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Implementing lowest unit of measure concepts to supply chain can help offset COVID-19 costs

Avoiding bulk ordering in favor of smaller and more frequent shipments can save hundreds of thousands of dollars.

Jeff Lagasse, Associate Editor

With hospital margins shrinking or disappearing due to the COVID-19 coronavirus, healthcare organizations are looking for ways to trim costs and achieve operational efficiencies.

Even with states reopening their economies and hospitals resuming elective surgeries, cost containment will remain a strategic part of how providers do business – and one area ripe for exploration is the supply chain.

Certainly, some items such as personal protective equipment and ventilators will need to be stockpiled, since shortages have plagued hospitals in their efforts to contain and treat the virus. Other, more pedestrian items can be ordered and handled differently, streamlining the process and saving on costs.

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Joseph Jackson, managing director at Strategic Healthcare Services, a supply chain consulting firm in Atlanta, is a big believer in a concept known as the lowest unit of measure, or LUM. LUM is a distribution method that tasks the distributor with providing medical supplies by unit or box, which can reduce costs and increase efficiency for the ordering provider by passing on this responsibility to the distributor rather than relying on internal staff.

LOWEST UNIT OF MEASURE

Orders are typically packaged and delivered to a designated department in the hospital, as required, which can help to bulk inventory while creating space in previously utilized storage areas.

This is a deviation from the typical supply ordering method, in which a central supply department will count inventory and send an order to a team that picks the order, organizes the items for the various units and then brings them back up to be distributed among disparate departments – which can burn up time and staff resources.

"A great way to really streamline things is to have your distributor do that," said Jackson. "Somebody still has to go around to the various units and count the supply closets, but instead of the order being sent to the storeroom, that gets sent straight to the distributor – they would organize the inventory."

Using this approach, the items being delivered will already be organized by the time they hit the receiving dock, and staff can then take these items straight to the relevant departments, producing efficiency by reducing the amount of time staff is handling the inventory. The hospital can then reduce the inventory itself, which reduces carrying costs.

"Really where the savings come in is you're able to rebalance your staff," Jackson said. "Some people may get dismissed or redeployed to another department, but you're saving so much time on the picking and delivery of products, but also reducing the amount of bulk inventory that goes through your doors."

Consolidating the supply chain function into one centralized department will result in efficiencies as all supply chain personnel will be following the same policies, procedures and performance standards.

Since CT labs, radiology departments and others all have their own warehouse and buying staffs, Jackson advocated breaking those silos down to promote LUM as a LEAN principle, which can then be used to make an argument to the C-suite that this is the more efficient way to go.

LEAN thinking lays out the core principles of value, value streams, flow, pull and perfection. Simply put, it means creating more value with fewer resources.

"People are wary of ceding control of those employees and those functions," said Jackson. "Away to get around that, or to soften that, is introducing this LEAN principle and making things a little more efficient."

Of course, in the time of COVID, certain items need to be handled differently. N95 masks, surgical masks and face shields should be set aside from a hospital's routine medical supply as shortages have forced organizations to stockpile these items. Jackson recommends putting them on an LUM in a separate stash, in a stockpile that doesn't live in central supply.

"I think you can separate them and should separate them," he said. "You shouldn't touch them, unless there's an expiration date."

RELATIONSHIPS AND ORDER TRACKING

One of the most important facets of implementing LUM is to rely on relationships. If an organization can create good positive momentum in, say, the nursing unit, then the hospital can use nursing as its pilot. If the nursing unit ends up singing LUM's praises, the organization then has an opening to go to other departments to show that the process works.

This takes time. There may be some friction and political pushback, but the way to address that is through relationships and trust. It may take 18 to 24 months for the concept to roll through the entire organization, but once it's done, the savings are there – in the hundreds of thousands of dollars in some cases, and in some of the most successful cases close to a quarter million, according to Jackson.

The use of technology is a must in this endeavor. In an LUM scenario, there could be a hundred different purchase orders going to the distributor, and the distributor will send order acknowledgements and invoices for each purchase order. The number of transactions will explode, which requires the ability to track it all. Luckily, most hospitals have the requisite technology already on hand – they just need to harness theory analytics capabilities in the best way.

"When you go to LUM, your data interchange capabilities should be tested," said Jackson. "Most hospitals will have (electronic data interchange) with their primary distributor. You have to build out and track those transaction sets. It's very important. You can't keep faxing paperwork back and forth; it's too cumbersome. You need to electronically send 100 purchase orders as data, and receive the acknowledgements, including the invoice."

All of this adds revenue to the bottom line, which is crucial for hospitals as they contend with the coronavirus. Some hospitals are doing this already, but Jackson expects more will follow as revenue and budget considerations place strain and stress on various healthcare organizations.

"I think it should be more widespread than it is," said Jackson. "Hospitals can get paralyzed sometimes. They're too busy to drain the swamp because they're tied up shooting the alligators. This is something more hospitals need to embrace."

Twitter: @JELagasse

Email the writer: jeff.lagasse@himssmedia.com