How to keep inventory costs under control

March 1, 2010

It's time to take a good, hard look at inventory controls and plugging holes in wasted supplies.

Think again. Drugs and medical and office supplies in the typical urology practice run a whopping $96,000 per year for each full-time physician, according to surveys conducted by the Medical Group Management Association ( http://www.mgma.com/) and the National Society of Certified Healthcare Business Consultants ( http://www.nschbc.com/). This should motivate managers and physicians to get serious about managing this sometimes-silent problem. Yes, it's time to take a good, hard look at inventory controls and plugging holes in wasted supplies.

Take charge

For starters, you must get the fundamentals right so you have what you need when you need it, without price gouges or waste. One way to effectively maintain control over the practice's inventory is to make sure you own the internal supply and demand chain process-don't delegate this to your suppliers. Evaluate inventory costs, examine opportunities to reduce costs, and identify ways to manage them better. Of course, it is important to collaborate with vendors and develop close relationships-they are golden. Certain suppliers offer just-in-time, stockless supply programs worth exploring.

Let suppliers know when material costs are a concern and that cost analysis measures will be taken to reduce supply expenses through price comparisons, negotiations with preferred vendors, and, perhaps, group purchase discounts. In fact, ask them for their ideas. They've been dealing with this issue a long time and come from a far different perspective.

When planning an approach to inventory management, it's important to bring the internal players in the inventory supply chain together. Develop a system that assigns both responsibilities and accountability, including determining budgets (by department) and reviewing expense control each quarter. Determine which individuals will be responsible for identifying needs, approving expenditures, ordering supplies, and managing costs. Without accountability at each of these points, it will be difficult to control costs.

Prepare the budget

Of course, everyone involved will need a budget, whether it's a continuation of last year's level, a drop of 10%, or an upward adjustment due to the incorporation of an additional provider.

Preparing a budget requires scrutiny of high-cost and high-volume items in order to bring supply expenses in line. It is important to validate what supplies are essential and whether there is a way to reduce some of those costs. Big supply management problems occur when a valid cost analysis is not accomplished.

Urologists with special needs are part of this equation, as well. Sometimes they have been clueless to rising costs of materials, where shifting to another supplier might bring significant financial benefit without compromising outcomes. You can also do some cost comparisons with online suppliers periodically. This underscores the importance of delegation; when departments become responsible for maintaining a budget for supplies, they perk up and pay attention to costs and possible waste. They realize this will be applied as a measure to rate performance.

Keep track of supply maintenance

When it comes to day-to-day operations, examine supply maintenance to be sure no one is over-ordering and keeping more supplies on hand than are necessary-and watch out for those drugs and antigens that have a short shelf life and end up wasted. Automated inventory control systems can help organize supplies and manage costs in a way that dictates typical utilization and triggers when supplies need to be reordered, but even a simple spreadsheet can help control and manage the ordering process and supply costs.

Creating an inventory management system that monitors usage and holds people accountable will be worth the effort and bring long- lasting results. After all, drugs and medical and office supplies take up 11% of practice revenue. If you can shave that by 3%, you would see a savings of $16,000 in a four-physician practice. It just might enable you to invest in some income-producing equipment you've been thinking about that will provide better outcomes and services. It's a win-win situation.

Judy Capko is a health care consultant and the author of Take Back Time–Bringing Time Management to Medicine. She can be reached at 805-499-9203 or judy@capko.com
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