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Vila Health: Pacemaker Inventory
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Kros & Brown (2013) define supply chain management (SCM) as “ the identification, acquisition, access, positioning, management of resources and related capabilities the organization needs or potentially needs in the attainment (p.5).
Supply chain analytics is exponentially critical to overall success from an operational and financial viewpoint. The monitoring of pacemakers is a potentially costly endeavor for the Peta King Heart Institute at St. Anthony Medical Center. As an inventory specialist, careful monitoring and analysis are vital to eliminating problem areas such as under or overestimating supply. Using data analytics is helpful to leaders to evaluate the complex supply chain within the hospital, which affects the manufacturer and the consumer (The power of inventory management,2016). Managing the supply chain efficiently helps the leader predict trends between usage and demand for products based on actual use and the quantity of economic order. Equally important to note is whether consigning the product or purchasing and assuming the risk for holding and storage, there is a cost involved, so handling the supply chain is essential to the financial viability of the Vila Health Care system.
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Overview of Inventory Control
The supply chain management's dilemma is that the organizational needs are not adequately reflected. Hence, cost-effective analysis using the EOQ must be considered for ordering pacemakers for the unit. The difficulty is issues with supply not meeting the demand for pacemakers that warrants further assessment. Therefore, the inventory specialist at Vila Health's Peta King Heart Institute at St. Anthony Medical Center, projecting annual expenditures for supplies is crucial for financial success and robust supply chain management. Enlisting the help of leadership, including Kenneth Dunn, reports that the pacemaker inventory was projected to exceed the last year's 2100 units and thus raised the ordering units to 2500. The usage was overestimated at 2500 and said to be closer to 2300, so projecting this number for the next fiscal year is feasible and cost-efficient (media.capella.edu,n.d.).
As, seen in the above slide the demand for 2301 and list of financials are projected for this amount to continue with cost- effective and efficient pacemaker projections for the next fiscal year. Bernadette Holt has enlisted help with an EOQ for pacemakers. These devices are sensitive and costly stock so proper management is vital to cost containment based on actual and projected use for the next year.
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Prior Year
2,500
Budgeted
2,750
Previous 11 months volume
2,109
Projected Demand
2301
Pacemaker Cost
$35.00
Holding Cost
5%
Per Pacemaker Holding Cost $1.75
Setup Cost
$300.00
Ordering Cost
$175.00
Order Quantity 400
Overview of Inventory Control
Kros & Brown (2013) define inventory as the number of supplies and goods held within an organization in a specific location and time (p.503). Several factors and concepts impact inventory control. Inventory management is crucial to successful business operations (Kros & Brown, 2013, p.502). Inventory exists due to unpredictable utilization at any given time, so a surplus is maintained to allow for fluctuations of goods and supplies typically within the company's fiscal year. Having inventory on hand in a health care setting is vital to operations at any given time. Having inventory on hand in a health care setting is vital to operations at any given time. Stock must be accounted for ongoing to assess utilization, revenue, shelf-life, and finally, cost. The careful balance of goods and supplies must be managed to control costs and utilization measures that directly impact facilities' care and revenue. Finally, this balance contains costs and considers inventory routinely to maximize operational planning and decision-making. Economic order quantity (EOQ) ascertains inventory issues and controls ordering through a modeled approach.
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Management
Number of supplies or goods
Accounting for stock
Maintaining balance
Assess utilization
Overview of Inventory Control
To avoid poor demand forecasting for supply chain management, managers must consider the exact amount of supply needed to fulfill the demand. Kenneth Dunn has indicated that the last month of the fiscal year boasts excess pacemaker supplies. Thus, making an order for that previous month was challenging. It is essential to realize that over budgeting funds for unused pacemakers will cost the company revenue for the new supply and holding costs for storing and products that may expire or not be used.
Henceforth, Kenneth Dunn should consider ordering the other 200 pacemakers and risk monetary penalty for ordering more than the 400 of the standard order or consign the small amount to balance the overhead and holding costs. Prior annual use was 2500 pacemakers, and the current fiscal year budget demands 2300 actual. This demand decreases from the projected forecasting for the current fiscal year's budget, so the strategic plan for next year at 2750 will surely succeed the demand for pacemakers.
It would be wise to consider budgeting a small amount for overflow at a minimal cost and not have the storage or holding cost to incur on the unused product. If expiration does occur, the budget will not suffer in capital or additional costs incurred for unused supply (Consignment inventory management,2020).
Ultimately, the best strategic plan for supply chain management warrants scrutiny when assessing usage balance vs. demand for the product, specifically within the last month of the fiscal year. Also, consider ordering half the order to make up the 200 to hit the 2300 demand forecasted for the additional month of the fiscal year. This would balance the supply-demand needs. The subsequent year's budget should consider a minimum of 2300 pacemakers due to demand this year. The prior budget was overestimated at 2500 pacemakers, which led to excess supply and increased waste and revenue for the hospital.
