Management: Controlling Your Inventory

In corporate America, supply chains are lean and mean. Wal-Mart, for example, is famous for its ability to order just enough of what customers need - not too much - at just the right time, and at the lowest imaginable prices.

Compare that to a typical medical practice with an overflowing, messy supply closet, filled with too many syringes and too few bandages, all purchased and stocked haphazardly.

Improving a clinic’s supply chain can improve efficiency, since everything is on hand where it is supposed to be and restocking is easier. It can also improve cash flow, since items are ordered on an as-needed basis, and the costs are spread out instead of bunched up.

Getting those advantages can be as easy as setting a few new rules or as complex as developing direct relationships with suppliers, depending on your specialty and group size.

Get organized

Most groups will benefit simply from getting better organized. Start by putting a single person, the right person, in charge of supplies. “You have to find a person who loves a bargain, and they have to be able to find the best price… You need someone who will come into a meeting excited because they saved $3,” says Donna Weinstock, a consultant with Office Management Solutions in Northbrook, Ill.

It is possible to get good deals, but someone has to look for them. “Obviously, the first step in controlling costs is to always check the pricing. A lot of people don’t do that. They just order. Just do a comparison of vendors, both local vendors and Internet-based purchasing,” advises Reed Tinsley, an accountant and healthcare consultant in Houston. Try getting on promotional e-mail lists from major suppliers, Weinstock suggests. “If you are on everyone’s list, you’ll start to see that tongue depressors are on sale with Vendor A so you can order there instead of placing your usual order with Vendor B.”

Also, make an annual project of reviewing your regular shopping list. Are there items you can do without? Is there anything that’s been sitting in your supply closet, unused, for at least a year? Get rid of that stuff: Try to get the vendor to give you a refund for any unopened boxes. If the vendor refuses or insists on a restocking fee, consider that an opening to negotiate. It might change its tune, says Jeffrey Denning of Practice Performance Group, if it understands that your continued business could be at stake. Meanwhile, of course, remove those items from your supply list.

Can you replace an expensive item with something cheaper without hurting productivity or quality? “Sit down in a staff meeting and say, ‘OK, let’s talk about the products we use,’” says Weinstock. “The people who use the products know what is working for them.”

Weinstock likes to reward the entire staff if someone comes up with an efficient money-saving idea. “Have an office-wide reward system if you can order something, keep the quality, and save money. There should be a reward not just for the person who ordered but for everyone, so everyone is working as a team.”

But remember that some products aren’t worth the savings, Weinstock adds: “You know in your house what products you’ll use generic and what products you won’t.”

It’s not worth saving $3 on cheap dishwashing detergent if the dishes don’t get clean. The same principle applies in your practice.

Don’t nickel and dime

It’s easy to get carried away cutting costs on supplies. “I tell physicians, ‘Please do not step over dimes to pick up nickels,’” Tinsley says. “Instead of sucking it up and strategically [asking], ‘How can we move this practice forward?’ they nickel and dime. It’s a time-waster and morale-killer.”

Tinsley once spent an hour in a meeting with 10 OB/GYNs discussing whether to save a little by using plastic speculums instead of steel. Had the 10 physicians been seeing patients in that hour they could have billed out more than the potential savings they were discussing, he points out. Time might be better spent, too, dealing with more strategic issues or even collections.

 “It’s not about the overhead,” says Tinsley. “If I am able to go into a physician’s office and have the ability to substantially reduce overhead, then that administrator should be fired on the spot. Any practice should not be able today to substantially reduce overhead. All they are trying to do is keep it mean and lean.”

In other words, look to stay lean, but don’t expect a little inventory control to take you from a flabby couch potato to rail-thin supermodel. It’ll take more than that to transform a practice.

Ordering easy

If you have multiple offices, centralize ordering, advises Tinsley. A single staffer can balance the flow of supplies through the offices, knowing that Office A doesn’t need to order more hand sanitizer because Office B is swimming in it. “One step in the approval process is that you can’t reorder anything without checking with another office first,” Tinsley suggests.

