Focus

Streamlining Materials

About 50 per cent of revenue is taken by materials management department alone. HIS, centralised purchasing, better vendor management and sub stores analysis are helping the hospitals in streamlining this crucial area, finds out Sonal Shukla

We are living in a world of rapid change. The rapid technological advancement in the field of medicine and biomedical engineering coupled with the birth and growth of corporate culture in the management of hospitals has widened the scope of hospital management in India.

Materials are said to be a major cost factor in any enterprise and in hospitals about 35- 40 per cent of the budgetary allocation is for procurement and management of materials. No surprise that Materials Management (MM) holds a crucial key to the seamless functioning of the hospital which deals with human life every second. Today, in spite of the inherent dynamic nature of hospitals' consumption trends change on day-to-day basis, the MM department or rather the concept has come of age in very few hospitals in India. Still in its nascent stage in India wherein the importance of materials management is still being realised, a lot of improvements have happened in the healthcare industry off late and more concerted efforts are being seen as the margins are very less in materials used in a hospital and quality is of utmost importance. While hospital chains like Apollo and Global have integrated the latest in IT to manage this aspect, other stand alone hospitals like Delhi based Ganga Ram Hospital, Ruby Hall Clinic (RHC) in Pune, KG Hospital in Coimbatore, BM Birla Heart Research Centre in Kolkata, Care Hospitals from Hyderabad and Mumbai based Jaslok Hospital and LH Hiranandani Hospital have also joined the bandwagon in streamlining this crucial aspect. "With increasing demand of cost containment and reusability of resources the significance has quadrupled in the last 10 years. Materials department is the central blood line of a healthcare setting," believes Bipul K Jha, Senior Research Analyst, Healthcare Practice- South Asia & Middle East, Frost & Sullivan.

Significance

Hospital management encompasses all the supporting services wherein materials management is a significant aspect as it is required to plan and control the flow of material in the hospital. This would in turn lead to an efficient system wherein the flow of materials can be optimised. “Ideally materials cost should not be more than 25-30 per cent of the revenue earned," states Dr K Hari Prasad, CEO, Apollo Hospitals, Hyderabad. MM is the process of management which co-ordinates, supervises and executes the tasks associated with the flow of materials to, through and out of an organisation in an integrated fashion. In a hospital it helps in procurement of materials at low prices, controls the high rate of inventory turnover, ensures continuity of supply, maintains the consistence of quality, minimises the acquisition and storing cost of goods, helps in lowering the administrative cost and maintaining the supplier relationship. It also helps in development of new materials and new sources as well as efficient record keeping and prompt recording of goods and finally in development of personnel.

A Challenging Task

"The crucial aspect is to maintain the material cost at low level, with optimum inventory levels" - Venu Isukapalli GM Materials Global Hospitals, Chennai

"Today hospitals are trying to get local suppliers so that the lead times are reduced to a larger extent" - Dr K Hari Prasad CEO Apollo Hospitals Hyderabad

Healthcare is an intensive and a taxing industry wherein a lot of materials are consumed continuously 24/7. Moreover non availability of any material can be very critical and can lead to irreversible damage, delay in treatment with catastrophic results and also drive costs higher on account of unplanned emergency purchases.

"Poor quality of material in any other industry can lead to rejection of the product but in a hospital it is very difficult as human lives are involved," opines Dr Hari Prasad. Further, quality of material purchased for a hospital is again very critical as a sub standard material cannot be tolerated. For instance the use of contaminated disposable plastic syringes. Moreover, according to experts, current practices in healthcare have become an important source of environmental pollution and potential harm to health. Mercury, other heavy metals, and endocrine disrupters are present in many healthcare products and threaten the health of patients, workers, and communities. So, continuously evaluating the systems and materials and trying to find alternatives is a daunting task.

Purely in terms of managing materials, the hospital faces many challenges. Firstly, the materials department has to maintain a fine balance between stocking materials, so that it is neither over-stocked or vice-versa. "You have to be extremely careful. It is a challenge for any hospital to adjust the storage of consumables to avoid lack of material and overstocking because overstocking leads to likelihood of expired stocks. The materials that are generally overstocked are emergency medicines and consumables and materials that are not always readily available. The healthcare industry is a critical care sector and hence all medicines/ consumables need to be available round- the-clock for its smooth functioning. You should be able to manage the inventory with 'magic numbers.' It should not be less and at the same time you should not overstock," states an industry expert.

