Will Just-in-Time Supply Ordering Work for Hospitals?

Will Just-in-Time Supply Ordering Work for Hospitals?

A lean approach to manufacturing is being considered in the healthcare industry. Some say it’s too risky while others say it is effective. What do you think?

jithospitalsIt may seem odd to think that hospital inventory management would employ a lean approach like just-in-time (JIT). However, as healthcare facilities face tighter profit margins, more of them are seriously exploring this option. For a facility like a hospital, however, this approach can be risky.

These lean inventory routines are meant to maximize reimbursement in particular. Many facilities have moved towards bundled payments over fee-for-service. JIT purchasing lowers the carrying cost of bulk inventory. It also aligns consumption levels with actual uses for each supply, which eliminates obsolete stock and wasted dollars.

Looking at these aspects, the JIT approach to inventory is a simple, sensible solution. However, there is one glaring risk with this approach, and it is a big one: potential lack of availability of a product.

While financial risks are an everyday part of hospital culture, what these facilities don’t want is for a patient event to become a negative event. For example, a patient procedure has to be rescheduled if a product that was supposed to arrive the night prior has not shown up. Moving surgeries is costly to the facility and hard on the patient.

Healthcare Financial News interviewed Don Spence on the subject in “Hospitals turn to just-in-time buying to control supply chain costs.” Spence is the VP of Corporate Development for the supply chain management vendor GHX. He said, “If you carry inventories under JIT that are so low that the product’s unavailable because of one incidence, that can be hugely adverse in the hospital sector.”

In that same article, Quincy Stanley, the supply chain manager at Mercy Hospital in Chicago said JIT purchasing really adds up. Mercy’s on-hand inventory dropped 50% with the strategy. Stanley addresses the obvious issues:

“As supply chain professionals, it’s our job to make sure clinicians have what they need when they need it, but we must also make sure we don’t have too many dollars tied up in inventory. The data tells you which direction to go. Obviously, there are items you must have in a hospital, but you should know what they are, and whether you need to keep extras.”

There is a clear and reasonable debate with this issue. Over time, we may see hospitals work out the kinks to make the process hyper effective. Some products are certainly more critical than others; it might make sense to employ a JIT routine to non-critical items first until a process develops.

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