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Review of Economic Order Quantity (EOQ) purpose and data
The economic order quantity (EOQ) is the level of inventory that minimizes total inventory holding costs and setup costs (Kros & Brown ,2013, p.507). The purpose of EOQ is the groundwork for inventory control and the models that represent cost containment and expenditures. The data represents the relationship between setup costs which are fixed, and the variable inventory costs. Independent demand does not rely on any other item. The opposite is true for dependent demand which is those that depend on another entity.
Forecasting expenditures is vital to operational planning and decision-making for EOQ.
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Economic Order Quantity Formula
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The equation for EOQ accounts for storage, ordering costs, and underestimated or shortage of costs. Carrying costs represent the costs incurred on holding inventory in hand. They include the opportunity cost of money held up in stock, storage costs, spoilage costs, and acute conditions related to storing devices such as a pacemaker (QS Study, n.d.). The EOQ helps minimize the cost of supply management.
It is essential to realize that ordering costs incurred by purchasing inventory are very different from carrying costs. Carrying costs require the manager to order minimal supply, which will increase the ordering costs. Thus, having excess reserves in storage becomes cost burdensome for the organization, particularly when considering costly devices such are pacemakers. This creates opportunity cost from the excess supply for maintaining the devices. The product's expiration would fall into this opportunity costs estimation, so careful analysis and operational planning are vital to successful supply chain management procedures.
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P: Purchase Price $35.00 P: Purchase Price $35.00
D: Annual Demand 2300 D: Annual Demand 2300
H: Holding Cost Per Unit 5% H: Holding Cost Per Unit 5%
S: Setup Cost $300.00 S: Setup Cost $300.00
Q: Order Quantity 400 EOQ: Order Quantity 888
APC: Annual Purchase Cost $80,500.00 APC: Annual Purchase Cost $80,500.00
AHC: Annual Holding Cost $350.00 AHC: Annual Holding Cost $777.00
ASC: Annual Setup Cost $1,725.00 ASC: Annual Setup Cost $777.03
TAC: Total Annual Cost $82,575.00 TAC: Total Annual Cost: $82,054.03
(EOQ) Pacemakers for Vila Health
P = $35.00
D = Annual Demand 2300 Annual Set-up Cost (ASC) = S*D/Q = $300.00 * 2300/400 = $1725.00
H= 5%(0.05) Annual Purchase Cost (APC) = P*D= $35.00 *2300 = $80,500.00
S = Set up cost $300.00 Annual Holding Cost (AHC) = P*H*Q/2= $35.00*0.05*400/2 = $350.00
Q = Ordering quantity 400 Total Annual Cost (TAC) = APC+AHC+ ASC= ($35.00 *2300) + (35.00*0.05*400/2) + ($300.00*2300/400)= $82,575.00
Economic Order Quantity (EOQ) Pacemakers for Vila Health = 888
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Recommendations for Inventory Ordering
Consolidation
Collaborative and Cohesive Culture
Data Evaluation
Trends and Forecasting
Actionable Strategies
Consolidation is very impactful when considering inventory ordering and cost-effective measures for reducing expenditures related to the supply chain. Indisputably, data analysis can help to reduce waste and increase revenue for the organization. Actionable and strategic operational planning will contain costs for the system, manufacturer, and the health care consumer (The power of inventory management,2016).
Each entity or department within the Vila Health system has its data related to their modality, and thus cohesive and collaborative cultures lead to successful planning. Moreover, the cardiac units require very different purchasing trends and forecasting than housekeeping or other ancillary services due to their high cost and delicate handling of the devices. Therefore, detailed operational data and trend evaluation are crucial for balancing stock and counteracting holding costs that plaque units that overestimate supplies. Furthermore, it would prove useful to monitor the whereabouts of these pacemakers.
Vila Health should consider tracking devices for the pacemakers due to their high cost. Many organizations have had success with monitoring for inventory control purposes and FDA recalls for defective devices (Sherwin,2013).
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Leadership
Hospital leadership faces many challenges in the complex environment involved in supply chain management. The pressure of strategic planning and balancing of supplies to reduce costs and avoid inefficient planning within multiple departments (Yoon et al., 2016) are a few challenges related to supply chain management. When costly devices like pacemakers are involved, rigorous monitoring is essential for these lifesaving devices. Not only is leadership concerned with shelf life, sensitive storage conditions, cost, expiration dates, and recall information on a routine basis, but ensuring supplies are available without an overabundance of financial overhead for the organization are all crucial roles for supply chain leaders.