Secondly, another challenge that smaller or lesser known hospitals face is that vendors give importance to healthcare giants, not to small hospitals. As a result, "you don't get efficient managers with good calibre who can head materials department," says an expert on condition of anonymity. As each medicine comes with an expiry date, once it's expired, one is answerable to his/ her heads. According to Venu Isukapalli, GM Materials, Global Hospitals, Chennai, the crucial aspect is to maintain the material cost at low level, with optimum inventory levels and establish systems and process as per the accredited standards. "These are the major parameters and also challenges in MM," he says. Another difficult challenge in standardising materials across group hospitals is user loyalty/ patronage. Agrees, KD Sathyanarayanan, GM Materials - pharmacy and stores, Manipal Health Systems. "Each doctor has a loyalty or preference to a particular brand or manufacturer, based on his past clinical experience, in spite of there being other products of the same functionality and specifications which might even help in bettering the bottom-line of the hospital. In a group of hospital this becomes all the more difficult as they are situated in different regions, preferences will be diverse and region specific. Unexpected surge in demand of monopoly items, items with huge lead time, is also said to be another challenge which a materials manager can face.

In such a complex industry with myriad preferences and different objectives from the hospital management and the user perspectives, the materials department has to indeed strike a chord between both the parties and manage to make best of both the worlds. Hence, to overcome the challenges most material managers practice innovative strategies to optimise materials utilisation.

Managing Stocks

Today, any hospital would be incurring an expenditure of at least 35-38 per cent of the revenue on their materials. According to experts, a proper analysis of each location of the hospital is the pre requisite for any material management. This is generally done on the basis of tracking usage of various items and depending on the number of beds, number of admissions and bed turns. This should also include the forecasting component which is fundamental to the operations of any business. "We have a review meeting every three months wherein we check for the consumption of material, compare with previous years same time period and take inputs of doctors and end users. Accordingly, we decide on purchasing a new equipment and material," states Dr Hari Prasad. Overstocking of material leads to pilferage of material and also on the cost of procuring, inventorying and storage costs. Generally, the materials wherein the lead times are high are overstocked. "Today, hospitals are trying to get local suppliers so that the lead times are reduced to a larger extent. Again it is something like— ‘nobody wants inventory but everyone wants service.’ So, it should be borne in mind that the primary objective of inventory is to provide customer service," avers Dr Hari Prasad. Further, a hospital can reduce lead times by selecting local suppliers, informing suppliers of the expected annual demand, contracting with suppliers for minimum annual purchase, maintaining multiple suppliers, control access to storage areas, buying on consignment basis, ordering economic quantities and disposing inactive stocks. Sathyanarayanan emphasises on optimising the efficiency levels. According to him materials contribute most to the cost of the treatment. Hence, it will be easier for the Hospital to improve its bottom-line if material costs are reined in by achieving efficiency in consumption of materials. "OT utilisation, is a typical area where time management and efficiency will enable to achieve better capacity utilisation," adds Sathyanarayanan. According to him as everyone prefers to operate in prime time, typically, 8 am to 3 pm, the management needs to think of ways of making the best use of the remaining hours. Better capacity utilisation will reduce the impact of fixed costs. These initiatives are all within the control of the management and thus materials management can play a significant and definitive role in improving the bottom line of the Hospital. In RHC drugs and pharmaceuticals are made available as per the prescription of the doctors. "As a strategy we have also negotiated with our vendors to take back non-moving items. Moreover, on our request they have agreed to maintain sufficient stocks of our fast moving items to be able to supply at a very short notice," states AR Contractor, Materials Controller, RHC, Pune. Ganga Ram Hospital, New Delhi, gives emphasis on maintaining optimum stocks, keeping alternative sources in bad times, situational decisions in emergencies, maintaining buffer stocks and continuous reviews. Better inventory tracking system adopted in KG Hospital has reduced the amount of inventory kept on the nursing units and has eliminated overstocking of supplies. "Our nurses are comfortable knowing that their supplies will be there when they need them. It is a big time-saver and morale-booster," states Dr G Bakthavathsalam, Chairman, KG Hospital, Coimbatore. According to Venu, 'just in time purchasing' for high costly items and consignment procurement will be an ideal way of operation in the healthcare sector for all big ticket items.

Centralised Purchasing

In a hospital chain like Apollo Hospitals with its branches all across the country, it is always very difficult to co-ordinate the whole process. Ideally, a central purchasing unit is the best solution to minimise a lot of issues. A centralised purchasing system minimises duplication and wastage, develops a strong inventory management system, and minimises stock in the hospital through a detailed consumption analysis of various items to ensure that redundant items are not reordered. According to Venu, the formation of purchase committee comprising the Project Head, Medical Director, Materials Head and Chief Financial Officer helps in order to ensure transparency in purchase. Similarly, a drug committee comprising a physician, medical director and general surgeon can review the standard drug list. There can be separate committees to co-ordinate with other departments, to review the purchase of consumables, to take care of statutory obligations relating to licenses. "With proper representation from each department, these committees will help in knowing the need of each department," he adds.

