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FiveBestPracticesforInventoryManagement

DAVIDHERMANN VicePresident, AspenHealthcareMetrics, AMedAssetsCompany DAVIDMUNCH SeniorVicePresident HealthcarePerformancePartners, AMedAssetsCompany

Presentationslidesareavailableattheendofthisdocument.

FiveBestPracticesforInventoryManagement OVERVIEW JoinDavidHermannandDavidMunchforanenlighteningdiscussiononinventory management.Includedwillbeadefinitionofinventorymanagementaswellasdiscussionaround eachofthefivebestpracticesputforth.Additionalinformationaroundissuesofinventory benchmarksandsupplychainvariabilitywillalsobediscussed. LEARNINGOBJECTIVES Thissessionwilllistthefivebestpracticesanddescribehowtheycanimprove inventorymanagementatyourfacility. ThissessionwilldefinecyclecountinganddescribetheadvantagesoftheABCcycle countingmethodology. Thissessionwillexplainhowstreamliningadatabaseofpreferencelistswillhelp withinventorymanagementthroughoutthechain. ThissessionwilldefineLeanprinciplesandhowtheycaneffectivelybeappliedto inventorymanagement.

FACULTY DavidHermann VicePresident, AspenHealthcareMetrics, MedAssetsCompany DavidHermann,VicePresident,AspenHealthcareMetrics,aMedAssetscompany,hasmore than14yearsexperienceinhospitaloperationsandfinance,includingsupplychainoperations, supplychainstrategy,PPIcostcontainment,inventorymanagement,projectmanagement, warehouseredesign,businessintelligence,ecommerce,valueanalysisprograms,andco developmentofaregionalpurchasingalliance.Mr.HermannholdsanMBAandisamemberofthe AssociationofHealthcareResourceandMaterialsManagers(AHRMM),HealthcareFinancial ManagementAssociation(HFMA)andtheDataManagementAssociation(DAMA). DavidMunch SeniorVicePresident,HealthcarePerformancePartners, MedAssetsCompany DavidM.MunchM.D.istheseniorvicepresidentandchiefclinicalofficerforHealthcare PerformancePartners(HPP),aMedAssetsCompany.PriortojoiningtheHPPteam,hewasthe chiefclinicalandqualityofficerofExemplaLutheranMedicalCenter(ELMC)andledtheir5year leanjourney.HeisaninstructorfortheLeanHealthcareCertificationProgramatBelmontCollege

inNashville.FromJanuaryof2000throughAprilof2004,Dr.Munchwasthechiefoperatingofficer andchiefmedicalofficerofELMC,successfullyleadingafinancialandclinicalimprovementturn around.Dr.MunchreceivedhistrainingfromtheUniversityofColoradoHealthSciencesCenter; completingresidencyinJulyof1983andpracticedInternalMedicinefromthattimeuntilJanuary of2000. INTENDEDAUDIENCE AllSupplyChainprofessionals.Somesessionsmayapplytospecificclinicaldisciplines. INSTRUCTIONSFOROBTAININGCONTINUINGEDUCATIONCREDIT CPEcertificatesmaybedownloadedfromhttp://medassets.joteventconnect.com/atthecloseof eacheducationalsession. MaterialsManagers:
Toreceiveaccreditation,youmustsigntheAHRMMrosteruponentranceandpriorto receivingyourcertificateforthesession.Attendeesshouldretainthiscertificatefortheir records. IndividualsseekingAHRMMaccreditationneedonlysigntherosteronetimeduringthe courseoftheday;attendeeswillonlyneedonecertificateforallCEUsofferedduringthe courseoftheday.

