Comparison of Ways to Replenish Storage Areas

A comparison of the strengths and weaknesses of the various approaches to replenishing storage areas

July 18, 2016 | Content Areas: Logistics | Tags: Distribution, Inventory Management, MMIS | Formats: White Paper
Authors: William Preston Hall, CMRP, FAHRMM, C.P.M., CPSM

Download the Fellow Paper to view corresponding tables and graphs.

William Preston Hall, CMRP, FAHRMM, C.P.M., CPSM
Director of Supply Chain
Clarion Hospital
Clarion, PA

Abstract

This paper explores nine different methods of replenishing a hospital storage area and compares and contrasts the steps nursing must progress through to retrieve the supplies they need for their patients.  This paper will then compare and contrast the steps the Central Supply (CS) staff must follow to resupply/replenish each storage area.  This paper then outlines the cost to equip a standard storage area with the requirements of each of the nine methods and will then point out some of the advantages and disadvantages of each method.

A Comparison of the Strengths and Weaknesses of the Various Approaches to Replenishing Storage Areas

Due to the ever increasing amount of technology available, there are now numerous ways to replenish the stock located throughout the hospital. This paper describes nine available options, comparing and contrasting the strengths and weaknesses of nine different manual and computerized approaches to stock replenishment. Before this paper reviews the new high-tech options for replenishment, it will first describe the timeless par stocking method and then chronicle Toyota’s KanBan system. Once the existing methods hospitals and industry have historically used to replenish their stores are understood, they can be compared and contrasted with the newer high-tech methods of replenishment sold by numerous vendors. In conclusion, this paper will outline which type of location would be the ideal environment for each of these replenishment methods.

The question is how does stock replenishment affect the Cost, Quality, and Outcomes (CQO) of the hospital? The goal of CQO according to Association for Healthcare Resource & Materials Management’s (AHRMM CQO) website is to “effectively manage the quality and affordability of care, which can be achieved at the intersection of” Cost, Quality, and Outcomes. This paper affects all three parts of the movement in very specific ways. Cost includes all the costs to deliver and support patient care which perfectly dovetails into the hospital’s Supply Chain mantra of having the right product in the right place at the right time. All hospitals want to keep the inventory to a minimum to keep costs down and understand that if the product is not available on the floors when the nurse needs it, there will be a disruption in patient care. Next, in the CQO Trident is Quality, which is described by AHRMM (AHRMM CQO) as “patient-centered care aimed at achieving the best possible clinical outcomes”. Having a storage area without an adequate stock is not supporting patient-centered care, it is never in the best interest of the patient to delay their care while the nurse calls down to Central Supply, or scours the rest of the hospital looking for the supplies they need to treat the patient. The third leg of the CQO stool is Outcomes, which refers to the outcome for the patient and the outcome for the facility. Rarely do patients have better outcomes by delaying care, most of the time the best thing you can do for a patient is treatment the symptoms as soon as they become clinically noticed, so the supplies need to be available promptly. Since most delays in treatment cause a deterioration in the patient’s health and hospitals are paid by disease instead of the complexity of the case, it is to the hospital’s benefit to begin treating the patients as soon as possible. Regardless of the hospital’s location in a city or rural setting, nursing staff earn significantly more wages than Central Supply staff, so it makes sense let the nurses do their jobs and take care of the patients.

For this paper, a ‘standard’ storage area is defined as using 8 feet of wall space and containing 150 items. Using an average 6” bin means that every 8-foot shelf would be able to hold 16 bins. For the purpose of this paper, some of the stock may only require a 2-¾” bin, but others will need an 11-⅝” bin so that this paper will use a 6” average width. The bins can also be various heights; standard bins come in 4 inches, 6 inches, and 8 inches, and so 6” average height was chosen. To fit bins for 150 items in 8 feet of shelving ten shelves will be needed. Since most base shelving units come with four shelves, an additional six shelves will need to be purchased. The two 4-foot shelving units should cost between $750.00 and $1,000.00 depending upon your Group Purchasing Organization (GPO); also casters are included, to help Housekeeping keep the floor clean and polished. The base storage area will also need 150 bins to store the supplies in, so again using a standard bin of 6” wide x 6” high bin the total cost should total between $500.00 and $750.00. So the total cost of our 8-foot standard storage area should cost between $1,250.00 and $1,750.00 for the shelving and bins.