How do you know when to reorder? No one wants to pay employees to count through boxes and paw through the supplies to see what’s needed. Here’s a simple fix: on each shelf, for each supply, put a strategically located strip of tape. When re-stockers can see the tape, they’ll know just a few items are left and can place an order, suggests Denning.

Other groups put a brightly colored index card by each item. When MAs open the next-to-last box, they are required to clip the index card to the front of the shelf, making it easy to see which items need to be reordered.

Of course, for these systems to work, supplies have to be well-organized and easily seen. Invest in plenty of clear plastic tubs, bins, and whatever else will put supplies in order. Insist that staff keep the area neat.

Whoever is in charge of ordering should also have a system for tracking orders. This can be as simple as an Excel spreadsheet that lists each item, from where it is ordered, the date of the last three orders (to establish a sense of how often the supply needs to be refreshed), and the price paid. A system like this allows for continuity; if your staff person quits, someone else will know how and how often to order goods.

It also makes for easy price-checking. “You might get a good price on some supplies once, then you never see it again,” says Denning, who is based in La Jolla, Calif. Suppliers will “negotiate a good price once, then see if you notice when they raise it. Most practices don’t.”

Keeping an up-to-date record of what was ordered, at what price, makes it easy for whoever unpacks incoming boxes to review the packing slip and sign off that everything was received and invoiced at the right price.

Innovate partnerships

If costs are still too high despite bargain-hunting, it might be time to get creative. Practices that place large orders can successfully negotiate lower prices.

Too small to wield such power? Why not get together with a bunch of other physicians to look big? “There is no reason why a lot of physicians can’t get together and create their own purchasing co-op,” Tinsley points out. “Go out to vendors and say, ‘We are 15 to 20 docs. Do you want our business, and what kind of price can you give us?’” If you are in an independent physician association (IPA), it should already have deals like this in place.

Bill Hook, vice president of healthcare logistics at UPS, points to another purchasing trend: “People are building direct relationships with suppliers instead of using a middleman.” For example, an oncology practice that orders many very expensive drugs made by a single pharmaceutical company will order directly from that company. Often, the collaboration yields lower costs and better inventory management, as the supplier might keep track of how frequently products are ordered and send them on a routine basis. That helps the supplier to control its production, and the practice to manage its costs.

UPS is even seeing some pharmaceutical companies send drug samples using the delivery company’s services instead of having expensive sales reps deliver them. The courier gets a signature from the physician confirming delivery, so the pharmaceutical company and the practice win. The practice gets the samples, and the pharmaceutical company saves its sales reps for more quality interactions with physicians. Call companies that give you the most samples and see what you can work out.

Ramp up receiving

Streamlining the receiving process can be another big benefit for practices, especially in larger settings. A study published in Health ForumJournal in 2000 indicated that approximately 35 percent to 40 percent of supply-related costs are devoted to handling and moving materials.

Simple spreadsheets help, but hospitals and other large organizations rely increasingly on electronic systems to help packages get where they are going fast. Generally, the systems rely on barcode scanners and signature pads to track internally when packages are received and delivered. Check with UPS, Pitney Bowes, and Barcoding Inc., among others, to see what might work for you.

In smaller practices, just as one person should order supplies, one person should be in charge of unpacking boxes. “Most practices are extremely unorganized on this, and whoever has a moment unpacks,” says Denning. You need someone who will pay attention and restock items neatly and promptly. It shouldn’t be an afterthought.

Unpacking boxes, putting things in order on shelves, ordering swabs: Although doing these things well won’t make a failing practice into a lucrative one, they will save a little, smooth cash flow, and make practicing a good bit easier.

Pamela Moore, PhD, is senior editor, practice management, for Physicians Practice. She can be reached at pmoore@physicianspractice.com.

This article originally appeared in the January 2008 issue of Physicians Practice.