1 ADVANCE for Executive Insight

supply chain improvements
Lean healthcare organizations empower their
members (physicians, nurses, administrative
staff, etc.) on the front lines by teaching them
how to identify wasteful process steps, followed
by problem solving in their routine daily work
or on project teams to remove waste and create
added value for their patients.
It is important to explain that while the JIT
supply chain is recognized as an effective Lean
tool, it does not come without a serious commitment
to process improvement and thoughtful,
data-driven preparation. By definition, organizations
utilizing the JIT approach do not carry extra
inventory beyond what is needed to function
over a specified, minimum period of time. Incorrect
application of JIT may result in a hospital
experiencing a materials shortage in the event of
a surge in demand.
To protect its patients, hospitals must consider
external factors that could impact its ability to
meet demand for critical inventory, such as vaccines.
A proper analysis is needed to uncover external
factors that might cause a spike in demand
for materials or a break in the supply chain, thus
compromising patient care. Examples include a
natural disaster, passage of new legislation that
hinders on-time delivery of imported goods, or
other transportation interruptions. Based on the
level of risk each situation presents, hospitals
must determine how to adjust their stock levels,
order quantities and replenishment cycles, while
ensuring the supply chain is protected with a
first, second, and sometimes third source should
a supplier’s availability of materials change when
the order is processed.
How Hospitals Saved Money
Some organizations, such as New York City
Health and Hospitals Corporation and Denver
Health, successfully implemented JIT materials
management by properly weighing risks
versus value. Both hospitals have experienced
significant savings while increasing quality patient
care.
New York City Health and Hospitals Corporation
(HHC), a $5.4 billion public health system
and the largest municipal healthcare system in
the U.S., had storage rooms holding more than
$10.2 million in supplies. Typical of overstocks
created by batch ordering in bulk quantities,
some of these materials expired before use resulting
in waste.
As one example of how JIT was applied to
HHC reduced the
cost of gloves by
almost $4 million
per year. It cut
down on the varieties
stocked from
20 varieties to
just two, enabling
HHC to negotiate
the price of
the 132,000 cases
it used each year
from $58 to $28
per case.
revamp its supply chain, HHC reduced the
cost of gloves by almost $4 million per year.
It cut down on the varieties stocked (different
colors and thickness) from 20 varieties to just
two, enabling HHC to negotiate the price of the
132,000 cases it used each year from $58 to $28
per case. Now supplies arrive, as needed — 5
days a week — slashing gloves inventory by
50 percent and providing an annual savings of
nearly $4 million.
Denver Health, a 500 bed hospital and Level
1 trauma center, provides more than $2.1 billion
in care for the uninsured even as government aid
for public hospitals has dropped by $18 million.
Before utilizing the JIT supply chain approach,
Denver Health’s surgical patients who received
tube feedings were automatically brought four to
five cans of nutritional formula into their room
each day. When a patient was discharged, the
unused formula, which costs $1.22 per can, was
thrown away, resulting in waste and expense to
both hospital and patient.
Denver Health used JIT principles to design
a system to minimize costs of formula: identifying
a new area on the floor where cans were
stored and designing a replenishment system to
ensure availability and freshness. This allows the
nurse to easily retrieve a can from the designated
area and deliver it to the patient as needed versus
wasting unused cans and ordering unnecessary
can deliveries. Since adopting this new delivery
system, approximately $10,000 of nutritional
formula has been saved. Through Lean supply
chain management and other Lean applications
system-wide, Denver Health has saved in excess
of $150 million over the past 6 years — all while
improving patient care.
The JIT materials management approach has
proven to assist Denver Health and HHC in realizing
true cost savings while increasing efficient
patient care. Both organizations have affected
cultural change by valuing the critical importance
of removing waste and transforming the
entire supply chain — sourcing decisions, quality
sourcing, order quantities, inventory levels, replenishment
cycles, transportation methods and
marketplace conditions — all driven by value in
the eyes of their patients.
By reflecting on how JIT and Lean can assist
healthcare leaders in reducing waste, improving
quality and lowering costs at their organizations,
the bottom line has a better chance at receiving a
clean bill of health.
50 ADVANCE for Executive Insight