Hospital Inventory Management for Emergency Demand

Inventory management is receiving increased emphasis in a variety of organizations, including manufacturing firms and service sector firms. One particularly significant area is the procurement and management of inventories in organizations subject to emergency demand situations. As materials managers and buyers work to increase the efficiency of the materials system, and to decrease inventory levels, their efforts are countered by the suggestion that these inventories are needed to meet emergency situations in which demand may triple over night. This study was conducted to explore the validity of some of the more common assumptions about the management of emergency inventories. One of the most challenging areas where emergency inventories have to be managed is in a hospital. This study dealt with the management of inventories in a hospital, with a focus on the handling of emergency demand requirements. With increasing costs and a nationalized health care system looming on the horizon, the role of the materials manager is increasingly important to a hospital's cost effectiveness. Hospital inventory has been reported to run from 16 to 28 percent of the hospital budget. Further, for every dollar spent on supplies, seventy cents is spent for distribution to the point of use.|1~ Starting an inventory reduction program requires that management first address the fears and assumptions of hospital personnel. Inventory availability directly impacts their ability to provide quality patient care. In today's environment, however, the inventory cushion used in past years is no longer acceptable. Determining acceptable inventory levels becomes more complex as materials managers attempt to factor into inventory decisions the hospital's probability of experiencing large-scale emergency demand situations. Tornadoes, airplane crashes, floods, chemical spills, fires, earthquakes, and other similar events occur with little or no warning and may result in a sudden increase in the number of incoming patients for a hospital. In this author's view, however, inflated inventory levels designed for these emergencies should be questioned, given that each hospital faces a relatively low probability of experiencing such a situation. A materials manager's focus should be directed toward establishing efficient inventory system policies for normal operating conditions--and then to modify them to also ensure the hospital's ability to meet emergency (or shock) demand conditions. The model developed for this study was used to determine the relative significance of several common inventory system parameters on a hospital's ability to operate successfully under normal and shock conditions. HOSPITAL MATERIALS MANAGEMENT OPERATIONS Most hospital medical and surgical supply inventories operate as multi-echelon systems. The central stores operation services the inventory needs of the many lower level point-of-use (POU) locations throughout the hospital. Most orders are placed by central stores to the external suppliers. As orders are received, central stores performs the receiving operation. As in most organizations, there are some exceptions to this procedure. The surgical suite, for example, may place and receive orders directly with a surgical supplies supplier. Some hospitals have also developed selected stockless systems contracts, in which case the supplier acts as a central store and delivers directly to the POU location. This study, however, focuses on the more common relationship between central stores and point-of-use locations. Surprisingly, in most previous studies of hospital supply operations, the research focus has been on a single level of this multilevel environment, either central stores|2~ or point-of-use locations.|3~ Several different methods for managing medical and surgical supply inventories are used at the central stores level. Periodic review systems are the most common and are implemented as either a "reorder point-order quantity" system or a "reorder-up-to-point" system. …