Sub Stores Analysis

Sub store analysis in each and every area of hospital functioning can work wonders in streamlining the flow of materials by the hub and spoke model where main store is the major branch head. "Every year you cannot come to the main stores and collect the material and go to the patient. Therefore, we have utilised the concept of sub store analysis in each and every area of the hospital wherever it would be convenient to the patient. Here, the sub stores will work as a branch to the main store," states Venu. The hospital has around 10 sub stores in the hospital. There are major sub stores like cardiology, lab, operation theatre and other wards and floors. "This is one innovative strategy applied which has helped us in process improvement and in material consumption control by maintaining material costs and material accounting," remarks Venu. However, not all are of the same view. Mumbai based LH Hiranandani Hospital has purposefully kept no sub store in wards but only in critical areas like ICU/OT/Casualty and that too minimalistic. "Having the sub stores in wards which has constant access can't guarantee the security of stocks and has a huge scope for pilferages. We indent each and every item from our main stores for each and every patient as and when required," states Dr Akash S Rajpal, AGM Operations, Dr LH Hiranandani Hospital, Mumbai.

Cost Control Measures

Apart from all of the above areas, awareness about the cost of material and its accountability is also very important amongst the employees. According to experts, the key to levers for cost saving begins with the use of the Pareto principle -— 20 per cent of the items lead to 80 per cent of the costs. Savings on these items will yield low hanging fruits. "The second most important area is to integrate purchases across departments and locations. The piece will enunciate in some detail the various opportunities that exist and how one can extract maximum value out of the supply chain," opines Venu.

Apollo Hospital gives a monthly statement of usage/ consumption of material to each department head so that they keep a check on the usage of material and ensure that it is not being wasted. AS Contractor, Materials Controller, RHC believes that in hospitals the important challenges in terms of managing the material revolve around rapidly changing technology in medical equipment and drugs and pharmaceuticals. "Rising costs of energy providing products like oil, electricity and also doctor-centric needs, limit the freedom of choice," Contractor says. RHC, like many other Hospital, uses large quantity for furnace oil and electricity backed by diesel generators to run medical equipment, air conditioning, laundry, kitchen. The problem of increasing cost of oil needed to be addressed on priority. Moreover erratic power supply and its high cost was disrupting the normal functioning of the Hospital. To resolve these problems RHC found a willing partner in Honeywell Automation India to provide an energy management solution. They guaranteed a reduction of 20-25 per cent in energy bills. "We also negotiated for a win-win payment term wherein Ruby Hall would pay for the cost of upgrades and year-on-year a part of actual reduction in energy bills achieved would be paid to Honeywell," informs Contractor.

Vendor Management

Vendor is one of the most important links in the supply chain management today as the whole process depends on the material which is supplied by this vendor. A good understanding of the organisation's mission and vision should be made very clear to the vendor and accordingly the material should be evaluated. The vendor must know precisely the quality that the buyer wants and how to meet those specifications prescribed. "It is absolutely essential to maintain a cordial relationship with the vendors. We should enter into a long-term partnership with them. They support us when we need materials by supplying them in the right quantity at the right time," feels Dr Bakthavathsalam.

Hyderabad based Apollo Hospital does a vendor rating analysis every month and score all its vendors on a five point scale on - quantity, quality, delivery, service, and rating and on this basis classify its vendors in the A, B, C category. The vendors falling under the C category every month are given warnings and after repeated warnings if the service does not reflect any improvement then strict actions are undertaken. "The vendor of healthcare material should be considered as an extended business partner and not just the supplier of product and services," feels Contractor. Vendors should be confident of a business relationship in which they will be able to synergise with the goal and objectives of the hospital. Towards this requirement the selection of vendors becomes a very critical need. "We have a list of approved suppliers and periodically we update the list by adding new suppliers and deleting the old suppliers whose performance does not meet with our quality requirement. The suppliers who supply genuine medicines and surgical items in time, at the best rate are enlisted and those who fail, their names are deleted or not entertained," states Suyash Borar, COO, BM Birla Heart Research Centre. As for the parameters to select the right vendor, most hospital check vendor registration with their credentials and their financial back up which helps them to assess the vendors and their standards and genuineness. (See Box).

