CINCINNATI – University of Cincinnati analysis of hospital supply chains – medicines, materials, devices and office supplies – reveals that the use of RFID technology can help hospitals cut as much as 18 percent in labor costs associated with resupplying.

The research, to be presented June 22 at the Institute for Operations Research and Management Science Healthcare Conference in Montreal, has implications for affecting many significant costs associated with hospital supplies. On average, supplies and inventory account for 30 to 40 percent of an average hospital’s budget, according to the research.

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The presentation is part of a long-term research project involving analysis of supply chains at Cincinnati Children’s Hospital and Medical Center, Sacre-Coeur Hospital in Montreal and the Hospital for Sick Children (SickKids) in Toronto.

The UC study Storing and Dispensing Hospital Supplies to Nursing Wards – The RFID-Enabled, Two-Bin System, will be presented by Claudia Rosales, a just-graduated doctoral student in quantitative analysis now at Michigan State University; Michael Magazine, UC professor of operations and business analytics; and Uday Rao, UC associate professor of operations and business analytics.

Hybrid model
Traditionally, hospitals have opted to resupply nursing stations at set periodic times (perhaps once a day) or to resupply a particular item when that item runs low. Each policy has fixed costs associated with it, the study states. With periodic resupply, if a critical need for an item is experienced due to unexpected demand, caregivers have to scramble, e.g. “steal” from other stations to meet needs. In other words, demand has spiked, and a needed item isn’t there because it isn’t due to be replenished until a set time.

New RFID technology (radio-frequency identification) makes continuous replenishment – when an item runs low – easier. When an item runs low, a signal is sent to the storeroom indicating that replenishment should be considered for that item.

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 “In a lot of ways, continuous replenishment is best, to only resupply as needed,” says Magazine. “The problem is we have hundreds of product items needed in lots of locations with very few people to deliver them.”
 

In earlier stages of research, the UC team determined that given the availability of this technology, a “hybrid model” that combines features of periodic and continuous resupply could potentially save hospitals 18 percent in labor costs associated with resupply, while also making sure supplies are available to care givers and patients.

The UC team also examined the “joint replenishment model.” This “joint model” asks a basic question when the system triggers a resupply of a needed item, saus Rosales. That question: In terms of periodic resupply, what else is likely to be needed soon? So, when the supply personnel go to deliver the item requested due to the signal transmitted to the storage room , they also “bring up” other items likely to be needed soon in terms of periodic resupply. This “what else will be needed soon” question can be asked either by supply personnel or by means of software.

UC quantitative analysis and follow-up simulations showed this approach would result in an average 38 percent reduction in the need for out-of-cycle replenishment – avoiding the  “we need it now” emergency, which is costly in terms of labor and time and a potential risk for patients.
“Hospitals want to hit the right balance of sufficient but not-too-many supplies,” says Rosales. “Keeping unnecessary levels of inventory can increase costs significantly. But lack of sufficient inventory may hinder patient care and disrupt nursing activities. So, there’s a cost associated with that too. The joint resupply model tends to even out demand uncertainty, which is where there is a burst of demand for an item. If we can even out such emergency demand spikes via the joint model, that’s a significant cost savings for the hospital.”

Bin approach
In its latest research, the UC team is seeking to estimate any cost savings that might be available by foregoing the tracking and ordering of individual items, but instead, tracking entire bins of items. This is similar to a Kanban approach where each item is stored in two bins, tracking only how many bins have been depleted rather than how many items are still in inventory.

“In other words, if you’re only tracking whether a bin is empty or not, that’s a lot less information to process and track than the specific number of individual items, especially when the number of items are in the hundreds,” says Magazine. “You’d know from the RFID technology if you were using the second (back-up) bin because the tag on the second bin would be different from the color of the tag on the first. And when a certain number of first bins (of different items) become empty, that’s when you resupply.”