LaboratoryandImagingProfessionals: Makecertainyourbadgeisscanneduponentryandcompletetheevaluationform. Returnthecompletedformtotheprogramcoordinatorattheendofthesession. Acertificateofcompletionwillbemailedtoyouin4to6weeks. FoodserviceProfessionals: Completetheevaluationformhandedoutuponenteringthissession. Returnthecompletedformtotheprogramcoordinatorattheendofthesession. ADAAcertificateofcompletionwillbemailedtoyouin4to6weeks. DMASignDMAattendanceformoutsidetheroom.Youmustprovideyour registrationnumber.Acertificateofcompletionwillbemailedtoyouin4to6 weeks. Pharmacists/ACPE: Recordaccesscodeannouncedatthebeginningorendofthissession. AttendeesmustcompleteanonlineevaluationtoprinttheirownACPEStatementof Credit. Useaccesscodefromthissessionandlogontohttp://medassetsce.rxschool.comto completeevaluationform. Creditsareavailableonlineforonemonthfollowingthissession.

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Useyouragendatokeeprecordofallsessionsattended.

Logontohttp://moodle.ukconce.organdcreateyourpersonaluseraccountand password. LoginwithyouruserIDandpasswordandselectMedAssetsPerformanceForum11 fromthelistofprograms. Note:Ifforsomereasonyouarenotabletoattendtheentiredaypleasecontact AlysonJenkins(infobelow)torequestyourcertificate. Enterenrollmentkey:00587. Completetheevaluationandpleaseenteryourcommentsandsuggestions. Finally,requestyourcertificateoncetheevaluationiscomplete. - *Contact:AlysonJenkins,alje225@uky.eduor(859)3233851

MedAssets,Inc.isapprovedasaproviderofcontinuingeducationprogramsintheclinicallaboratorysciences bytheASCLSP.A.C.E.Program.
TheUniversityofKentucky,CollegeofNursingisaccreditedasaproviderofcontinuingnursingeducationbytheAmericanNurses CredentialingCentersCommissiononAccreditation(ANCC).

Thiseducationalactivityisofferedforamaximumof7.0ANCCcontacthours.

TheKentucky BoardofNursing(KBN)approvesTheUniversityofKentucky,CollegeofNursing(UKCON)asaprovideraswell.ANCCand KBNapprovalofacontinuingnursingeducationproviderdoesnotconstituteendorsementofprogramcontentnorcommercialsponsors. TheUniversityofKentuckydoesnotapprovecommercialproducts.Thiseducationalactivityisofferedforamaximumof8.4KBNcontact This program isorder being receivecredit,participantscompleteCNEactivity,completetheevaluationformand hours.Provider#:3 0008 0113287.In to submitacreditapplicationonline.Certificatesmaybeprintedoncetheevaluationiscompleted.

2011MedAssetsHealthcareBusinessSummit

FiveBestPracticesforInventory Management
DavidHermann
VicePresident AspenHealthcareMetrics, aMedAssetsCompany

DavidMunch,M.D.
SeniorVicePresident,ChiefClinicaland ConsultingOfficer HealthcarePerformancePartners, aMedAssetsCompany

MedAssetsisaregisteredtrademarkofMedAssets,Inc.2011,MedAssets,Inc.Allrightsreserved.

WhoWeAre
AspenHealthcareMetricsisahealthcareconsultancy andbenchmarkdatacompany. company Wespecializein:
Clinicalservicelineimprovement SupplyChainconsulting Transformationalsupplychainservices

2011MedAssetsHealthcareBusinessSummit

WhoWeAre
HealthcarePerformancePartnerswascreatedto improveourclients clientsprocessesandsystems, systems leadingto betterquality,safetyandsatisfaction,forallinvolved, whileimprovingthebottomline. Wespecializein:
Lean&SixSigmaconsultingservices Clinicalconsultingservices Leanledfacilitydesignservices LeanITimplementationservices
Simply:

WeHelptoMake the h Right i h Work k EasiertoDo.