Quality management requires strategic planning to ensure that the appropriate supplies are available in a time of need (Kros & Brown, 2013, p.292). Supply chain managers and leaders rely on the supplier to fulfill their demand and whether that process has breakdowns in availability or communication. Then collaborative efforts fail to meet the quality and needs of the organization, which will lead to process improvement models and EOQ to analyze the breakdown within the supply chain.
Additionally, financial balance sheets provide an overall glance at the expenditures and assets related to spending and revenue within an organization. Thus, the company can use stock on hand by evaluating the ratio of supply to patient revenue. This process eliminates the storage costs and relates them to unused or underused supply, leading to more efficient supply chain management and revenue optimization.
Inventory purchasing and forecasting must be efficient at reducing cost and waste of supplies. Care evaluation by the supply chain managers is crucial to a successful balance of supplies to meet the consumers' demand without overordering or underestimating supplies. Overestimation leads to increase expenditures without an equal increase in revenue. Therefore, using effective models such as EOQ to balance supplies is vital to successful financial and operational planning. Too much stock can lead to inefficiencies such as storage costs, holding costs, and expired items. Lastly, strategic planning with balance sheets and forecasting supply-demand resources is crucial to a successful financial institution that increases revenue and decreases waste (Kros & Brown, 2013).
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Strategic Operational Planning
Continuous Stock Monitoring
Using EOQ for Guidance
Attention to shelfing and Sensitive Storage
Financial Balance and Forecasting
Implications
Improving on these quality metrics are vital and will ensure cost-effective and efficient operational status within the organization. Strategic planning must include the organization's mission and vision for forecasting future financial stability. Hospitals spend an enormous amount of high-cost supplies such as pacemakers. Ensuring adequate supply when needed and ensuring that assessments do not lead to overestimating stock can lead to stagnant conditions and prove to be cost worthy mistakes. Hence, using the EOQ to keep the expenditures to a minimum ultimately reduces waste and creates cohesive and safe operating environments where leaders continually assess stock supply and demand.
The implications of prosperous supply chain management have a significant impact on an organization from the internal and external environments. For example, working with vendors who can fulfill required supplies orders efficiently and quickly while providing premium costs and services. Collaboration between vendors and supply chain managers and using data allows leaders to make actionable steps towards efficient planning (The power of inventory management, 2016).
Lastly, supply chain analysis and management help monitor supplies that have expired or have been recalled, which adds value to the system by eliminating unsafe patient encounters. The benefits are impactful and cost-efficient from many perspectives.
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Quality Metrics
Prosperous Management
Balancing Stock
Actionable Steps
Collaboration
Data Scrutiny
Conclusions
Supply chain management is helpful for many reasons; ideally, cost containment is essential to run robust inventory control models within the Vila Heath system. Collaborative efforts help explore cost-cutting process improvement measures that manage data and supply and demand efforts to keep stock on hand and available in a time of need for health care consumers.
Pacemakers are not only sensitive devices but costly. Ensuring they are there and in excellent working condition free from expiration, recall, inadequate storage, and damage control is crucial for quality outcomes. Ultimately, the organization's viability depends on robust operational plans for strategic monitoring of these lifesaving devices.
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References
Consignment inventory management: A blessing or a curse? Terso. (2020, October 16). Retrieved October 29, 2021, from https://www.tersosolutions.com/consignment-inventory-management-a-blessing-and-a-curse/.
Kros, J. F., & Brown E. C. (2013). Health care operations and supply chain management: Operations, planning, and control. San Francisco, CA: Jossey-Bass.
Log in to Capella. OpenAM (Login). (n.d.). Retrieved October 23, 2021, from https://media.capella.edu/CourseMedia/VilaHealth/BHA4110/pacemakerInventory/wrapper.asp.
QS Study. (n.d.). Retrieved October 23, 2021, from https://qsstudy.com/accounting/economic-order-quantity
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References
Sherwin, J. (2013). The essentials of medical device inventory tracking. Biomedical Instrumentation & Technology, 47(5), 382-6. http://library.capella.edu/login?qurl=https%3A%2F%2Fwww.proquest.com%2Fscholarly-journals%2Fessentials-medical-device-inventory-tracking%2Fdocview%2F1459343142%2Fse-2%3Faccountid%3D27965
The power of inventory management: Turning data into insights for better outcomes. (2016). Healthcare Informatics, 33(4), 26-27. http://library.capella.edu/login?qurl=https%3A%2F%2Fwww.proquest.com%2Ftrade-journals%2Fpower-inventory-management-turning-data-into%2Fdocview%2F1813909659%2Fse-2%3Faccountid%3D27965
Yoon, S. N., Lee, D., & Schniederjans, M. (2016). Effects of innovation leadership and supply chain innovation on supply chain efficiency: Focusing on hospital size. Technological Forecasting and Social Change, 113, 412–421.
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