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By Bryant C. Broder, CSPDT, ACSP
Inventory. The word has been around since 1523. Perhaps more powerful than itsounds, the word "inventory" can make CEOs cringe at the thought ofthe investment!
Our good friends at Merriam Webster define inventory as: an itemized list ofcurrent assets; a catalog of the property of an individual or estate; a list ofgoods on hand; a survey of natural resources; the quantity of goods or materialson hand: stock; and the act or process of taking an inventory.
The list or catalog of your "current assets" in CS can be enough tomake a 6-inch binder scream with pain, not to mention the aforementioned CEO,CFO, and materials manager! Volumes have been written on inventory control andinventory management over the years, most of which was written for themanufacturing or retail environment.
Inventory is one of the hospital's largest assets, however, many CEOs aren'tsatisfied with the contribution inventory makes toward the overall success ofthe business until it isn't where you need it when you need it. In other words,inventory management plays an integral part in program efficacy, but the skillis undervalued and may go largely unnoticed until there is a problem, such as:
Measuring Inventory Performance
In the new Training Manual for Central Service Technicians, publishedby the American Society for Healthcare Central Service Professionals (ASHCSP),there is a useful chapter on measuring inventory performance. Inventory turnovercan be defined as the annual dollar value of items issued from CS, divided bythe dollar value of supplies stored in CS. Collecting and organizing the data torun this equation may seem a daunting task to address, but once you've done ityou'll be able to better manage one of the hospital's most valuable assets.
Inventory turnover is calculated with the following formula: Cost of goodssold from stock sales during the past 12 months divided by the average inventoryinvestment during the past 12 months. There are several things to keep in mindwhen calculating turnover rates:
To determine your average inventory investment:
1. Calculate the total value of every product in inventory (quantity on-handtimes cost) every month, on the same day of the month. Be sure to be consistentin using the same cost basis (average cost, last cost, replacement cost, etc.)in calculating both the cost of goods sold and average inventory investment.
2. If inventory levels tend to fluctuate throughout the month, calculate thetotal inventory value on the first and fifteenth of every month.
3. Determine the average inventory value by averaging all inventoryvaluations recorded during the past 12 months.
As you determine your inventory turnover goals, consider the average grossmargin the hospital receives on the sale of products. The lower the margin, thehigher stock turnover.
Finally, calculate inventory turnover separately for every product line inevery location. This will allow you to identify situations in which inventory isnot providing an adequate return on investment. To improve inventory turnover,consider reducing the quantity you normally buy from the supplier. Inventoryturns improve when you buy less of product, but purchase them more often.
If your system is not performing up to its potential, be sure you haveimplemented each of the following characteristics of good inventory management:
So, what is effective inventory management? Having the right product orinstrument in the right place at the right time...with no additional costs.
Bryant C. Broder is processing manager in surgical services at St. Mary'sMercy Medical Center in Grand Rapids, MI. He also serves as president of theAmerican Society for Healthcare Central Service Professionals (ASHCSP).