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EvolutionofInventoryManagement

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EvolutionofInventoryManagement
1. Orderingandstoringbygutorrulesofthumb; wasteevidentthroughoutprocess 2. Reengineeringthesupplychaininto3processes supportedbyoperationsmanagementdisciplines 3. UsingLeantooptimizeyourorganization

Stage1:Orderingandstoringbygutorrulesof thumb;wasteevidentthroughoutprocess

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Stage1:Orderingandstoringbygutorrulesof thumb;wasteevidentthroughoutprocess

Stage1:Orderingandstoringbygutorrulesof thumb;wasteevidentthroughoutprocess

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Stage2:Reengineeringthesupplychainintothreeprocesses supportedbyoperationsmanagementdisciplines

Stage3:UsingLeantooptimizeyourorganization

Reduce wastes throughout system using Lean methods


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FiveBestpracticesforInventory Management

FiveBestPractices
1. UtilizeABCandzeroonhand cyclecountingto improveinventoryrecordaccuracy 2. Accountforvariabilityindemandandleadtime whencalculatingorderpoints 3. Tuneuppreferencelists 4. Usevisual sua controls co t o storeduce educeinventory e to yand a dimprove p o e delivery 5. Improveupstreamvisibility
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ABCandZeroOnhand CycleCounting

ZeroOnhand CycleCounting
Runareportofallitemscurrentlywithzeroonhand in yourinventory Lookateachbin Ifbinisempty,itisaccurate Ifbinisnot,thencount

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ABCCycleCounting
Cyclecountingtechniquethatisbaseduponthe velocityoftheproductsininventory Muchmoreaccurate,controlledandconsistentthan relyingonphysicalinventories Requiresmuchlesseffortthatphysicalinventories Ifyouwork o with t you yourinternal te a audit aud ta and dac achieve e e consistentinventoryrecordaccuracies>=95%,youcan doawaywithbigbangphysicalinventorycounts altogether
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ProposedABCCycleCountingDefinitions
AItems=10%ofSKUsthatmove70%of$ BItems=20%ofSKUsthatmove20%of$ CItems=70%ofSKUsthatmove10%of$ AItemsgetcounted12times/year BItemsgetcounted4times/year CItemsgetcounted1time/year
Howmanyitemsneedtobecounteddaily?
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ABCCycleCountingPlan
Assumption T otal SKUs in Inventory:
ABC Definitions g y Category

3000

% of SKUs

% of Spend p

Counts p per Year

A B C
Plan for Sample Hospital Category

10% 20% 70%

70% 20% 10%

12 4 1

% of SKUs

# of SKUs

Counts per Year

# of SKUs times Counts per Year

A B C

10% 20% 70%

300 600 2100

12 4 1

3600 2400 2100 8100 260 31


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T otal Counts per Year Counting Days per Year (5 days times 52 weeks)

Items to Count per Day (divide Total Counts per Year by Counting Days per Year)

AccountingforVariability

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InventoryServiceLevels
Aredefinedasthepercentageoftimethatanitemwill beontheshelfavailabletotheclinicianforuse If10ccsyringesareavailable85%ofthetimea clinicianneedsone,theinventoryservicelevelforthat itemis85% Overallinventoryservicelevelsaredeterminedby aggregatingtheservicelevelsofindividualitems

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AccountingforVariabilityistheMissingPieceofROP
ManyinventorymanagersknowthatROPisaffected byrateofdemandandtheleadtime Thereissignificantinconsistencytothemethodsused tocalculateROPsinhospitalstoday Someinventorymanagerssimplyestimate Ot Others e suseso some evariation a at o o oft the efollowing o o gformula: o ua rate_of_demand xlead_time + some_est_safety_stock
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However,iftheyareonlyusingaveragedemandor averageleadtimeorboth,inventoryservicelevelsare justthataverage.