The first three methods to be described are Par Stock, Two-Bin KanBan, and One-Bin KanBan. Some users have added automation to these three systems, but all originated before computers were readily available and can be run as completely manual systems and have minimal cost to implement. The next method to be described is Point of Issue (POI). POI is normally a part of a hospital information system (HIS) and varies depending upon the HIS each hospital chooses. Finally, the last five systems to be discussed: Company A, Company B, Company C, Company D, and Company E can only operate by using various computer systems. Each of these vendors was contacted and was asked to provide information and approximate pricing for this paper and all agreed to participate.

Par Stock
According to the definition of Par (BusinessDictionary.com), it is the fixed quantity of an item that must be kept on hand to support daily operations. A standard 8 feet of wall space has a wide variety of shelving choices. Many hospitals have different types of shelving and cabinets in each storage area.

For example, some units have closed cabinets with fixed shelves; some units are small and have 12” shelves mounted on the walls, some storage areas are stuffed into nearby closets, although the most common are 24” deep open wire shelving.  The shelving units are not the only difference between storage areas, some items are in stored bins, some contained in drawers, some simply lay on the shelves between bins for other products. 

[Download the Fellow paper to view flow sheet of the procedure for nursing to take their supplies, and steps for Central Supply staff to replenish each storage area using the Par Stock method.]

The problems with par stocking are: two trips to each storage area are labor intensive, and staff will move from actually counting each item to a visual method.  The visual method is where they visually scan each product and determine if it needs replenishment without actually counting the existing stock.  This method can be highly successful if each area stocks the same quantity of each item.  The flaws become apparent when the same person replenishes two different storage areas.  Central Supply staff kept finding 20 patient belonging bags in the ICU’s storage area.  20 is the correct number for a Medical/Surgical floor, but the quantity is excessive for a six-bed ICU.  The standard shelving configuration will work fine for a PAR stock system and should cost approximately $1,250.00.  

KanBan
According to Fred Harriman’s “Origins of the Term "KANBAN" from conversations with Chihiro Nakao,” KanBan means shop sign in Japanese (Harriman, 2005). After World War II, Toyota wanted to change how they replenished the parts in their factories, and they began by studying supermarkets. At a supermarket, the customers fill their carts with what they need. The supermarket only stocks what it expects to sell before their next truck arrives. Since the customers can expect a future supply, they take only enough to meet their immediate needs. Toyota came to the conclusion to align the factories’ inventory level with actual consumption. They needed a sign to signal a supplier to deliver new goods once the existing goods are used up. KanBan controls the rate of production by using the rate of demand. Since the 1950’s KanBan has spread around the world and in health care, many different computerized varieties have sprung up.

Two Bin KanBan
The most common type of KanBan in hospitals is two bins. Workers have two containers of each product from which they can pull for their needs, working through one and then the other. [Download paper to view image]

The quantity of supplies in each bin is determined by the lead time to replenish and the departmental usage.  An order is triggered once they empty a bin and set it aside.  The empty bin will be refilled and placed behind the current working bin which creates a continual process and is designed to eliminate any stock-outs. [Download to view procedure flow charts]

While the concept of KanBan sounds easy, there are a lot of technical nuances that is required to make the system work (Safrit, 2014). For instance, Mark Rosenthal, an industrial engineer and author of the website, “The Lean Thinker” points out that for “if you use cards or other signals, anywhere consider the complexity …. Remember, you are asking your customers to keep track of all of this.” (Rosenthal, 2008)

There is a risk that you would use the entire product in the second bin before you restock the first bin. Hospitals don’t normally have this issue because KanBan is usually rolled out in departmental storage areas. These areas are replenished either from the main hospital storage location or by implementing a low unit of measure program like Cardinal Health’s ValueLink.

While the two bins eliminate the time of counting each item in the storage area, there still is the time required actually to visit each storage area before you return to Central Supply to pull the product. When it comes to shelving, this configuration requires an extra shelf on the top place the empties. Also, since this is a Two Bin system, we will need a total of 300 bins will be needed to house the 150 items. These should cost approximately $650.00 extra, bringing the total cost to $1,900.00.