IT: The Tech Booster

The IT System provides continuous monitoring, trend analysis, planning and inventory control. Online pharmacy module can carry out pharmacy orders, order scheduling and fulfill prescriptions online from the wards to the pharmacy stores. IT systems are thus necessary precursors for developing an efficient material management system. Hospital's MM departments focus on cost containment, but staff members are often overwhelmed with the day-to-day tasks that keep them from streamlining workflow and taking advantage of potential savings on supplies that are used. HIS software allows to automate the workflow that can clog a hospital's materials management department. "It gives hospitals and the ability to automate materials management workflow resulting in net savings, improved accuracy and ultimately allows the department to contribute significant savings to the bottom line," opines Borar. As MM departments work with different vendors via e-commerce platforms they are discovering how automation can speed and improve communication with vendors over the internet. It increases efficiency through decreased manpower costs, decreased risk of pilferage, ability to monitor and thus control costs, decreased propensity for stock-outs. Furthermore the cost of transactions with many vendors can be minimised by automation of these processes. It also plays a very significant role to improve patient care and safety, drive down costs and optimise inventory levels. It includes tailored, tactical hospital inventory management software for operational requirements - a significant area for cost savings. "Apart form this, IT helps in providing a end-to-end hospital supply chain software solution utilising scanning and a wireless infrastructure to manage materials, costs and charges from requisitioning to the point-of-care," avers Dr Hari Prasad. Installation of HIS has really helped Delhi based Ganga Ram Hospital a lot through its different modules like inventory management, asset management, financial management and billing management. The information is directly seen by the concerned departments, making the system transparent and accessible just-in-time, thereby reducing delays and the discrepancies and redundancies, which used to exist in the previous system. "Data reaches within no time and thus providing better and quick services to our patients," states Dr BK Rao, Chairman and CEO, Ganga Ram Hospital, New Delhi.

The present trend is to use more of those computer aided systems which are beyond data entry and retrieval formats. The new systems could be LAN (Local Area Network), WAN (Wide Area Network), EDI ( Electronic Data Interchange and WAND reader (Bar Code Reader). According to experts these when in place will speed-up the process considerably and at the same time will be more reliable. The data would be available to multiple users for a better collective decision making. Experts also believe that a proper MIS (Management Information System) in hospitals materials management plays a major role to evaluate, assess the actual utilisation, per patient wise, area wise, material type wise cost, leads finally the total inventory trends and its utilisation and accounting. "The new solutions like ERP based packages will help more in having a detailed data for various comparisons and inter connectivity between the hospitals and specially for financial evaluations," believes Venu.

Capital Procurement and Budgeting

Out of the total budget of the hospital, almost 60 per cent is spent on capital procurement. With the advent of latest technology, medical equipment has come a long way in assisting healthcare professionals in diagnosis and standard of the hospitals. Hence, the purchase, maintenance and replacement of medical equipment are an essential and integral part of hospital management. Right from the budgeting stage to execution level for the purchase of equipment, a hospital carefully analyses its decision, taking into account several factors like the necessity, utility, pricing and so on. The decision is taken in consultation with user heads with a team of biomedical engineers, materials heads, medical professionals, top management officials and so on. The warranties, technology, branding, training, IT, technical parameter, upgradation options and integrations are the major parameters in selection.

Future Trends

Healthcare industry is faced with a fast changing scenario in which the patients are well informed and have access to latest information on healthcare. The diagnosis and treatment are becoming costlier and the ability to pay is restricted. There is increasing dependency on payments through insurance schemes. In such a scenario material managers may have to shift their methods from the conventional to a more integrated approach. The supply chain will have to include the vendor, doctors, healthcare-providers, stores and also the patient. More transparency will be the need of the hour in the near future. Vendors should be taken into confidence and become extended business partners who share the vision and objectives of the Hospital. Material managers will have to make use of the futuristic IT solutions which will provide forecasting techniques and integrated approach towards material management. "The rapid development and introduction of sophisticated medical technologies in the healthcare industry has created a wealth of tools and devices designed to improve patient care. The manufacturers of hospital equipment tremendously benefit from new equipment introduced in the market. However, the hospitals must evaluate and prioritise which technologies should be bought that will bring overall value," opines Dr Bakthavathsalam. Today, hospitals are seeking the help of outsiders to help determine which technologies are worth purchasing.

"We do not visualise any major shift in future trends in material management from the current systems. Material management principles in the hospital are time tested and functions to meet the requirements and challenges. However, the IT will have to play a larger role to ensure that it is more robust and accurate and meets the requirement to the extent that the margin of errors are minimised," states Colonel Manish Masand, CEO of Jaslok Hospital and Research Center, Mumbai. According to Kasi Raju, COO, Care Group of Hospitals, "We are today heading towards third party payment, all the admissions/procedures will be given in ready-made packages ( a fixed amount for a service irrespective of materials used). This will put substantial pressure on the cost of materials. So cost-price and not the product margin will be more important for the hospitals. Also, most of the materials consumption in the hospitals today is based on the quantity used which will be changing soon."

Experts visualise an era where we may have shopping malls even for hospital materials and chain stores that will take the burden of procuring, storing and supplying the materials to hospitals on their e-mail purchase orders and the titles like purchase and stores department may only remain in books!

sonal.shukla@expressindia.com