50% is less

50% is more

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StandardDeviation(OtherwiseKnownasSigma)
Averagetellsyou nothingabout dispersion (Howwidethebellis) Standarddeviation measuresdispersion

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AnEffectiveROPSolutionforHealthcare
ROP=(avg_daily_demand +2xstdev_daily_demand)x (avg lead time +2xstdev_lead_times) (avg_lead_time stdev lead times) Thisformula Recognizestheeffectsofsingularspikesindemandorlead time g overalltrends Recognizes ProvidesanROPthatyieldsaninventoryservicelevelof 95% Easytoimplementinaspreadsheet
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MovingBeyondAverageServiceLevels
InventoriescanhavemethodicallymanagedROPsand inventorylevels Inventoryreplenishmenthasreducedinconsistencies andguesswork Inventoryservicelevelisincreased C Clinician c a sat satisfaction s act o is sincreased c eased Thenumberofangryphonecallsthattheinventory departmentreceivesisdecreased
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ComparisonofROPTypes
140

ReorderPoint (inE R EA)

120 100 80 60 40 20 0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 w/oSTDEV w/ STDEV

UsageStandardDeviation(inEA)
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TuneUpPreferenceLists

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StreamliningPreferenceLists
Thereareinherentdifficultiesinkeepingapreferencelist(PL) database(usuallyrepresentingtensofthousandsofPLs)current forsmallchangesinpracticeaswellaschangesinavailable productsandimplants. Theassociatedcostsandinefficiencies
UnusedjustincasesuppliesrequiretheeffortsofseveralFTEsperdayto reshelve Backandforthproductflowrepresentssizeableopportunitiesforthe sterileproductstobecomeshopworn,damagedorlost Moresuppliesneedtobecarriedtoensurethateverycasecarthasthe item,evenifonlyonecase(ornocase)forthatdayactuallyusesit
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WhatCanBeDonetoTuneUpPreferenceLists?
EliminateunnecessaryorunusedPLs Defineapermanentchangevs.acasespecific modification DevelopaclearlydefinedPLmarkupprocess AssignPLeditstoaspecificperson

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EliminateUnnecessaryorUnusedPLs
ReducethenumberofPLsbyweedingout
DuplicatedPLs Physicianswhonolongerpracticeattheorganization SurgeonspecificPLsforprocedurestheydonothaveprivilegesto perform

Insomesystems,itisnotpossibletodeletethePLdue todataintegrity g yrules.


Insituationslikethis,considerrenamingthePLtosomething clearlyinactive OneorganizationputtheprefixZZZbeforetheinactivePLname soitsortedatthebottomofthelistofPLs
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DefineaPermanentChangevs.aCasespecific Modification
Developguidelineswithkeyclinicianstodecidehow torecognizewhatshouldbeapermanentedittothe PL Includeworkflowtopermitthechargenurseorservice lineleadtoreviewandapprovebeforecommittingto theedit

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DevelopaClearlydefinedPLMarkupProcess
Thecirculatorsandscrubtechswouldbetrainedto differentiateupdatesfromcasespecificexceptions
Useeitheraspecialpencolor(e.g.,green) Aspecialcodeword(e.g.,UPDATE)

Exceptionscouldbenotedinblackorredsothe persondecrementinginventoryorenteringpatient chargescanactonthoseandupdatesingreensothe personresponsibleforPLeditscanactonthose updaterequests


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AssignPLeditstoaspecificperson
Createarolethatwouldberesponsibleforreceiving informationfromthecirculatorsandscrubtechs performingthecases Thisinformationwouldthenbepassedbytheservice lineleaderstogetauthorizationtomakethechangeto thePL ThisprocessownerwouldthenupdatethePLinthe systemaccordingtothedocumentation
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LeaninHealthcareInventoryManagement

OurApproachToLean inHealthcare

AStructured wayof Continuously i l exposing i andsolvingproblems toEliminateWaste in Systemsthatdeliver Value toCustomers (Patients)

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4RulesinUse All4RulesarePrespecifiedwithBuiltinTests
Rule1:Activities
Content Sequence Timing Location Outcome

