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Managing Materials

Managing Materials. Healthcare Supply Chain. Current State of the Supply Chain $11 billion in process cost-saving opportunities Institutions are lacking in technology and perspective in implementing supply chain solutions Dimensions of the Supply Chain

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Managing Materials

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  1. Managing Materials Materials Cowan/Nowiki

  2. Healthcare Supply Chain • Current State of the Supply Chain • $11 billion in process cost-saving opportunities • Institutions are lacking in technology and perspective in implementing supply chain solutions • Dimensions of the Supply Chain • Organizations that comprise the supply chain • Process tasks that drive activities for consumer demand through manufacturer, distribution, and delivery • Information flows that must be in place to meet the needs of the institutions and organizations Materials Cowan/Nowiki

  3. Materials Management • Material Management is important because • It is necessary for good patient care • It is complex • So many different items, qualities, prices, expectations • Requires many people to specify items, purchase, and manage items • It is a major satisfier for physicians • Cost • To purchase, warehouse, distribute, dispose • Risk for malfunction, stock out, substitution Materials Cowan/Nowiki

  4. Organization Purchasing Department Finance Budget Asset Management Financing Group Affiliation Accounts Payable Distribution Receiving Warehousing Distribution Inventory Management Disposal Hazardous Waste Salvage User Departments Pharmacy Surgery Radiology Nursing Units Information Technology For each of these there are usually separate purchasing and distribution staff. Other Maintenance, Installation General maintenance Environmental Services Biomedical Services Information Technology Materials Management Materials Cowan/Nowiki

  5. MM – Some key issues • What costs matter • Low inflation • It is not the value of the inventory but the cost • To purchase • Of space • Of Distribution • Of Maintenance • High inflation the cost of inventory matters (as does the days in AR and AP) Materials Cowan/Nowiki

  6. MM – Purchasing Cost • Group Purchasing • VHA, Premier, UHC, Catholic Health Systems, HCA, • Volume purchasing – lower price but less flexibility and innovation • Another layer of skimming • But they invest in other forms of innovation that has high value (clinical process improvement, shared IT) • Under investigation about 3 years ago and they restructured to encourage • Innovation – (shorter contract lengths, more access to smaller suppliers – but still aggressive negotiating) • Return purchasing savings, charge members for other services Materials Cowan/Nowiki

  7. MM – Other Issues • Where to find the opportunities • Surgery • Standardization • Prosthetics/implants • Disposables (surgeon gowns, surgical drapes) • IT • End User devices • Software Licenses • Service Costs • Radiology • Film • Contrast Media • Maintenance Agreements Materials Cowan/Nowiki

  8. MM – Other Issues • Where to find opportunities • Pricing • Audit of Group purchasing • Tiered pricing • Changed prices • Reconciling receiving reports and invoices • Direct purchasing (when the depts order their own stuff) • Limit when you can • Monitor when you can’t Materials Cowan/Nowiki

  9. MM-Where to find opportunities • Standardization • Formulary in Pharmacy • Limit the number and type of meds • Prepackaged or reconstituted/packaged on site • Implants/catheters/drapes in Surgery • Distribution • Unit dose packaging in Pharmacy • Bar coding for safety • Packaging for safety Materials Cowan/Nowiki

  10. MM- Where to find opportunities • Distribution • Use of robotics in Pharmacy • Case carts in OR • Exchange Carts in Central Distribution • Outsource in Linens • Service Agreements • Built into price/lease • Compare with manufacturer, Outsource, Inhouse trained group Materials Cowan/Nowiki

  11. MM- Where to find opportunities • Salvage • Silver Recovery • Incinerator – power generation Materials Cowan/Nowiki

  12. Defining Materials Management Materials Cowan/Nowiki

  13. Defining Materials Management Materials management is the management and control of inventory, services, and equipment from acquisition to disposition. Materials Cowan/Nowiki

  14. Primary Objective of Materials Management Materials Cowan/Nowiki

  15. Primary Objective of Materials Management To minimize the total costs associated with materials while ensuring that the proper materials, both in terms of quantity and quality, are readily available for patient care. Materials Cowan/Nowiki

  16. Defining Inventory Management Materials Cowan/Nowiki

  17. Defining Inventory Management Inventory management is the management and control of inventory, or items that have an expected useful life of less than one year. Materials Cowan/Nowiki

  18. Importance of Materials Management Materials Cowan/Nowiki

  19. Importance of Materials Management To serve patients in the best possible manner by having Materials Cowan/Nowiki

  20. Importance of Materials Management To serve patients in the best possible manner by having -The right kind of materials on-hand. Materials Cowan/Nowiki

  21. Importance of Materials Management To serve patients in the best possible manner by having -The right kind of materials on hand. -The right amount of materials on hand. Materials Cowan/Nowiki

  22. Importance of Materials Management To serve patients in the best possible manner by having -The right kind of materials on hand. -The right amount of materials on hand. -time and lag time. Materials Cowan/Nowiki

  23. Importance of Materials Management To serve patients in the best possible manner by having -The right kind of materials on hand. -The right amount of materials on hand. -time and lag time. -uncertainties. -ABC inventory method -Just-in-time inventory (JIT) Materials Cowan/Nowiki

