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Supply Expense Reduction Strategies
Dan Johnson, Principal Systems EngineerOctober 10, 2016
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DisclosuresRelevant Financial Relationship(s):
List or Nothing to Disclose
Off Label Usage:
List or Nothing to Disclose
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Agenda
• Inventory Management
• Evaluating Supply Reorder Levels
• Evaluating supply consumption using SPIDER
Supply Expense Reduction Strategies
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The Need to Understand Laboratory Test Costs
• Providers under continual financial pressure• Patient needs• Medicare reimbursement• Third party payers
Supply Expense Reduction Strategies
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Laboratory Test Cost Breakdown
• Labor
• Equipment Depreciation
• Overhead
• Supplies
Supply Expense Reduction Strategies
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New Supply Process Planning
• Partner with Materials Management to develop inventory management processes
• Item and vendor selection
• Quality assurance• Regulatory, QC and lot tracking needs
• Establish inventory levels• Create standard approach for min/max and
safety stock levels
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Inventory Management System
• Organize stock locations using 5S• Sort• Set in order• Shine• Standardize• Sustain
Supply Expense Reduction Strategies
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Inventory Management System
• Supply ordering system• Manual vs automated
Supply Expense Reduction Strategies
Replenishment Cycle
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Inventory Level “Sawtooth” Graph
Supply Expense Reduction Strategies
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Safety Stock
• Safety Stock Level = ADU * Lead time• Where ADU is the average daily usage
• Example calculation• ADU = 5 units per day• Lead time = 4 days• Safety stock = 5 * 4 = 20 units
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Reorder Point (ROP)
• ROP = ADU * Avg Lead Time + Safety Stock
• Example calculation• ADU = 5 units consumed per day• Avg Lead Time = 4 days• Safety Stock = 20 units• (5 * 4) + 20 = 40 units
Supply Expense Reduction Strategies
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Maximum Inventory Level
• Target Days of Supply – how many days of supply is desired
• Factors• Item cost• Shipping charges• Validation requirements
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Evaluating Reorder Point & Reorder Quantity
Supply Expense Reduction Strategies
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Evaluating Reorder Point & Reorder Quantity
• Review reorder levels for items with highest cost
• Review items that have more than 40-45 days supply on hand
• Review items that haven’t activated replenishment for extended period of time
• Work with vendors
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Manual Inventory System
Supply Expense Reduction Strategies
Re-order Point
Supplies Arrive
Kanban ticket includes:• Item description• Reorder point• Item ID number• Re-order quantity• Item Storage location
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Automated Inventory System
• Automated systems use a touch probe to scan electronic buttons as supplies consumed
• Principals are the same as the manual system with the benefit of automatic order placement
Supply Expense Reduction Strategies
Touch probe
Electronic button
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Inventory System Performance
• Inventory operational metrics and indicators• Supply expense• Inventory turns• Stock-outs / Rush orders• Planned vs actual usage• Scrap cost
• Quality fail• Expired product
Supply Expense Reduction Strategies
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SPIDER:Supply and Process Improvement Dissector
for Expense Reduction
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SPIDER
Supply Expense Reduction Strategies
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SPIDER
Supply Expense Reduction Strategies
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SPIDER Case Study
Supply Expense Reduction Strategies
• Select supply item for analysis from list of high expend supplies
• Obtain price per unit and quantity purchased over specified period of time
PCR Kit
Price per unit = $2,369Qty purchased = 65Total expenditure = $153,985
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SPIDER Case Study
Supply Expense Reduction Strategies
• Determine what tests use that supply and how many clinical tests were run over the specified time period
• What is the max number of tests per kit?
• Calculate the total number of kits required to complete clinical tests
Test 1234: vol = 343 Test 5678: vol = 900
Test 1234: 343/27 = 12.7Test 5678: 900/27 = 33.3TOTAL: 46.0 kits
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SPIDER Case Study
Supply Expense Reduction Strategies
• Determine % usage for other causes
• 6 of 27 samples are controls
• Multiply each usage percentage by the number of used required
Repeat: 8.3%Controls: 22.2%Quality Control: 2.0%
RepeatTest 1234: 12.7 * 8.3% = 1.1Test 5678: 33.3 * 8.3% = 2.8
ControlsTest 1234: 12.7 * 22.2% = 2.8Test 5678: 33.3 * 22.2% = 7.4
Quality ControlTest 1234: 12.7 * 2.0% = 0.3Test 5678: 33.3 * 2.0% = 0.7
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SPIDER Case Study
Supply Expense Reduction Strategies
• Total known consumption
• Total Actual Usage
• Unknown
Clinical Testing: 46.0Repeat: 3.9Controls: 10.2Quality Control: 1.0Total: 61.1 kits
65.0 kits
3.9 kits
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SPIDER Case Study
Supply Expense Reduction Strategies
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SPIDER Case Study
Supply Expense Reduction Strategies
• Equate to expenditure
Usage TypePercent of Total
Expenditure by Usage Type
Clinical Testing 71% $109,045.07
Repeat 6% $9,052.12
Controls 16% $24,211.71
Quality Control 1% $2,181.23
Unknown 6% $9,494.86
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SPIDER Case Study
Supply Expense Reduction Strategies
Analysis Period
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SPIDER Hints
• Be sure analysis period is long enough
• Account for seasonal usage variation
• Unknown quantity could be excess supply in storage either when analysis period began or when it ended
• Involve bench technicians in analysis
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Example Findings Using SPIDER
Supply Expense Reduction Strategies
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Packaging
• SPIDER revealed uncategorized usage
• Theoretically max: 112 samples per kit using an automated liquid handling process
• Actual max: 87 samples per kit due to configuration of kit coupled with plate size, number of patient sample and controls
• Packaging configuration improved usage efficiency 22%
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Remove Unused Items
• Process may result in leftover of multi-reagent kits
• Request quote for “right-sized” quantities
• Reduce/eliminate buffer
Supply Expense Reduction Strategies
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Automated Liquid Handler
• Automated vs manual pipetting
• Research liquid handler setup
• Tip depth
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Dilution
• Conservative dilution level 1:4
• Validate dilution to 1:10
• Cut reagent cost in half
• Ensure complete validation
• Put control plan in place to ensure failure rate unaffected
Supply Expense Reduction Strategies
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Batching
• Incorporate batching and reduce number of runs per day
• Consume less reagent and controls• Must balance with turnaround time needs
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Getting That Last Bit
• Antibody reagent trapped in the vial or vial cap• By spinning down the vial, extra antibody
that would have been lost was captured
• Manual pipetting after automation
Supply Expense Reduction Strategies