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Pacemaker Inventory

· Introduction

· Problem

· Research

· Demand

· Calculations

· Conclusion

Introduction

As the health care industry continues to evolve, organizations routinely seek innovative ways to remain competitive, improve efficiency and quality, and meet consumer demands in a fiscally responsible manner.

One way to do that is to keep a careful eye on the organization’s inventory.

Pacemaker Problem

You are an inventory analyst at St. Anthony Medical Center. You monitor the hospital’s inventory purchase, use, and quality for the Peta King Heart Institute at St. Anthony Medical Center. It’s part of your role to communicate information regarding inventory that is no longer meeting the needs of the organization, not being utilized per projections, is costing the organization, or is routinely out of stock or in short supply.

Email from Bernadette Holt, Director Peta King Heart Institute

Subject: Pacemaker Inventory??

Good morning. I’m not sure what else you’ve got on your plate today, but I need some numbers on our pacemaker inventory. Can you do an EOQ calculation and get back to me with some recommendations for the next fiscal year?

Thanks!

––Bernadette

Research

You check with a couple of people to find out what you need to know in order to do the EOQ calculation.

Pacemaker Usage Data

Prior annual use: 2,500

Budgeted use for next fiscal year: 2,750

Kenneth Dunn's Desk

You stop by Kenneth Dunn's desk to talk about supplying pacemakers for the hospital.

Hi, Ken, can you tell me how many pacemakers we’ve used so far this fiscal year?

Kenneth Dunn: Let me check. Okay, we’re 11 months into the fiscal year and we’ve used…2,109.

And how many do we order at one time?

Kenneth Dunn: 400.

Okay, now, I know we pay $35 for each pacemaker, but I don’t know what our holding cost is.

Kenneth Dunn: It’s 5 percent. So on $35, that’s $1.75 each.

Okay. And the setup and ordering costs?

Kenneth Dunn: Setup is $300, ordering is $175.

A Question About Demand

Your research prompted Kenneth Dunn to alert Bernadette Holt about pacemaker demand for the next year.

Email from Kenneth Dunn

Subject: Pacemaker Inventory??

Hello Bernadette and team,

I just talked with our inventory analyst, and we talked about how many pacemakers we’ve gone through. It got me to thinking… I think by this time last year, we had gone through way more than 2,100, which is why we raised the demand to 2,500. But based on this year’s patterns, the demand might be more like 2,300.

Then again, the last month of the fiscal year was our heaviest month for pacemakers last year. And I don’t know what surgeries have been scheduled already; those wouldn’t be part of my numbers yet. So it’s possible it could go as high as 2,600.

Anyway, I just wanted to let you know. I’ve attached an EOQ Calculation Worksheet in case it’s useful.

––Ken

Calculations

Use the EOQ Calculation Worksheet to determine the total annual cost and EOQ. You should see different results for each if demand rises, falls, or stays the same.

EOQ Worksheet

Please download the  EOQ Worksheet .

Please answer the following questions.

Question 1: Why is it important to understand organizational demand when ordering inventory?

Your response:

This question has not been answered yet.

Feedback: Some potential reasons are:

· Reducing ordering costs: Ordering the appropriate number of inventory items based upon use and demand will reduce overall ordering costs as the organization will be placing fewer orders resulting in fewer administrative costs.

· Allowing for accurate ordering: Predicting organizational demand will allow inventory management professionals to place orders that will (at their best) be accurate to accommodate the anticipated need.

· Allowing for alternative stocking methods to be considered: One consideration for when to seek alternative stocking methods is product demand. If the organization is uncertain about their demand, they may wish to consider alternative stocking methods as they do not wish to tie up their capital in product that may never be consumed.

Question 2: What are some of the key pieces of information needed to determine how much of a given product to order, and why are they important?

Your response:

This question has not been answered yet.

Feedback: Some potential key pieces of information are:

· Demand: Organizations must understand the quantity of a good demanded and the factors that will affect the use of the product. For example: forecasting the demand for a given medication to ensure it is in-stock and available when requested.

· Holding cost: Holding costs are the additional costs involved in storing and maintaining inventory. It is important to know what the holding cost is as unused inventory may result in higher costs for the organization if they are not used.

· Ordering cost: Ordering costs represent the total cost of preparing an order and the costs associated with receiving the good ordered. Costs will increase for the organization as the number of orders increase.

Question 3: What are some of the benefits of utilizing a software system for managing, tracking, and calculating the appropriate amount of a given product to order?

Your response:

This question has not been answered yet.

Feedback: Some potential benefits are:

· Cost savings: Software systems utilized for inventory management help manage the organizations costs related to inventory and supplies. These systems allow the organization to monitor use therefore reducing the potential for surplus ordering (over stock), being understocked, and products expiring before use.

· Increased efficiency & productivity: Productivity and efficiency may be increased through the use of barcode scanners which will reduce manual workloads in addition to performing recounts of inventory.

· Improved patient satisfaction: Meeting customer demand is an important consideration for health care organizations including patient satisfaction. As demand changes, the organization will rely upon their inventory software management to ensure the rights products are on-hand when customers need them.

Question 4: Ineffective leadership over supply chain and inventory management can have negative impacts on an organization. How might an organization be negatively impacted by ineffective leadership?

Your response:

This question has not been answered yet.

Feedback: Some potential negative impacts of ineffective supply chain leader ship are:

· Poor vendor relations: Management of the supply chain relies upon both internal and external collaborative stakeholder relationships. Leadership works towards creating relationships with vendors that understand the business strategy, goals and culture of the organization.

· Loss of competitive edge: Should leadership fail in their responsibilities to oversee and manage the supply chain, the organization may suffer from a lack of competitive edge due to their inability to meet consumer needs.

Question 5: How can proper inventory control benefit an organization?

Your response:

This question has not been answered yet.

Feedback: Some potential benefits are:

· Reduced cost: Costs are reduced with proper inventory control as systems are managed effectively, ordering is seamless and systematic, and management of inventory ensures the department is aware of product flow.

· Proper medical device tracking: Organizations are held to strict regulatory standards regarding medical device tracking. Inventory control process can help ensure that medical device tracking is carried out appropriately. This ensures that the organization knows which medical device was utilized on which patient. This can streamline communication and interventions if a device ever needs to be recalled or re-calibrated.

· Maintaining stock levels: Maintaining adequate stock is an implication of proper inventory control as robust supply chain procedures will prevent stock from becoming critically low or potentially out of stock all together.

Question 6: Why do organizations and economic professionals calculate Economic Order Quantities (EOQs)?

Your response:

This question has not been answered yet.

Feedback: The purpose of calculating EOQs is that the help to determine the order quantity which is ideal to order for inventory. it is designed to minimize ordering and carrying costs.

Question 7: What are holding costs?

Your response:

This question has not been answered yet.

Feedback: Holding costs represent one component of total inventory costs. These costs are associated with holding inventory that remains unsold, cost of storage space, labor and insurance.

Question 8: Why might an organization seek to utilize consignment as an alternative stocking method?

Your response:

This question has not been answered yet.

Feedback: Some potential reasons are:

· The organization wishes to have less money tied up in inventory: Organizations who wish to have less money tied up in inventory costs may pursue consignment as an alternative stocking method as this method relieves the organization of costs associated with purchasing the inventory in advance. Consignment inventory is housed at the organization however it is not paid for until it is consumed.

· The product is very expensive: Similar to having less money tied up in their inventory, organizations may consider consignment as an alternative stocking technique when the product is very expensive and demand is questionable.

Conclusion

Conclusion: Activity complete!

How could patient-provider collaboration improve the health and wellness of the individuals and groups you saw in this activity?