  24. Importance of Materials Management To serve patients in the best possible manner by having -The right kind of materials on hand. -The right amount of materials on hand. -time and lag time. -uncertainties. -ABC inventory method. -Just-in-time inventory (JIT). -discontinuities. Materials Cowan/Nowiki

  25. Importance of Materials Management To serve patients in the best possible manner by having -The right kind of materials on hand. -The right amount of materials on hand. -time and lag time. -uncertainties. -ABC inventory method. -Just-in-time inventory (JIT). -discontinuities. Cost--inventory is a non-productive asset Materials Cowan/Nowiki

  26. Valuing Inventory Materials Cowan/Nowiki

  27. Valuing Inventory First-in, first-out (FIFO) produces an inventory of newer items; therefore, the total cost of inventory is determined by multiplying the unit cost of the newest items in inventory times the number of units in inventory. Materials Cowan/Nowiki

  28. Valuing Inventory Last-in, first-out (LIFO) produces an inventory of older items; therefore, the total cost of inventory is determined by multiplying the unit cost of the oldest items in inventory time the number of units in inventory. Materials Cowan/Nowiki

  29. Valuing Inventory Weighted average determines the average unit cost and multiplies it times the number of units in inventory. Materials Cowan/Nowiki

  30. Valuing Inventory Specific identification determines the actual cost of each item in inventory. Materials Cowan/Nowiki

  31. Inventory Valuation Problem ABC Outpatient Clinic purchased surgical dressing trays on the following dates and amounts: Materials Cowan/Nowiki

  32. Inventory Valuation Problem unitspricetotal Jan 1 beginning balance 100 $10 $ 1,000 March 1 purchase 400 12 4,800 May 1 purchase 400 13 5,200 July 1 purchase 300 14 4,200 September 1 purchase 200 14 2,800 November 1 purchase 100 15 1,500 Total 1,500 $19,500 Ending inventory on Dec.31 150 Materials Cowan/Nowiki

  33. Inventory Valuation Problem Using FIFO, LIFO, and weighted average, what is ABC’s ending cost of inventory? Materials Cowan/Nowiki

  34. Inventory Valuation Problem FIFO (ending inventory is comprised of the most recent 150 trays) purchased November 1 costs 100 $15 $1,500 September 1 costs (apply 50) 50 14 700 Ending Inventory 150 $2,200 Materials Cowan/Nowiki

  35. Inventory Valuation Problem LIFO (ending inventory is comprised of the oldest 150 trays purchased) January 1 costs 100 $10 $1,000 March 1 costs (apply 50) 50 12 600 Ending Inventory 150 $1,600 Materials Cowan/Nowiki

  36. Inventory Valuation Problem Weighted average (ending inventory is comprised of the average cost per tray times the ending inventory in units) $19, 500 = $13.00 per unit x 150 = $1, 950 1, 500 Materials Cowan/Nowiki

  37. Costs of Inventory Materials Cowan/Nowiki

  38. Costs of Inventory Purchasing cost represented by price(P) x demand(D) Materials Cowan/Nowiki

  39. Costs of Inventory Ordering cost represented by O Materials Cowan/Nowiki

  40. Costs of Inventory Carrying cost which includes an opportunity cost Q IP 2 Materials Cowan/Nowiki

  41. Costs of Inventory and a holding cost HQ To make total carrying costs Q HQ + IP 2 Materials Cowan/Nowiki

  42. Costs of Inventory To make the total cost associated with stocking one item for one year D Q PD + O + ( HQ + IP ) Q 2 Materials Cowan/Nowiki

  43. Materials Cowan/Nowiki

  44. Management of Inventory • Economic Order Quantity: quantity of items that should be ordered each time • EOQ or Qc = √(2DO/(IP + 2H) • Reorder Point (RP): # of units at which inventory is reordered; demand during the lag time; i.e. RP = (Annual demand / days per year) x lag time Quantity Constant demand Reorder point Possible stock-out Possible overstock Lag Time Time Materials Cowan/Nowiki

  45. Economic Order Quantity Materials Cowan/Nowiki

  46. Economic Order Quantity Economic order quantity (EOQ or Qe or Q) Q 2 DO e = IP + 2 H Materials Cowan/Nowiki

  47. EOQ/TC Problem • See Problem 10.2 on page 149 Materials Cowan/Nowiki

  48. Reorder Point Under Conditions of Uncertainty Find the reorder point under conditions of uncertainty, given the following stock-out cost = $7.50 overstock cost = $2.00 probability of meeting demand .10 .25 .30 .25 .10 135 136 137 138 139 Materials Cowan/Nowiki

  49. Reorder Point Under Conditions of Uncertainty potential demand 135 136 137 138 139 probability .10 .25 .30 .25 .10 Materials Cowan/Nowiki

  50. Reorder Point Under Conditions of Uncertainty potential demand 135 136 137 138 139 probability .10 .25 .30 .25 .10 Reorder Point 135 136 137 138 139 Materials Cowan/Nowiki

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