One Bin KanBan
In areas where there isn’t the room for Two Bin KanBan, One Bin KanBan may be an option. In One Bin KanBan, workers have only one container of each product from which they can pull supplies. Normally there is a barrier in the bin to separate the two stocks of inventory. [Download paper to view procedure flow charts]

Just as in Two-Bin KanBan, the number of supplies in the front/back or left/right of the each bin is determined by the lead time to replenish and the departmental usage. An order is triggered once nursing moves the item card from the bin to the post/mailbox. The product for the bin will be pulled and placed at the back or other side of the bin to make sure the stock is regularly rotated.

It has the same weaknesses as Two Bin, One Bin eliminates the time of counting each item in the storage area, but, you still have the time required actually to visit each storage area, before you return to Central Supply to pull the product.

Additionally, if the workers fail to move the card from the bin and place it in the post/mailbox the order is not triggered, and the likelihood of exhausting an item’s stock rises exponentially.

To fit bins for 150 items in 8 feet of shelving ten shelves are required, the units do not require an extra shelf for the empties like the Two Bin KanBan, so the standard shelving configuration will work fine for a One Bin system and should cost approximately $1,250.00.

Point of Issue
In a computerized Point of Issue (POI) system, nursing staff would follow this flow sheet to pull their supplies. [Download paper to view procedure flow charts]

The problems with Point of Issue are: it is labor intensive for the nursing staff and can easily fail if nursing misses a few scans. The question many hospitals have asked after months of usage is how is the data being used? Does it matter that Mrs. Jones used three small boxes of Kleenex or that Mr. Smith received two combs during his stay? The Point of Issue workstation is perfect for a Catheterization‎ Lab, where the products are all expensive and can need to generate a patient charge. However that is not the norm, most nursing storage areas have a high number of items that are not expensive and are not chargeable. So if the data is not useful does it make sense to have a nurse, at their pay scale, take the time to record that Mrs. Johnson needs an additional pair of slipper socks? The second issue with POI is that nursing would run out of product because they forgot to scan an item the system if you don’t scan the items, the system will never generate a replenishment order. Sometimes overstocking would occur because nursing would scan the wrong barcode or scan the barcode multiple times without actually using the volume of product they scanned so Central Supply would be forced to try to replenish the shelves with more product than could fit or return the product to the main stores.

POI is flexible with the standard 8 feet of wall space using a wide variety of shelving/cabinet choices. It is important that a barcode on the front of each shelf, bin, basket, or drawers for each supply. So each storage area can have a different way of holding its product. The standard shelving configuration will work fine and should cost approximately $1,250.00.

The cost of a POI system can be very expensive since it includes workstations, bar code scanners, and wall mounts for each storage area. These cost around $7,000.00 each when the hospital implemented MedHost in 2008. Today’s touch screen monitors have become mainstream they cost just over $1,000.00, but the entire POI station could easily cost over $3,000.00 each. The big question is can your Materials Information System (MIS) implement POI, or do you need to spend additional funds to get your system ready?

Company A
One of the newer proprietary entries in this market is Company A. They can implement their system on top of either a PAR Stock or Two Bin KanBan system so nursing can continue to retrieve their supplies with either method using the processes described above. Nursing staff would follow this flow sheet to pull their supplies. [Download paper to view procedure flow charts]

Company A’s cloud/mobile based inventory management solution is quick and easy to implement. You can use par, KanBan, or even use a limited access system for each storage area. Each hospital can determine the ideal method for each storage area. Its cloud-based technology helps to speed up implementation because there are no servers to install, and it’s easy to grow. It can create PO’s, receive products against PO’s, and order items directly for different hospital departments. Additionally, it can even allow nursing to order non-stock items. The system can do much more than helping with par or KanBan implementation. If a hospital was small and didn’t have an MIS, it might be able to get away with only using Company A’s system and save the cost of a full MIS. It also can interface directly with many different MIS vendors to generate purchase orders, decrease your item inventory, and generate patient charges, including Lawson, Meditech, PeopleSoft, SAP, and several others. Since it is cloud-based software, you can use many different devices. Anything PC, Android, or Apple based can connect with Company A.

