Prioritizing inventory management is essential to provider survival.
- By David Kopf
- Sep 01, 2010
Nothing is more frustrating than sitting on a pile of money you can’t use. Such is the case with inventory management in the HME industry. Providers must maintain warehouses stocked with exceptionally expensive medical equipment so that they can rapidly respond to referral partners and provide their patients with appropriate solutions to their medical needs.
However, at a time when CMS is slicing and dicing its way through Medicare funding for DME until it hits bone, maintaining too-large stockpiles of DME puts a perpetual drain on providers’ bottom lines. Providers must find ways to manage and minimize their inventory overheard — no easy feat in a business that depends on product inventory. At a typical provider business, capital outlay for DME products and supplies are its number one cost center.
If a provider hasn’t already, developing improved approaches to inventory management and implementing the tools and changes that can help keep product inventory overhead in check, should be its top priority. True, managing accounts receivable is absolutely critical to ensuring HME business performance as well, but stagnant — or dead — stock does nothing for the bottom line; every drop of incoming revenue is diminished by any dollars collecting dust in the warehouse.
Moreover, unlike other sources of capital in a providers’ operations — say, human resources costs, for example — optimizing inventory also represents the cost center where HME businesses have the most control and fl exibility over how much they spend. You need you employees, you can’t force Medicare to pay you any faster, but you can decide how much product is going to your warehouse.
Finding Balance Through Automation
At the heart of managing HME inventory lies a tricky balancing act: providers must strive to keep their inventory as small as possible while ensuring they can nimbly respond to patient and referral partner needs. This means maintaining the right levels of different types of inventory. Some items, such as diabetic supplies, CPAP masks and other refillable or replacement items need to be stocked in larger supply and replenished on a regular basis, in order to keep pace with demand. Other, larger or more expensive items not regularly do not need to be kept in great supply.
This means that providers need total control over their inventory, much more than they have traditionally had. Gone are the days of physical counts. Providers need real-time information on their inventory. They need to be able to have up-to-the-minute information regarding:
- What inventory is on-hand or on-order.
- The total cost of their inventory.
- What inventory is depreciating and by how much.
- The cost of certain segments of inventory, such as by type or vendor.
- Which counts of certain products are too low or too high.
- Inventory of certain products by serial or lot number.
- Where inventory is located (in which warehouse, on what retail floor, or in which delivery truck).
This level of control not only helps the provider get a better handle on how much money they have tied up in their stock, but can also help them more flexibly respond to shifting demands made on the business.
For instance, some inventory management systems let a provider treat each delivery vehicle as a warehouse location. This ability to drill-down and see what is out on the street means that a provider can leverage its inventory management system to provide same-day delivery, set-up and service to a patient or referral partner that just placed an order. That is the kind of service that can create a patient or partner for life. Likewise, in an emergency situation, a provider can leverage inventory management software to review the available inventory, and, if necessary move stock that was assigned to one order to another, more urgent order. Here again, automation helps the HME establish itself as a healthcare resource that can rapidly respond to crucial patient needs.
Barcoding a Foundation
So where does this automation start? With a series of black stripes. Although barcoding was patented in the late 1940s and developed in the late 1950s and early 1960s, it took until the 1980s for the technology to truly catch on. Nowadays barcoding has achieved ubiquity.
And no place is barcoding needed more than HME providers’ warehouse operations. Being able to ensure changes in the inventory are correctly recorded in real-time not only ensures the reliable, up-to-the-minute inventory data that can be used to make cost-saving management decisions.
Moreover, barcording ensures reliability. By properly coding and scanning DME, now staff can rest assured that they are pulling the right product for a patient order.
And because the product is being tracked via the barcode as it passed through it each step in the process, the inventory management system can be used to see where that piece of DME is in the system. So that a provider can update a patient or provider as to where a piece of DME is in the workfl ow. That kind of data can be crucial when it comes to the accreditation process, as well.
A key technology asset in this is, of course, the barcode readers themselves. Using wireless handheld scanners in the warehouse ensures that the every change is instantly updated in the system. Not only can this benefit be enjoyed in the back office, but some systems allow delivery staff to wirelessly update the inventory system from the road using smart phones are similar devices that can read barcodes.
Other elements of the HME business can come into play from a technological standpoint, as well. For instance, point of sales systems should be able to read barcodes for retail and other transactions so that they can not only get the correct pricing and information for product that is on the floor, but also so that they can update the inventory management system, as well.
But before barcoding can be implemented, providers must lay the table for automation. This means seriously studying the various types of DME the provider stocks and determining how it needs to be tracked.
Obviously, not all DME is alike. There is more traditional, product-oriented DME such as walkers, grab bars, and the like. Then there are rental products that must be tracked differently. Likewise, there are refillable supplies, or oxygen supplies, or power mobility solutions for unique mobility patient needs. All these different types of DME have unique inventory-tracking needs. They might need to be tracked by the cylinder, by lot number, by serial number, or other criteria.
So a provider must approach automating the control of these different types of inventory, but grouping them and starting to define the steps and requirements in that stock’s management. Once products are grouped, the provider can then consider how to code them. Working from most general to specific, a coding system can be developed that becomes universal to staff. It might be based on vendor part number, or something that is entirely unique to the provider, but the key is to create a uniform system so that staff can easily look at a code and get at least a general idea of what the product is.
Another central aspect to automating inventory operations is to increasing purchasing efficiency to ensure that in-demand DME is reordered before it runs out. Here again, software rules a central role.
The inventory system should automatically monitor specific, heavily ordered items’ inventories, and when they reach certain thresholds, notify the provider to order replacement stock. In fact, many systems will create the necessary purchase orders and some will even automatically submit them electronically.
This can be a boon to provider businesses because not only does it ensure that they will have adequate stock to meet patient and referral, but it also saves them from having to keep too much stock in the warehouse, freeing up precious capital for other uses.
Better yet, some automated purchasing systems can help facilitate drop shipments, as well. And in some arrangements the product can even be shipped using the providers’ branding. This means certain inventory never has to sit in the warehouse at all. Naturally, this arrangement doesn’t suit all types of DME, but for applicable items it can represent an even greater cost savings as it also eliminates some delivery costs, as well.
Besides refilling existing inventory, the purchasing aspects of inventory management systems should also enable the provider to generate orders for DME that it might not usually stock as well.
Also automatic purchasing tools typically also record recent purchases so that providers can sort automated orders based on the best price, or supplier lead time, or similar criteria. This also includes shipping charges, another major cost saving achieved simply through the group orders that automatic purchasing encourages.
Points to Take Away:
- In the hack-and-slash Medicare funding environment, providers must remove as much unnecessary cost from their businesses as possible.
- Inventory represents providers’ largest cost center.
- In this respect, providers must automate their inventory management as much as possible to maximize cost savings.
- The goal is real-time data. This lets providers reduce overhead while still being able to fl exibly respond to patient and referral partner requests.
- Barcoding is critical in facilitating real-time inventory management while reducing human error and ensuring accurate oversight.
- Automated reordering are helps providers maintain adequate levels of DME based on demand.
This article originally appeared in the September 2010 issue of HME Business.