaller quantities.
With the dissimilar characteristics of these items, why would they be handled in the same manner operationally? Mobile Aspects has designed its storage and tracking technologies around the operational workflow associated with these items and has found that is a key to our success. In deploying these technologies, it’s assured that focusing on the High Cost items first will deliver the greatest initial return on investment. To validate the approach, the following points speak to three specific attributes of the returns to be realized:
- Chargeability: High to moderate value inventory can be reimbursed as an individual item, with even the lowest charges totaling several hundred dollars. Here is a look at how the University of Chicago’s Comer Children’s Hospital was able to increase charge capture by 30% resulting in an additional $5600 of charges billed per case.
- On Shelf Expiration: Many of these items have expiration dates which end up arriving before the device can be used. Kings Daughters Medical Center was able to instantly see ROI after implementing iRISupply systems in their heart and vascular center in the form of a $250,000 reduction in annual product expiration costs.
- On Shelf Investment Capital: When purchasing these high value items and placing them on inventory shelves, your organization has tied up working capital in these items. If these items go unused for greater than six months, the precious capital resources that are tied up may be better allocated elsewhere. Detailed item level data on devices stored with in Mobile Aspects system allowed New York Presbyterian to reduce on hand inventory levels by $230,000.
Thinking about Value vs. Volume in determining supply management strategies is a great way to insure that your organization is creating the greatest benefit to the bottom line when implementing an inventory management system. Particularly in an operating environment that is filled with pressures to do more with less, the speed-to-value realized with this approach becomes critically important.