The system costs $2,000.00 for implementation and $25,000 to interface to your MIS. The annual support is $25,000.00. You still would need to decide what inventory method you will use for each storage area, and if you choose Two Bin KanBan, you will have the additional cost of $1,800 for the shelves and bins. Additionally, you will have the cost of Android or iPad tablets for the staff to use.

The system is not setup to allow you to pull the product from the hospital’s central stores. Company A is designed to generate the automatic replenishment of a low unit of measure (LUM) program, similar to Cardinal’s ValueLink program. Conventionally, a hospital’s Central Supply is where supplies flow in bulk from the distributor, are unloaded on shelves and picked/dispersed by Central Supply staff to the nursing floors. LUM programs eliminate two of those steps by allowing products to go straight to the nursing storage areas. Central Supply staff no longer needs to replenish their shelves or pick products for distribution. The LUM provider brings in exactly the products used the previous day in totes based on each storage area’s demand, organized by the row and bin of each storage area. Central Supply staff can take the bin directly to the nursing storage area and replenish the shelves, thereby creating fewer touch points, lower storage needs, reduced overstocks and expired products and better use of staff time. The disadvantage of LUM programs is the cost of the additional fees added by the distributor for five days per week delivery, custom pallet architecture, and other LUM fees. However, beyond manpower savings, hospitals will also see savings in square footage needed, and decreased inventory carrying costs. Consequently, these must be considered when determining the overall impact of implementing an LUM system.

Company B
Company B was the first vendor to bring KanBan to the healthcare market. From the nursing perspective, Company B is a standard Two Bin KanBan system. [Download paper to view procedure flow charts]

Company B has a project manager who comes to the hospital and meets with each nursing department to make sure to plan for their needs before the installation. Company B was the only vendor that talked about sending in additional manpower to help guarantee success in setting up each of the storage areas. The system doesn’t allow you to pull the product from the hospital’s central stores. Company B, like Company A, is designed for hospitals that use a low unit of measure (LUM) program. One major difference is that Company B wants the bins to be moved and refilled in Central Supply, This will limit the amount of the nursing and Central Staff have to work around each other in the storage areas. Consequently, you would have the savings to decreased store room size, and decreased inventory carrying cost. However, you also have the additional cost of implementing an LUM program.

Company B licenses their software by the user, and the minimum license is for five users. As for costs, Company B is not the most inexpensive option; the interface software license is $3,000.00 per month. The program management to get the system up and running averages $6,000 each. The hardware (racks, bins, etc.) cost an average of $3,900 per unit and of course, you have to pay for the temporary help in getting everything setup of another $1,900 per shelf. Therefore, at the end of 3 years, you could easily spend over $15,000 per storage area.

To their credit, Company B is the only vendor to offer a guarantee of saving between 5-7% in your Medical Supply Expense and believes that its software is what allows it to offer that guarantee, which sets it apart from its competitors.

Company C
From the nursing perspective, Company C’s offering is a standard One Bin KanBan system. Nursing has one bin, or container, of each product in each storage area. A divider splits each bin into to 2 separate sections of which they can use for their needs. The nurse starts working by pulling supplies from the left side of the bin first, and when it is empty, they remove the stock card from the bin and drop it into the card reader. When the initial stock is empty, a red restock card is exposed to indicate an order is placed with Central Supply, and then nursing continues to get their supplies from the right side of the bin. There are no bins to move or lose. [Download paper to view procedure flow charts]

The system then generates a report in Central Supply of the supplies needed to refill the storage area; staff doesn't have to go to the storage area to count the stock or collect the empty bins.

The two main weakness of this system is nursing and information. 1) If the nurses fail to move the card from the bin and place it in the RFID reading box an order is not triggered, and the likelihood of exhausting an item’s stock rises exponentially. 2) Since there is no interface between the Company C’s system and the hospital MIS, you have the repetitive tasks of entering your picks into your MIS.
The system is simple and is easy to use. It doesn’t matter if you have an MIS because it doesn’t interface with it. A possible advantage is that the system doesn’t require the use of an LUM distributor. The system is designed only to allow you to pull the product from the hospital’s central stores.

The implementation costs between $5,000 and $10,000 and support is $2,000.00 per year. You will have the additional cost of between $3,000 to $5,000 for the shelves and bins.

