Question

JIT at Arnold Palmer Hospital

Orlando’s Arnold Palmer Hospital, founded in 1989, specializes in treatment of women and children and is renowned for its high- quality rankings (top 10% of 2000 benchmarked hospitals), its labor and delivery volume (more than 14,000 births per year), and its neonatal intensive care unit (one of the highest survival rates in the nation). But quality medical practices and high patient sat- isfaction require costly inventory—some $30 million per year and thousands of SKUs.* With pressure on medical care to manage and reduce costs, Arnold Palmer Hospital has turned toward con- trolling its inventory with just-in-time (JIT) techniques.

Within the hospital, for example, drugs are now distributed at the nursing stations via dispensing machines (almost like vending machines) that electronically track patient usage and post the related charge to each patient. Each night, based on patient demand and prescriptions written by doctors, the dispensing stations are refilled.

To address JIT issues externally, Arnold Palmer Hospital turned to a major distribution partner, McKesson General Medical, which as a first-tier supplier provides the hospital with about one-quarter of all its medical/surgical inventory. McKesson supplies sponges, basins, towels, Mayo stand covers, syringes, and hundreds of other medical/surgical items. To ensure coordinated daily delivery of inventory purchased from McKesson, an account executive has been assigned to the hospital on a full-time basis, as well as two other individuals who address customer service and product issues. The result has been a drop in Central Supply average daily inventory from $400,000 to $114,000 since JIT.

JIT success has also been achieved in the area of custom surgical packs. Custom surgical packs are the sterile coverings, dispos- able plastic trays, gauze, and the like, specialized to each type of surgical procedure. Arnold Palmer Hospital uses 10 different cus- tom packs for various surgical procedures. “Over 50,000 packs are used each year, for a total cost of about $1.5 million,” says George DeLong, head of Supply-Chain Management.

The packs are not only delivered in a JIT manner, but packed that way as well. That is, they are packed in the reverse order they are used so each item comes out of the pack in the sequence it is

*SKU 5 stock keeping unit needed. The packs are bulky, are expensive, and must remain sterile. Reducing the inventory and handling while maintaining an ensured sterile supply for scheduled surgeries presents a challenge to hospitals.

Here is how the supply chain works: Custom packs are assem- bled by a packing company with components supplied primar- ily from manufacturers selected by the hospital, and delivered by McKesson from its local warehouse. Arnold Palmer Hospital works with its own surgical staff (through the Medical Economics Outcome Committee) to identify and standardize the custom packs to reduce the number of custom pack SKUs. With this inte- grated system, pack safety stock inventory has been cut to one day.

The procedure to drive the custom surgical pack JIT system begins with a “pull” from the doctors’ daily surgical schedule. Then, Arnold Palmer Hospital initiates an electronic order to McKesson between 1:00 and 2:00 p.m. daily. At 4:00 a.m. the next day, McKesson delivers the packs. Hospital personnel arrive at 7:00 a.m. and stock the shelves for scheduled surgeries. McKesson then reor- ders from the packing company, which in turn “pulls” necessary inventory for the quantity of packs needed from the manufacturers.

Arnold Palmer Hospital’s JIT system reduces inventory investment, expensive traditional ordering, and bulky storage and supports quality with a sterile delivery.

Discussion Questions** (pls provide different answers from the textbook solutions and from online).

1. When a doctor proposes a new surgical procedure, how do you recommend the SKU for a new custom pack be entered into the hospital’s supply-chain system?

Answer 1

The doctor proposes a new surgical procedure and advises the consumption of various medical items required for the procedure, the SKU for new custom pack could be added as follows:

1.      The first doctor will share a list of item and quantity required for the surgical procedure like the sterile coverings, disposable plastic trays, gauze, sponges, basins, towels, Mayo stand covers, syringes etc required for this type of surgical procedure.

2.      Second, the list will be shared with the supplier by the purchasing team in this case Mckesson General Medical.

3.      Third the Mckesson General medical will advise the purchasing team the cost of the SKU for the specific surgery.

4.      Fourth the requisition and time to develop the SKU will be discussed and finalized with Mckesson.

5.      Mckesson will include it in their system and inform the hospital about when they can start supplying the SKU for the surgery.

6.      A new SKU code will be created in both the hospital systems for the new surgical process.

7.      The SKU will be added to the list of supplies with a specific SKU code to clearly identify it in the system.

8.      The order for SKU will be positioned as and when required 1 day before the surgery.

9.      It will become a part of regular supplies as and when required by the doctor for the new process.