Rule3:Pathways
Simple Noforksorlooping

Rule4:ImprovementClosest totheProblem
Usingthescientificmethod (experiment) Bythosedoingthework Supportedbyacoach

Rule2:Connections
Direct Yes/No Paced

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EightTypesofWaste
Defects Overproduction O d ti Waiting ConfusionorVariation Transportation Inventory Motion ExcessProcessing
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CaseStudy HealthcarePerformancePartners
FoottrafficinandoutoftheORsuite
Causeforunnecessarydelays&interruptions Riskofinfectionsduetodisruptedroompressurizationand turbulentairflowwhichincreasesairbornecontamination

CurrentState: Excessivefoottraffic Lessthanidealinfectionrate NeedtoimprovefunctionalityofOR


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RootCause:PreferenceList
Staff&physicians don't don thavewhatthey need,whentheyneed it,wheretheyneedit Furtherinvestigation revealedPreference Listsincomplete p & inaccurate

Prep for Case Equipment Supplies/Inst Social Break/Lunch Unknown Supplies/Inst Other Scrub In Unknown Break/Lunch Social Scrub In Other Equipment Prep for Case

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InitialImprovements
Leaneventonpreference lists:
4dayfocusedevent FrontlinestafffromORand sterileprocessing Physicianchampion

Leanprinciples:
Developstandardizedwork Eliminatereworkandwork arounds Createvalueforthecustomer Createvisualworkplace
Reducewasteoftimeand motion

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InitialImprovements
StandardizedProcesstoUpdatePreferenceLists
Single Si l location l ti for f update d t requests t Leadtimetoupdatereducedto1day Simplified&StandardizedPreferenceListFormats

CreatedVisualManagementSystemforInventory
Visualmanagementtoimprovefirsttimequalityofcasecart itemspulled Eliminatedunnecessaryitems

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InitialImprovements
ImplementedPostopBriefings
G Generates t immediate i di t f feedback db kfrom f surgeonandstaff TriggersrequestforPreferenceList change

DevelopedCommunicationTools
PeriodicsurgeonreviewofPreference Listswithclinicalmanager ItemsMissingReport tagto communicatestatusofitems
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Followup:TotalTrafficVolumevs.Reason
Average Traffic Volume vs. Reason
18 16 Avg Traffic Volume per Case 14 12 10 8 6 4 2 0
Un kn ow n fo rC as e en t l O th er In st In Br ea k/ Lu nc h Sc ru b So cia Eq ui pm Ch ec k ie s/ In

32%reduction infoottraffic

Su pp l

Baseline

Pr ep

Follow-up
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Results
Result
R d Reduce f foot t traffic t ffi due to missing items Redirected staff time

Measure
32% reduction d ti i in f foot t traffic
(Avg in/out per case 30.0 v 43.5)

Outcome
D Decrease risk i k of f surgical infection Less scrambling & more time to focus on patient Th necessary The materials & equipment are available when I need to perform my job
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7.9 staff hrs redirected per day


(Avg staff hrs due to in/out per day 25.4 v 17.5)

I Improved dt team effectiveness

6 percentage t point i t improvement in staff satisfaction survey


(% scoring favorable 71% v 65%)

SurgicalSiteInfectionsResults:OneYearFollowup
ReductioninSurgicalSiteInfections
ORfoottrafficestablishedriskfactorforsurgicalinfections 29%decreaseinSurgicalSiteInfectionRate
(Avg 0.91%comparedto1.28%atbaseline)

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UseVisualControlstoReduceInventory andImproveDelivery

ManagingtheCaseCartPickingProcess
Objective Addressvulnerabilitiesand i ffi i i inefficiencies Barriers Informationstillinpeopleshead LocationofORitemsnotVisualor Organized Limitedstafffullycrosstrain PreferenceListsInaccurate
Baseline
Feb