Company D
Company D system is another variant of a One Bin KanBan system. Nurses have one bin or container of each product in each storage area. A divider splits each bin into to 2 separate sections of which they can use for their needs. The nurse starts working by pulling supplies from the left side of the bin first, and when it is empty, they remove the stock card from the bin and drop it into the card reader. When the initial stock is empty, they push the button on the RFID tag located at the front of the bin. A replenishment report will print in Central Supply, which alerts them what items need to restock, and then nursing continues to get their supplies from the right side of the bin. There are no bins or cards to move or lose. [Download paper to view procedure flow charts]

The system then generates a report in Central Supply of the supplies needed to refill the storage area; staff doesn't have to go to the storage area to count the stock or collect the empty bins.

Company D’s system connects to the hospital MIS, so you can use your MIS to track issues instead of having a second system to track the usage. The main weakness of this system is nursing. If the nurses fail to push the button on the bin, an order is not triggered, and the likelihood of exhausting an item’s stock rises exponentially. A possible advantage is that the system doesn’t require the use of an LUM distributor. The system is designed only to allow you to pull the product from the hospital’s central stores.

The implementation of the system costs between $15,000 and $20,000. The annual support is $2,000.00. You will have the additional cost of between $3,000 to $5,000 for the shelves and bins.

Company E
Company E’s system is unique in this market instead of taking Toyota’s KanBan and reconfiguring it to a healthcare setting; they use scales built into the wall rack to weigh the contents of every bin four times per hour. From a nursing perspective, it is as easy as Par Stocking or any of the other automated systems. [Download paper to view procedure flow charts]

A report will then be generated in Central Supply to alert staff of what supplies to restock. Central Supply has no need to spend time walking from storage area to storage area to count the existing stock or collect the empty bins.

Company E’s system does not require the space or additional inventory required by any of the KanBan systems. KanBan systems visually show what needs ordering, but with Company E, you know exactly how many of each product is available in each storage area at any time, which is an advantage when the main storeroom is out of stock, and you need a product quickly. One repeatedly mentioned downside is that nursing returns a product to the wrong bin. That, however, is a problem for every system outlined in this paper. Some hospitals place a return bin at the door and ask the nursing staff not to put products back, which is similar to Librarians frowning on you returning books on the library’s shelves.

Company E has not confined itself to working only with LUM; it will work with either pulling supplies from your storeroom or with an LUM program. Company E provided a quote that the scales would cost in the range of $35.00 to $50.00 and that it normally averages around $40.00 per item in the storage area. Therefore, by using the 150 item example, the scales (w/bins) should cost approximately $6,000.00 each. The software, which is required to run 1 to 500 units, costs $30,000, and the interfaces should be $6,500.00. The maintenance is easy to calculate at 1% of the cost each month. Consequently, each storage area would cost $6,000.00; the software would be $300.00, and the interfaces cost $65.00 each and every month.

Conclusion
Although there are similarities among these replenishment methods, there are also significant differences between systems.

The biggest similarity between everything except PAR stocking is eliminating the counting of each supply in each storage area. Many of the systems have done studies showing that hospitals can repurpose 20-30% of the Central Supply FTEs. Depending on how many FTEs you have, this could be great savings, or not. Many small Hospital Central Supply departments may only have 2 to 3 FTEs, and they provide coverage eight to ten hours a day five days a week. With the significantly lower wages, rural hospitals normally have, implementing a system with a savings of 25% would only save between $15,000 to $20,000 per year. That savings wouldn’t generate a reasonable return on investment (ROI) to implement any of these systems. Of course, you have the old catch 22 when it comes to full-time equivalent (FTE) savings. Vendors always use the word “repurpose” or some other euphemism. If you still pay the FTEs, you haven’t saved any money.

The automated systems: POI, Company A, Company B, Company C, Company D, and Company E can show strong ROIs where hospitals can spread the cost of the computer software and systems over dozens or hundreds of storage areas. The major savings of the computerized systems over the manual systems is the time it takes for the first trip to count the existing supplies or scan bins for each storage area. Since all the computerized systems can generate a replenishment report, and push the report either to Central Supply for picking or to Supply Chain Management for the distributor’s LUM order, these trips are not required. The cost of this trip to each storage area is dependent upon the size of your hospital and the number of storage areas you have. Many small rural hospitals have 12 or fewer storage areas all located in the same building. So the cost of having CS make this first stop is minimal and wouldn’t save an hour a day. On the other hand, if you had 148 storage areas like at Jefferson University Hospital located in Philadelphia spread out in dozens of buildings throughout the city, this would be a significant time saver and could easily replace 1 or more FTEs. Consequently, for a small rural hospital, there are no real savings in labor to help pay the cost of implementing any of the computerized systems.

