Best Practices to Reduce Costs With Inventory Management

Kim Milliken
Kim Milliken
Director, Strategic Sourcing

As most know, hospital inventory counts are a complex but critical process within the healthcare delivery system. To meet the challenges of cost-effectiveness, the supply chain must also achieve higher levels of performance. So, when it comes to the inventory count, there are no second chances. Inventory counts must be right the first time or the hospital risks taking a significant financial hit.

For instance, let’s say the hospital records show that it has $1 million of inventory, but in reality, the hospital only has $900,000 worth of product. The hospital would suffer an immediate loss of $100,000. In order to recoup this expense, the hospital would need to generate an additional $2 million in patient revenue to offset this loss.

With the right approach to inventory management, hospitals can protect the bottom line, enhance efficiency and reduce costs. This approach includes a detailed inventory management process with steps to plan, prepare, conduct, post and follow up.

1. Plan

Planning helps streamline the stocking and ordering processes across the organization. Although often overlooked, pre-inventory processes like planning and preparation are critical to ensuring accurate inventory counts and reducing duplication. During the planning process, leaders should determine:

  • Where inventory counts will occur,
  • When and how frequently counts will occur,
  • Who is responsible and will be present for counts and
  • What are the policies and procedures that should be followed in the inventory counting process.

2. Prepare

Preparing for inventory counts reduces barriers and eliminates costly delays in the process. Leaders should communicate expectations, such as inventory importance, ownership of the process, meeting deadlines, accuracy and consistency, at least 5-6 weeks prior to inventory counts. Inventory management involves all levels and departments of a hospital; it’s important that staff understand this. In preparation, inventory should be consolidated and segregated by consignment equipment, expired products, etc. Some of the most common inventory errors include:

  • Lack of preparation and organization before the inventory,
  • Ineffective cutoff times,
  • Errors in posting to inventory records,
  • Missing receiving and shipping documents,
  • Confusion in the unit of measure,
  • Wrong SKU number printed on shipment and/or forms,
  • Blocked inventory, e.g., one product stored behind another,
  • Disposition without proper paperwork and
  • Count sheets not coordinated with inventory locations.

3. Conduct

With the right inventory management processes in place, leaders can run a more efficient hospital. During inventory counts, leaders should organize and brief teams on the unit of measure, partial containers, hidden stock, alternative locations and count sheets. Teams are advised to use the resources created by Elevate Supply and Expense Management Solutions as a guide, including inventory policies, checklist, observation forms, calendars and other materials.

4. Post

Inventory results need to be available to the team through transparent tracking systems and posting of count results. Recording accurate inventory counts, hospitals can enhance the bottom line and reduce adverse patient outcomes. Additionally, a well-organized storeroom improves labor productivity and decreases inventory costs. Following inventory counts, teams should also:

  • Review count sheet for errors,
  • Enter counts from count sheets,
  • Run a pre-posting count report and
  • Review the pre-posting report to identify errors.

5. Follow-up

Follow-up is crucial to maximize the effort put into an effective inventory management process. Below are some key items to consider:

  • Make postings for any requisitions that were held during the inventory and reopen requisitioning,
  • Reopen receipt postings and receive all deliveries that were held,
  • Print inventory report and adjustment report. File these reports with the count sheets,
  • Prepare result packet for Internal audit or Finance that includes reports, count sheets, etc.,
  • Provide an explanation of significant changes or fluctuations and
  • Benchmark results to previous inventories.