In my last blog posting I ended
by saying that there it is possible to both reduce inventory and protect
throughput at the same time. But before
I do so, let’s go into a bit more depth on why what a typical healthcare
facility is using today isn’t working so well.
Most, if not all, businesses are linked one
way or another to some kind of supply chain.
They need SKU’s or raw materials from somebody else in order to do what
they do and pass it on to the next system in line until it finally arrives at
the end consumer. In a hospital
environment this means that a doctor will prescribe a treatment that requires something
to bring the patient back to a healthy state.
Maybe it’s a prescription for a medicine or maybe even an orthopedic
item, so he writes the prescription and waits for the order to be filled and
then given to his patient. Hopefully
what the doctor has prescribed is in the stockroom so the patient can begin the
treatment.
For many organization the supply chain/inventory
system of choice is one often referred to as the Minimum/Maximum (MIN/MAX) system. In this type of supply chain system SKUs (or
inventory) are evaluated based on a projected need and usage (a forecast), and
some type of maximum and minimum levels are established for each item. The typical rules that are followed for these
min/max systems are:
§ Rule
1: Determine the maximum and minimum levels for each item
§ Rule
2: Don’t exceed the maximum level
§ Rule
3: Don’t reorder until you go below the minimum level
The foundational assumptions behind these
rules and measures are primarily based on the belief that in order to save money
and minimize your expenditures for supply inventory, you must minimize the
amount of money you spend for these items.
Remember the conflict resolution diagram from my last posting? The assumption here is that the purchase
price per SKU (unit) could be driven to the lowest possible level by buying in
bulk and the company would save the
maximum amount of money on their purchase.
The reality is that there always seem to be situations of excess
inventory for some items and of stock-out situations for others. So why is it that even though we have plenty
of inventory, these stock-outs continue
to happen? Let’s take a more in-depth look
at the typical rules for managing this Min/Max Supply System.
1.
The system
reorder amount is usually always the maximum amount no matter how many SKUs
are currently in the point-of-use storage bin.
The thinking here is that in order to obtain the maximum discount, we
must always buy in bulk.
2. Most
supply systems only allow for one order at a time to be present in the system
for a specific SKU.
3. Orders
for SKUs are triggered only after the minimum
amount has been exceeded. That is,
for example, if the minimum level for a drug is set at 1,000, when it goes
below 1,000 it can be re-ordered.
4. Total
SKU inventory is held at the lowest possible level of the distribution chain, the
point-of-use (POU) storage location.
Typically this is at the hospital unit or ward.
5. SKUs
are inventoried once or twice a month and orders placed, as required.
Graphically, Rules 1, 2 and 3 look like what
you see in Figure 1. The problem with
this system is that it’s prone to conditions of stock-outs on a fairly routine
basis as depicted in Figure 2 where the pattern repeats itself.
Figure 2
In Figure 2 we see that even though there
inventory in the system, we still have the stock-out situation happening. Rules 4 and 5 are graphically illustrated in
Figure 3.
Figure 3
In Figure 3 we see that parts are distributed
from the supplier and pushed down
through the links in the supply chain which ends up clogging the supply chain
with disorganization and ineffectiveness.
The classic symptoms that we see using the Min/Max system are:
ü
Having the wrong medicines or drugs in stock
or having too much of one and too little of another.
ü
Significant amounts of cash tied up in
excessive inventory.
ü
Significant amounts of money lost through
drug obsolescence or even being out-of-date.
ü
Hoarding of SKUs by nurses and other medical
personnel so that they have their own personal stash when needed. They all mean well because they have the best
interests of the patient in mind.
Bob Sproull
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