Objectives
The provider wanted us to standardize and automate the ordering process across the hospital chain and to develop an effective forecasting algorithm that could help in reducing the inventory days. Outcomes
With a state-of-the-art forecasting algorithm and configurable tool, the procurement teams could instantly extract optimal reorder levels. This reduced inventory days and also saved on the manhours used to arrive at the same. With the help of the tool, inventory days could be reduced by 28% and the non-moving stock by 37%.
A leading hospital chain streamlines its material reordering process using a custom-made and highly configurable material planning tool.
Business process standardization (BPS) is an act of establishing a “best-practice” of how to carry out a process & making sure that the entire organization follows it. There are many benefits of business process standardization (BPS) which includes: Minimizing the cost of inventory holding, Loss reductions, Increased transparency, Variability reduction, saving on manhour costs and making the supply chain lean. Material Requirement Planning tool helps the provider in standardizing the business processes in a much simple and efficient way.
Traditional vs Digital Supply Chain Processes
What makes it difficult for a supply chain manager to develop an effective forecast algorithm? Is it the calculation or the algorithm? No. Calculation of reorder level or a simple moving average forecast algorithm is quite simple and widely available. It is the volume, variety and velocity of data that makes it difficult to calculate. With over 30,000 SKUs in use across the healthcare network, this adds to the complexity. To get the consumption and purchase order data for the last „N‟ days for these many SKUs becomes a tedious task for a Supply Chain Manager, given the fact that these two data resides in a different system.
Further, the traditional way of calculating the reorder level is via a macro-based excel sheet. There are many drawbacks of traditional method:
Lack of transparency
Inconsistency in forecasting logic used across various hospitals
Not customizable to changing scenarios
To overcome the problem of the traditional method, a Material Requirement Planning tool was developed.
Data Analytics enables accurate forecasting with great flexibility
The core issue that needed to be tackled was the volume of data. The provider was getting data from two different sources - consumption related data from one application and purchaserelated data from another. Due to the large volume and limitation of excel-based macros some hospitals were considering only last limited consumption data in their forecasting algorithm. This was resulting in gross misrepresentation of the demand trajectory and thereby leading to wrong stock levels. In the analytics tool, a combination of short-term, medium-term, and long-term (configurable) consumption data was used to accurately estimate the demand. Also, our system is seamlessly connected to both applications that provide the data, so any open and pending Purchase Orders/Requisitions were also taken into consideration. For the executives raising the Purchase Orders at the store level, a detailed item-level reorder quantity was provided along with rate contract and vendor information.
Keeping the end user in consideration, the tool has been made highly flexible. For instance, the provider and configure various parameters including the pack size, vendor lead times, alternatives, vital stock amongst others.
A Stitch in Time Saves Nine
Material Requirement Planning was implemented in a phased manner across different hospitals in a span of 4-5 months. Due to the adaptation of the framework, the health system was able to achieve cost minimization, greater efficiency, and streamlined ordering patterns.
Post the implementation of material requirement planning tool, the inventory days reduced by 28% across the network in 8 months. Nonmoving stock reduced by 37% in the same period. Items about to expire in next 3 months reduced by 30%.
In addition to this, the efficiency of the supply chain department members also improved. The ordering activity that used to consume over 12hrs for a single hospital was repeated weekly. With the material requirement planning tool, we managed to save over 300 manhours across the hospital network.
Material Planning Tool had made the ordering process system agnostic to the underlying application. Even when the provider migrated the Hospital Information System from one to another, our tool could automatically scale up rapidly to the new application, formats and design.
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