One major drawback of all the KanBan systems is the amount of duplicate inventory required. Since you do not want to have to replenish the bins more than once a day you are required to put at least one day’s inventory in each bin, several providers recommend a 2 to 3 day supply in each bin. If you then multiply that by Two Bins for every product, the inventory value of each storage area is, at least, double the value of inventory required for a PAR system or with the Company E system. Again, this might not be an issue at a small rural hospital, but it could have an impact on a much larger hospital with several hundred storage areas.

As you can see from the combined workflow diagrams below, these systems remove significant steps by the Central Supply Staff to complete the replenishment process, but they add steps to the nursing workflows. Agreed they are simple steps, like pushing a button, moving a card, or moving an empty bin is it acceptable to adding steps to the nursing workflow? Nursing then becomes responsible for ordering the goods to restock the storage area locations. These are the same nurses who, according to a survey conducted by the “Nursing Times and ITV” (Ford, 2014), said they did not have enough time to give patients adequate care because of staff shortages and too much paperwork. Does it make sense to add more work on a staff that already feels overworked? Is it CQO relevant? Is it in the best interest of the hospital’s Cost, Quality, and Outcomes to delay patient care, stress the nurses, and have nurses sidetracked from their tasks?

One facility tried implementing a One Bin KanBan, and it failed because nursing staff never took the time to move the card from the product bin to the ‘needs ordered’ bin. The nurse manager tried for several months by pulling the cards every morning, and that worked marginally well until she went on vacation. The problem with any of these systems in a small rural hospital is that nursing knows Central Supply strives to be a part of the hospital team and will not turn down an ‘emergency’ request from a nursing station. Any or all of these systems will work fine with a large multi-location hospital system because nursing understands at large hospitals using LUM programs there is no store room on site to get ‘emergency’ supplies. The only two systems in this paper which make sense for a small rural hospital are PAR Stocking and Company E because they are the only two that reduce the number of steps required for nursing to use the system. On the other hand, it would be hard for any small rural hospital to spend: $72,000.00 for scales for 12 storage areas, $30,000 for the software, and $6,500 for the interfaces, not to mention the annual maintenance cost of $13,020.00.

Each of these methods and companies and has introduced some technology into supply replenishment and each system has its advantages and disadvantages. But for a small rural hospital with only 12 storage areas, PAR stocking remains the most cost affordable option.

Download the Fellow Paper to view corresponding tables and graphs.

Bibliography
AHRMM CQO. (n.d.). Cost, Quality, and Outcomes (CQO) Movement. Retrieved February 5, 2016, from AHRMM: www.ahrmm.org/CQO

BusinessDictionary.com. (n.d.). Retrieved 12 23, 2015, from Business Dictionary.Com: http://www.businessdictionary.com/definition/par.html#ixzz3v9nD0xTa

Ford, S. (2014, May 07). Exclusive survey: Nurses underpaid, overworked and undervalued. Retrieved 03 15, 2016, from http://www.nursingtimes.net/roles/nurse-managers/exclusive-survey-nurses-underpaid-overworked-and-undervalued/5070524.fullarticle

Harriman, F. (2005). Origins of the Term "KANBAN". Retrieved March 3, 2016, from http://www.fredharriman.com/resources/OriginsofKanban.htm

Rosenthal, M. (2008, January 20). Why I Don't Like Two-Bin Systems. Retrieved March 22, 2016, from The Lean Thinker: http://theleanthinker.com/2008/01/20/why-i-dont-like-two-bin-systems/

Safrit, M. (2014). Basics of the Two-Bin Kanban System. Retrieved March 3, 2016, from http://falconfastening.com/lean-learning/inventory-management/basics-of-the-two-bin-kanban-system/

 

Central Supply staff to replenish each storage area using the Par Stock method.