Proper inventory management in healthcare facilities feels like walking a tightrope. It requires a delicate balance between having enough product to meet the demands of doctors and nurses, but not too much that it negatively impacts hospital budgets and space. With inventory management, hospitals want to have the lowest total cost of ownership while having the highest possible service levels.
Cost is the biggest issue in healthcare, from both a business perspective (how much it costs to run a hospital) and a personal perspective (how much it costs us for our healthcare insurance). Today, hospital inventory costs vary from 25% to 32% of the total revenues. Charles Poirier, author of Diagnosing Greatness: Ten Traits of the Best Supply Chains, wrote in a recent white paper,
“Consider the amount of inventory that exists across the U.S. healthcare supply chain network. If total healthcare costs in the U.S. are around $3 trillion, the system probably requires inventories equaling at least $300 billion. If a conservative 20% could be eliminated through better inventory management, $60 billion could be saved in working capital… That is a lot of new free cash flow.”
For financial decision-makers at healthcare facilities, maximizing such savings is always a point of emphasis.
Technology has improved inventory management significantly, but hospitals still continue to see a widening gap between costs and revenue. Improvements are plenty, but where are the savings?
Let’s look at a few challenges of inventory management in healthcare facilities:
When inventory is not managed well, hospitals end up with too much of certain items. Poor visibility to the quantity of supplies on hand and where they’re stored will typically lead to overstocking. If inventory management is unreliable and nurses can’t always find what they’re looking for, the next time they see the item, they’ll take extra and store it in their station. In this scenario, the supply manager reorders more. This is how hospitals end up overbuying and being stuck with higher inventory costs.
When the extra stored items begin to expire, the hospital is now wasting product. The nurses will probably throw the items away without recording them as waste so they appear to be part of actual inventory which skews inventory numbers, or they’re simply lost from the process.
Also, managing overstock takes more labor, with both nursing and supply chain team members having to deal with tracking and locating what they need. This drives labor costs, already the highest operational cost for a hospital, and supply costs, the second highest, even higher.
When you don’t have a system that forecasts how long supplies will last, you’re unable to accurately place orders far enough ahead of time to prevent stockouts. Patient care is the first priority in hospitals so a stockout could mean life or death. Stockouts also lead to disharmony between the supply team and clinical team which must work side by side. This builds distrust between the teams and disrupts the work culture.
Supply teams manage the hospital inventory and therefore have a major impact on cash flow. Inventory increases the working capital and depresses cash flow. A CFO annual working capital survey identified inventory as the chief culprit behind excess working capital. It accounts for 43% of excess working capital and is the most difficult to control. Running out of stock means lost revenue and reduced cash flow while too much inventory may trigger a costly write-off.
When there’s visibility into how the inventory moves and clear communication on where inventory is, operations are smoother and inventory management improves. This is where digital signage excels. Digital signage is already being used in hospitals for wayfinding, staff management, in the cafeteria and to improve patient engagement by displaying health and wellness tips, hospital services, and infotainment.
Healthcare digital signage is already being used for wayfinding, staff management, in the cafeteria and to improve patient engagement by displaying health and wellness tips, hospital services, and infotainment. Applying the technology to supplement inventory management systems simply improves the ROI of the investment.
Hospital digital signage is highly visible and disruptive which makes it hard to ignore. The technology is also able to display complex data in a format that is easily digestible and actionable. These two factors have the potential to significantly improve inventory management and hospital operations.
Inventory levels can be displayed on back-of-the-house digital screens so the clinical team is always aware of inventory levels in order to make faster decisions. For example, a digital signage screen in the ER break room can display a color-coded graph showing inventory levels for specific items e.g. red for low, yellow for medium and green for high. When the nurses see that a certain item has low inventory, they’re able to easily plan ahead and quickly make the decision to switch to an alternative item.
To form strong partnerships between the clinical and supply teams, the inventory manager can create leaders within different regions or departments; a member of the clinical team who knows the inventory system and processes. This inventory champion can use the interactive inventory display screens to alert the supply team when inventory starts to get low. This eliminates gaps in inventory management and empowers nurses to improve the environment in which they work to provide better patient care.
When used together with radio frequency identification (RFID), digital signage raises the bar on inventory management in healthcare facilities. Active RFID technology uses fixed tag readers assigned throughout a warehouse. Anytime an item with an RFID tag passes the reader, the movement of the item is recorded in the inventory management software. RFID systems are typically used in environments that require real-time inventory tracking or where inventory security problems exist.
Digital signage can be integrated with the inventory management software to display the location of inventory. This works very well for costly surgical instruments that can’t be replaced easily either due to cost or availability. Tracking and displaying the movement of these instruments provides hospitals with a way to protect their investment. It reduces the opportunity of loss or theft and allows the hospital to more effectively manage the rotation of the instruments between surgery, sterilization, and storage.
Digital signage can improve communication within the inventory management teams. Displaying information such as reports on lead times, demand for different departments, turnover, etc, on digital signage makes sure the supply team has ready and quick access to data that will inform the inventory decisions they make.
The screens can also display team goals and objectives so the entire team is working towards a common goal. Creating an environment that supports performance monitoring and reinforcing the goals will ultimately streamline operations and improve inventory management in healthcare facilities.
The hospital pharmacy can better control their inventory and increase revenues by integrating digital signage with the inventory management system. When inventory for a specific item is low, the inventory system sends a trigger to the signage system to stop displaying promos and ads for that item. This avoids customer frustration when they discover an advertised item is out of stock.
When inventory for a specific item is low, the inventory system sends a trigger to the signage system to stop displaying promos and ads for that item. This avoids customer frustration when they discover an advertised item is out of stock.
When inventory for a specific item is unusually high, the signage system is triggered to display ads for that item so that it can move quickly. This helps avoid holding costs. Such automation creates balance in inventory levels.
Endless Aisle is a popular concept in retail; it allows customers in a brick-and-mortar store to have access to and order from the entire brand’s catalog, instead of limiting them to the store’s inventory.
This concept can be applied to hospitals. Interactive screens in certain departments can be programmed to provide access to the inventory of multiple departments, allowing the clinical staff to select items from a wider pool of inventory. This will also give insight on what’s used more by specific departments which can help determine what to stock more of in the future.
As digital signage continues to make its way into healthcare facilities, new use cases are also discovered. It provides a much-needed communication presence in inventory management and plays a significant role in reducing costs, streamlining hospital operations and driving hard dollar savings.