Best Practices to Reduce Costs With Inventory Management

Picture of 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 challenge of cost-effectiveness, the supply chain must also achieve higher levels of performance. So, when it comes to inventory count, there are no second chances. Inventory counts must be right the first time or the hospital risks taking a significant financial hit.

Let’s say, for instance, the hospital records show that it has $1 million worth 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 the 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 streamlines the stocking and ordering process 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 during 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 within the hospital; it’s important that all 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 (i.e., 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.

To download our Hospital Inventory Guide and get the count right the first time, click here.

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 department that includes reports, count sheets, etc.,
  • Provide an explanation of significant changes or fluctuations and
  • Benchmark results to previous inventories.

Implementing Best Practices

The week leading up to the inventory count is a crucial time for ensuring all your best practices are met to ensure a smooth and accurate count. By following these proven guidelines, you can effectively minimize errors and reduce costs.

One Week Before Inventory Count:

  • Actively listen to staff by encouraging open communication and creating a supportive environment in which they can share their feedback, concerns, and suggestions. Since every piece of information is valuable, maintain a log to record these inputs and identify areas for improvement.
  • Communicate expectations by sending out an email detailing the inventory count requirements to all staff members. Address any concerns or specific needs they may have, ensuring everyone is well prepared.
  • Create a log of count sheets to be distributed to the relevant departments. This log will help ensure that all count sheets are accounted for and returned right after the inventory count.

One Day Before Inventory Count:

  • Send a follow-up email to all staff reiterating the inventory count expectations. Use this opportunity to provide updates or address any last-minute concerns or needs raised by the staff. This communication helps prevent any potential issues on the day of the inventory count.
  • Establish a command center for inventory day to centralize communication with a designated phone number for staff to call with any inventory-related inquiries or issues. Be sure to provide a log to track departments that have finished inventory count and ensure count sheets are returned.
  • Send out instructions on inventory day and provide a dedicated phone number for auditing purposes after the counting is completed. Set specific times for pre-counters to visit departments and check on their inventory. This allows for early detection of any counting issues or challenges.

Day of Inventory Count:

  • During the inventory count, it’s essential to stay calm, maintain a positive attitude, and create a team environment. Encourage collaboration and support among the staff members involved. This mindset fosters efficiency and accuracy throughout the process.

By implementing these best practices leading up to the inventory count, you can enhance the effectiveness of your inventory management and significantly reduce costs. Remember, meticulous planning, open communication, and proactive measures contribute to a successful inventory count and a healthier bottom line.

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