Notes from the Field:
Managing Slow-Moving and Non-Moving Inventory

If you work with supply chains for medical and surgical supplies, you cannot help but be amazed at the large number of often costly items that move slowly or do not move at all. We have seen cases in which such items account for 80% to 90% of supplies inventory investment. They also consume a large amount of costly and scarce storage space.

Many of these items are expensive physician preference items. Others are local "must haves" as determined by nurse managers and team leaders. Both are very hard to eliminate.

Worse yet, these items are often stocked in multiple locations throughout the facility. This can make inventory turnover determinations unreliable — see sidebar at right. So, what can you do to manage these items more effectively?

End-Use Criticality is the Key

Some items must be available at the point-of-use — within the floor unit, OR or ICU — so they can be obtained within minutes if needed. Others must be accessible "locally" but within a slightly longer time frame — such as from a unit stockroom or an external stocking point on the same floor.

For many slow-moving items, it may also be possible to establish shared stocking locations for a group of adjacent areas, such as for a single nursing floor. Or, a number of floors may be able to share a common stocking point.

Scheduled-need items — procedure-based in most cases — might be stored in a shared stocking location if used by more than one unit, or in a point-of-use location for items used only by a single unit. In each case, criticality determines how far away (in access time) the item can safely be stored.

Determining criticality in this way is the first step since it establishes each item's location flexibility. This opens the way to shared stock and to consequent reduction in the amount of inventory required.

Efficient Space Utilization

In most facilities, there are a number of practical stocking locations for a item: point-of-use, floor unit, shared floor location, shared multi-floor location, central stores, and vendor warehouse are the most common locations.

The tendency is to stock as close to point-of-use as possible to minimize access time (and related access labor cost). Space utilization is normally not considered, at least not in the sense of optimizing facility space use.

Ideally, you would take four factors into account — criticality (which limits location choices), opportunities for sharing stocking points (subject to criticality), labor required (supply chain and end-user access), and space costs. But because this tends to be relatively complex, it is rarely done.

Too bad, because the potential payback can be very large.

Very Large Potential Cost Reduction

Slow-moving and non-moving items account for most of a typical hospital's supplies inventory investment. We have seen this investment range from $10,000 to $20,000 per bed.

If you could cost-optimize the stocking of these items as outlined above, you might be able to free up 25% or more of the total supplies inventory capital. You should also be able to reduce total labor plus space costs significantly.

The optimization trade-off is between cost of capital (going up), supply chain labor cost (including end-users such as nurses), and space costs. In principle, the calculation is fairly straightforward except for the space utilization part.

If you would like to find out how we go about this process, please contact us.

Measuring Turnover

Turnover calculations are normally done either by product and location, or by product across all locations.

For slow-moving and non-moving items, this can be quite misleading:

A non-moving item in some locations may be slow-moving in others. A slow-moving item in one location may be non-moving in all other locations.

Another complication is multiple units of measure. We may stock in cases in central stores but in both cases and eaches in a patient care area. We may also have packs with several eaches.

The unit of measure hassle tends to favor using turnover based on item cost. However, this makes the turnover metric more of a financial one, relating to inventory cost of capital.

Demand forecasting, on the other hand, is usually done in physical point-of-use eaches. Relating physical demand to turnover metrics gets us back to each-based turnover and unit of measure problems.

If you do item-level demand forecasting, then you probably want to measure turnover in eaches (or whatever your demand forecast uses). Allowing for multiple units of measure increases the complexity enormously.

Standardization

The most effective way to reduce the costly inventory tied up mostly in physician preference items is standardization. However, this is nearly always very hard to implement.

Such efforts typically take years to show significant results, especially where physicians are active in hospital management.