Innovation is for many what medical progress is about. It is about better technologies to diagnose, intervene or new treatment regimes. What about the way in which hospitals are managed? Some of the standard practises appears to be rather outdated. A good example of such an outdated hospital management system is the inventory system used in South African Hospitals.
Despite doing nursing management as subject at both under and post-graduate level, inventory or stock management was hardly mentioned. The course work for a dispensing license only addressed one stock management system.
I chose to speak about a few inventory systems with Emergency Medicine Registrars recently. The doctors did their undergraduate degree at various medical schools in South Africa. None of them had hospital inventory and stock as part of a course at med school. I understand that undergraduate medicine (and nursing) is not about management, however if persons are expected to manage a department based on their undergraduate qualification then maybe it should be addressed? We cover management as an undergraduate module for applied sciences students, why not for nurses and doctors?
The highest financial expenditure in a hospital is human resources. The second highest expenditure is inventory or stock. Supply chain expenditure forms about 30% of a hospital budget.
The questions to answer when choosing an inventory control system is: how often do we need to check inventory, when can we reorder inventory (supplier relationships influence the decision) and how much to order at a time (cost and storage implications, lead time).
Various inventory systems exist. I’m only going to speak about three.
Every hospital that I’ve ever worked at used a fixed system. This can take one of two forms. In a fixed quantity order system orders are placed when the stock in the unit reach a pre-determined level or a fixed time order system where orders are placed from pharmacy on specific days or times. During a course for a license to dispense medication this was the only system discussed. This method works best when:
- Usage is stable with minimum variation
- The order amount is the difference between current stock and maximum level.
- Stock can be monitored often – this is why trained nurses count all the stock in the department on a daily basis. This is also why after a resuscitation the nurses are counting and replenishing stock as opposed to caring for patients and assisting in resolving the backup of patients that had to wait for care whilst the doctors and nurses was busy with the resuscitation
In the 1980’s the retail industry developed the quick response and automated system. A main characteristic of this system is that ordering is computer assisted, with the dawn of the internet these systems are nowadays linked with the suppliers making it very responsive. This method works best when:
- The ability to be responsive to fluctuation is important
- There is not enough staff to continuously monitor stock usage
- Stock reordering are required to be based on actual product usage
- Labour cost needs to be reduced
- There is strong relationships with suppliers
The grocery industry developed the efficient response system. It is similar to the above system with a key difference being that this system relies almost exclusively on electronic data exchange. This system works well when
- The inventory is fast-moving such as groceries
- Time to replenishment is crucial
- Inventory needs to be continuously available, yet there is variation in use
- There is strong relationships with suppliers
Examples in practise
The fast food industry: McDonald’s has been using electronic systems for stock management since the early 1990’s. Their system electronically captures all purchases; information is captured in an in-store processor that calculates supplies and predicts demand. The information can be customised to automatically reorder inventory when certain levels are reached and it transmits demand predictions to suppliers for planning.
The retail industry has been using bar codes since 1973 to reduce the cost of inventory. Software systems are used exclusively and the bar codes are regulated internationally. This inventory method reduces overstocking and product spoilage whilst providing real-time data and trends. These are important factors in an industry with great variation and strong competition. A South African example is Shoprite/Checkers that use an online supplier system to manage their supply chain over fifteen countries. Their distribution centre in Johannesburg is the largest on the continent. Their supply chain is highly complex and inventory moves fast.
The healthcare industry: a Johannesburg hospital. The pharmacy storeroom holding stock to the value of R57 million and there is regular stock outs. The average monthly trade deficit is R3 million, mostly unaccounted inventory. Stock to the value of R700 000 are disposed of annually due to it expiring prior to use. The authors estimates that the cost of poor management and lack of inventory control are R40 million per annum. The stock system is a paper based system relying on staff to physically count the R57 million worth of stocks and manage the paper entries. There is no electronic system to aid. Due to late payment, some suppliers do not deliver on time or do not deliver until paid. This aggravates stock outs.
We desperately need to innovate on our health management systems. Changing an inventory system would be a radical change. Maybe it would be too much. Perhaps we can start with incremental innovations from other industries including the ones mentioned above. The examples mentioned appear to have similar needs as healthcare: inventory systems that is robust enough to deal with fluctuating needs and limited staff involvement. However healthcare is lagging behind and it’s time for a change.