Presbyterian Profits from Inventory Control Study

Article excerpt

The administration at Presbyterian Hospital is counting its blessings today in six figures, all achieved in the wake of an inventory control study by Booz Allen & Hamilton Inc.

Short-term savings are being measured at roughly $300,000. But the continuing benefits are expected to bring annual savings of $200,000.

What has happened at Presbyterian, however, is more than a simple cost-cutting exercise. Chief operating officer Dennis Millirons puts it in perspective:

"Our economic structures are being changed. We can compete better now. We have to compete."

Several events have crowded in on Presbyterian and most hospitals, forcing some creative steps to ward off disaster. A new prospective reimbursement system coupled with dynamics - more competition and a dwindling census to name two important factors - have made life more complicated.

At Presbyterian, the work force was reduced last year as the administration struggled to get a handle on the phenomenon of lowered revenues and higher costs. Personnel cutbacks weren't enough, and by early summer it was clear that something else would have to be done.

Enter Booz Allen & Hamilton.

The management consultants examined other expense items, notably the hospital's supply costs which consumed 15 percent of Presbyterian's budget.

"Booz Allen did a good job," said Millirons. "They pointed out some things we weren't looking at. We have tightened up some policies after getting their report."

That, however, is a striking understatement. The tightening led to a corporate purchasing policy and some massive changes in the way supplies are handled.

Before the study, Presbyterian had no formally adopted purchasing policy in place. Policy now defines the limits of authority at various levels and controls the hospital's relationship to its vendors.

A multi-disciplinary task force reviewed the Booz Allen findings, along with the recommendations. From that has come a half dozen projects.

Jim Underwood, assistant vice president at Presbyterian, explained these projects and the purposes behind many of them.

High on the list: inventory reductions. The long-term objective is to develop target levels of inventory. Thus far, management has encountered little or no resistance.

Presbyterian, it was discovered had a 52-day inventory ($1,250,000). But the industry standard is only 40-days (about $1,000,000).

"Probably within six months we'll have established targets in high use areas," said Underwood.

Nutrition was cited as an example of high use in the hospital setting.

One project is reviewing inventory locations, another is aimed at consolidating inventories, and a fifth project strives for production standardization. …