Successes
Lessmissingitemsoffcarts Crosstrainingtimereducedfrom6 monthsto2weeks VisualInventoryresultingin reducedtimetocomplete assembly Leadtimereducedto<24hours Reducedroomchanges Reducedrestockingfee Reducedstoragespaceneeds

Current
April

Goal

Restocking fee Room Chngs Lead Time # Carts Hand Offs

$546 /day 48% 48hrs 75 5

$0 4% 24hrs 40 2

$250 12% 24hrs 60 2

NextSteps
Severalactionitemstocreatemore userfriendlyprocess Continuetocrosstrainstaff Increasecommunicationaround backorders&incompletecase carts WorkwithPreferenceListteam

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GivingBackSpace

Before & After


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FiveSs
Seiri >Sort:removeunnecessarymaterialsandtools Seiton >Simplify:neatlyarrangetoolsandmaterials Seiso >Sweep:conductacleanupcampaign Seiketsu >Standardize:performtheabovethreeSsat frequentintervals(daily) Shitsuke >Selfdiscipline:makeahabitofalways followingthefirstfourSs

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IV EVERYWHERE! IVs

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IVLargeVolumeStorage

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FiveSsatwork
Before After

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FiveSsatwork
Before After

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ImproveUpstreamVisibility

ImprovingUpstreamVisibilityintheSupplyChain

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MonitoringLeadTimesExperiencedbythe Distributor
DistributionagreementsusuallycontaintermsthatifaPOis receivedbyacertaincutofftimetheproductisdeliveredthe f ll i day following d Manyhospitalsarelulledintoafalsesenseofsecurityabout productavailabilityfromthedistributor Resultsinsporadicstockouts followedbynonvalueaddlabor asPurchasingandInventoryattempttosourcetheproduct(or anequivalent)fromanalternativevendor. Toavoidthissituation, situation developareportwithyourdistributor whichtrackstheleadtimestheyexperiencefromthe manufacturers Keymetricisthedifferenceofstandarddeviationsforleadtime fromone4weekperiodtothenext
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MonitoringtheCustomSterilePackPipeline
Whilethecustompackmanufacturermaybe financiallystrong, strong thespecialty(orevencommodity) productsthatmakeupyourcustompacksmaycome frommanufacturersaffectedbytheirbankstightened creditpolicies. Thiscouldleaveyouinavulnerablepositionthatcan bemitigatedifidentifiedearlyenough enough. Toavoidthissituation,itisimportanttomonitorthe pipelineofcustomsterilepacks
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CustomSterilePackPipeline

Item: DoubleBasinCustomKit Date MfrCat Usage/Mo 09/08 5312X960 425 09/15 5312X960 425 09/22 5312X960 425 09/29 5312X960 425 10/06 5312X960 425 10/13 5312X960 425 10/20 5312X960 425

OnHold 87

Manufacturer Planned WIP 464 464 276 247 93 208

Steriliz 114

464 261 155 155 261 200

OnHand 151 265 265 265 448 335 510

Distributor OnHand 787 787 487 757 712 477 477

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Conclusion

2011MedAssetsHealthcareBusinessSummit

Conclusion
Inventorymanagementisacomplexbusiness Fivewaysyoucanimproveyourinventoryare:
UtilizeABCandzeroonhand cyclecountingtoimproveinventoryrecord accuracy Accountforvariabilityindemandandleadtimewhencalculatingorder points Tuneuppreferencelists Usevisualcontrolstoreduceinventoryandimprovedelivery Improveupstreamvisibility

Beawareofthedownstreamprocessesthatinventory needstoconnectto
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Questions

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ForMoreInformation

DavidHermann
VicePresident AspenHealthcareMetrics,a MedAssetsCompany (303)6946165 dhermann@aspenhealthcare.com

DavidMunch,MD
SeniorVicePresident HealthcarePerformancePartners,a MedAssetsCompany (615)2060701 dmunch@hpp.bz

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Thankyoufor yourparticipation.

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