How A Periodic Update Of Your PAR Levels Can Save Your Hospital Millions
PAR levels (or periodic automatic replenishment levels) have been used in industry for decades to help businesses of all kinds keep just the right amount of inventory on hand without suffering from excess. Many hospitals solely rely on “gut feel” in order to understand how many items of each product type they should keep on hand at any given time. The lack of understanding of the utility of PAR levels, and the lack of data to periodically update those PAR levels, could be costing the average hospital millions of dollars in bloated inventories.
Why PAR levels are important
PAR levels are set to establish the minimum and maximum number of units of any given item that should be in inventory at a single time. Whenever the number of items in inventory falls below the minimum PAR level, a re-order should be placed up to the maximum PAR level (or the minimum if only the minimum PAR level has been established). The optional maximum PAR levels are set to keep you from holding too much of an item in stock and risking expiration.
Many hospitals have traditionally relied on the experience of the inventory management techs and nurses to keep their shelves stocked with needed implants and supplies. However, managing based on “gut feel” and instinct almost always results in either too much or too little inventory being ordered. Improperly managed inventories result in excess costs from rush orders for under-ordered inventory, and expirations and unnecessary carrying costs from over-ordered inventory. In this era of healthcare, when every dollar is being scrutinized in an effort to cut out waste, this bloat is now an expense most hospitals cannot afford.
Why hospitals struggle to set PAR levels
In discussions with hospitals, we have seen that the primary driver of poorly managed or non-existent PAR levels is the lack of data available to make optimal decisions. PAR levels are dependent on several variables, including the frequency of use and re-order or lead time. Without the right data to manage PAR levels, hospitals tend to overstock their inventories. This is perfectly valid in an environment where running out of an implant or supply isn’t just an inconvenience, but can also put someone’s life in jeopardy. However, it doesn’t have to be this way in today’s world where data is more reliable and readily available than ever before. You don’t need to rely on “safety stock” or items hidden away for an emergency to ensure that you have the right amount of supplies on hand. The right data if utilized properly will make sure you have everything you need when you need it.
How to settle on the “right” PAR levels
There is no “right” answer when it comes to setting PAR levels, so hospitals have to rely on a combination of data and experience to get to a reasonable decision. There are several factors at play when it comes to setting PAR levels within a hospital environment. One needs to strike the right balance between setting PAR levels too low – resulting in out-of-stock situations – and setting PAR levels too high – resulting in bloated inventories and increased administrative overhead to manage them. Inventory managers also need to factor in how critical a supply is in case they run out, and there are also some critical items that must be kept on the shelf “just in case”, even if used very rarely.
When setting PAR levels, make sure to have a very reliable, accurate and readily available set of usage data for all of your supplies and implants. As you may stock hundreds or even thousands of different items, start by working from the most expensive items on down, as savings with the most expensive items will have the biggest impact on your department’s financials (the 80/20 rule typically applies as the top 80% of your supply spend will be on around 20% of your products). You’ll need to come up with standard criteria to evaluate your usage – such as calculating the average use in a given period, or the maximum use in a given period – to understand where to properly set your PAR levels. By going through this exercise one product at a time, you’ll quickly realize that your current on-hand inventory has major opportunities for right-sizing. Each dollar that you can trim from your on-hand inventory is like a dollar that you have just given back to your department to invest elsewhere.
Where to get the data needed for setting PAR levels
Hospitals often have a challenge getting their hands on reliable and accurate usage data for their supplies. Ordering data is typically easier to access than usage, but do not use this data as it will include data for items that are being over-ordered, or that are being ordered to replace expiring items and not necessarily used, and your actual needs for certain products will be overstated as a result. Without trustworthy usage data, you will not be able to make optimal decisions regarding PAR levels.
If getting your hands-on high-fidelity usage data is currently a challenge, consider a system like iRISupply from Mobile Aspects. This hospital inventory management software will arm you with the data you need to move to a just-in-time inventory environment that eliminates excess. It also allows for perpetual inventory management due to the real-time nature of the on-hand data in iRISupply’s smart cabinets. iRISupply will not only provide you with the usage data you need, but will take it one step further and provide actionable recommendations about where you can set your PAR levels to eliminate waste. Mobile Aspects supply chain experts will also sit down with you quarterly as part of a best-in-class customer success program to discuss strategies to optimize your PAR levels and review the data behind those suggestions.
A community hospital in Illinois recently used data coming out of the iRISupply system to evaluate its PAR levels in the electrophysiology (EP) labs. Using the data and recommendations from iRISupply, they were able to eliminate nearly 50% of their owned inventory, and save over $300,000 just in their EP labs. They estimate that performing this same analysis across their procedural departments will result in over $1.5 million in savings for the hospital.