Written by Ellen Chang

Hospitals can be overwhelmed by managing and tracking vast amounts of inventory, from ordinary daily supplies like surgical gloves and gauze to critical ones used in life-saving surgeries. The result is that hospitals often order too much and end up with a surplus of items. A typical hospital supply is overstocked by 20 to 50 percent because the repercussions of running out are severe.

“You don’t get yelled at if there is too much of something, so the reaction is to fill the shelf with as much as it can hold,” said John Freund, CEO of Jump Technologies, a Minnesota-based software company that offers solutions to streamline hospital supply management.


Freund

While typically motivated by the desire not to be caught shorthanded in the event of a major traumatic event or natural disaster, having too many items, such as tubing or knee replacement implants, on hand is not beneficial because it ties up money that could be used elsewhere.

“When you overstock inventory everywhere, it ties up cash,” Freund said. “Having $5 million in excess inventory is equal to $5 million in cash that could be used to improve patient care and generate revenue for the hospital.”

As margins continue shrinking, hospital administrators are seeking solutions to improve their inventory management systems and give them more accurate, up-to-date data to ease tensions between supply chain management staff and clinical staff while also generating cost savings.

Hospitals typically manage supply orders through an enterprise resource planning system, but an ERP system won’t track utilization or provide any insights into what happens with those supplies beyond the loading dock. To trigger reorders, many hospitals use periodic automatic replenishment levels, which are intended to tell supply staff when they should place another order or to trigger an order within an ERP system.

PAR level is supposed to reflect how quickly an item is used, the amount that is ordered, and the length of time required to receive a new shipment from the regular supplier. However, PAR levels typically aren’t accurate because “the process to update PAR when using an ERP system is complex and tedious,” said Freund. As a result, many hospitals only adjust PAR levels once a year, or at most quarterly, and most often they are adjusting inventory up based on complaints of stockouts from clinicians.

“Since PAR levels are not adjusted very often, they often are wrong,” Freund explained. “This causes supply chain staff to record inaccurate inventory numbers in order to compensate for the bad PAR levels, ensuring that they have enough inventory on the shelf. However, recording inaccurate inventory numbers makes it impossible to accurately adjust PAR levels, so the problem never really gets solved.”

In many instances, the supplies being ordered are influenced by “tribal knowledge” or personal perspectives rather than real data, Freund said. Without accurate data, patient supply chain staff members believe they know how to stock the room because they stock it every day and clinicians believe they know what goes in the room because they use the materials every day. Freund refers to this lack of agreement on stocking levels as a “data divide.”

“Rarely do those two numbers match,” said Freund. “The supply chain staff are at odds with the clinical staff because both groups believe they know what the stocking levels should be.”

In order to close that data divide, Freund recommends hospitals strive to establish a clinically integrated supply chain system that reflects actual utilization at different times of year and across various departments. This will help avoid common problems, such as supply hoarding.

“We want to have supply chain staff and clinicians working together from a common set of believable data,” he said.

Jump Technologies integrates various inventory workflows within different departments of a hospital, or across an entire health system, to meet compliance criteria. The software minimizes the time staff spend conducting data entry such as lot numbers, expiration dates and serial numbers, and it reduces the amount of time clinicians spend looking for supplies that patients need. According to Freund, JumpStock can also simplify inventory and patient billing for the OR and procedure rooms.

“With JumpStock, tracking inventory in the OR and procedure rooms is also streamlined because employees can just scan the box, and information flows to the electronic medical record so they don't have to key in numbers. The software can also immediately deduct items from the inventory in real time,” Freund said.

Inventory management systems like JumpStock not only tell hospital management what items were used but allow them to track physician utilization and associated outcomes.

“JumpStock generates the data and shares it across teams,” he said. “Traditionally, hospitals don't share all their data on the same system, so each team is working from a different base of knowledge and understanding. If they can view their data systemically, they could standardize ordering and improve their purchasing power.”

Since today’s hospitals can often order and receive products within a 24-hour period, it makes sense to carry only as much as they need for a given period of time and “turn” the inventory 15 to 25 times a year. This reduces waste due to expiring products and frees up cash flow that is otherwise sitting on shelves, unused.

“We want to help the hospitals realize the benefits of carrying less inventory on their shelves,” Freund said. “Traditional hospital inventory management also tends to be labor intensive, involving physical item counts and a lot of time scanning products. JumpStock drastically reduces the need for physical item counts and significantly reduces staff time.”

How to Avoid the Silo Effect

Until a few years ago, employees at Grand View Hospital in Sellersville, Pennsylvania, were manually counting supplies and entering them into a software program.


Bingaman

Because the hospital didn’t budget for the addition of supply chain employees to monitor supply levels, ensuring that the nursing staff had all their necessary supplies was critical, said Bill Bingaman, senior director of materials management at Grand View.

“We were tasked with the challenge but did not hire additional employees and had to do more with less in what was an extremely labor-intensive process,” he said.

With this method, after counting the supplies, an employee had to enter the data into the hospital’s software, creating more work and increasing the potential for errors. Grand View staff had to enter the 20 to 25 most common products into its system, send it electronically and hope the redundant process did not create errors.


The hospital realized it needed a more efficient method and began working with Jump Technologies in 2015. The process became streamlined and more efficient, said Bingaman. JumpStock allowed the Grand View staff to create tags or barcodes for products and to automatically create a requisition for replenishment of products.

“We can use this daily and it was pretty easy to implement, plus the employees were more enthused and empowered,” he said.

A process was created with both its vendor and Jump Technologies to “grab the JumpStock file, migrate into our purchasing order system, download it and send it off in our system.” Bingaman said. “The employee doesn’t have to enter items or the quantity or charge codes. The system does all the work.”

By merely hitting two buttons, the efficiency percentage rose by tenfold. What used to take an employee two hours a day now is completed in half the time.

“I didn't expect that to go so well with two software systems talking to each other,” he said. “We can use a scanner or the iPhone app, which are pretty flexible. Employees can now search on either the scanner or app and see information about a specific product.”

After Grand View started using Jump's software solution within 10 departments, tracking some of the more complex supplies became easier, especially ones with shorter expiration dates.

“Now, in my storeroom we keep just under $200,000 in supplies including more expensive items such as hip and knee surgical totes and we rotate inventory 18 to 20 times a year,” Bingaman said. “Jump Technologies has helped that number stay constant.”