HCM542 Healthcare Operations Management
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HCM542: WEEK 6 Paper and Discussion Question
Week 6 Paper: Vendor Managed Inventory – Flow Chart
Vendor Managed Inventory – Flow Chart
After researching recent industry articles on managed inventory in healthcare, create a workflow chart
using Smartdraw. This workflow chart should start with the inception of the contract and end with the
organization receiving the materials and distributing them to patients.
https://www.smartdraw.com/workflow-diagram/
The submission should include:
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•
•
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APA title page,
Complete flow chart indicating all steps within the process and all participants, and
A two-page summary discussion of your findings and significance for practice.
Provide support for your statements with in-text citations from a minimum of 4-5 credible
scholarly articles. These sources should not be more than 3-5 years old. Two of these sources
may be from the class readings, textbook, or lectures, but the remainder must be external.
Module 6: Discussion Forum – 400 to 500 words
Effective inventory management is key to ensuring success. There are a variety of components to
consider from an operations perspective. For this week’s discussion you are each going to create an
initial discussion board prompt and reply to one another’s questions. Choose from the following topics
to create your discussion board prompt for this week.
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•
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Topic 1: Perpetual Inventory
Topic 2: Periodic Inventory
Topic 3: Just-in-time Inventory Management
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References for Week 6:
Cholowicz, E., & Orlowski, P. (2018). Impact of control system structure and performance of inventory
goods flow system with long-variable delay. Electronics & Electrical Engineering, 24(1), 11–16.
Graban, M. (2016). Lean hospitals: Improving quality, patient safety, and employee engagement (3rd ed.).
CRC Press.
Graham, G., & Cusick, C. (2016). Facing management’s supply dilemma with healthcare value
analysis. Management in Healthcare, 1(3), 254-260.
Ilter, C. (2019). A discussion paper on accounts payable ratio. Acta Oeconomica Pragensia, 27(3/4), 85–
94. https://doi.org/10.18267/j.aop.630
Langabeer, J. R., & Helton, J. (2021). Health care operations management: A systems perspective (3rd
ed.). Jones and Bartlett Learning. **THIS IS OUR TEXT BOOK**
Ledlow, G. R., Manrodt, K. B., & Schott, D. E. (2017). Healthcare supply chain management: Elements,
operations, and strategies. Jones & Bartlett Learning.
Peavler, R. (2016, June 21). Just-in-time (JIT) inventory management. The BalanceSmall Business.
https://www.thebalancesmb.com/just-in-time-jit-inventory-management-393301
Raman, A., & Dubey, A. K. (2019). Combined effect of just-in-time and vendor managed inventory
elements in hospitals. IUP Journal of Operations Management, 18(4), 7–19.
Rubigha, K. (2020). Sustainability in healthcare inventory management: A seven-dimensional review
framework. Journal of Contemporary Management Research, 14(1), 18–30.
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***Helpful Resources from this week’s readings for Paper***:
Module 6: Interactive Lecture
Now That We Have Discussed the Supply Chain, What About
Inventory?
There are differing views related to inventory management and maintaining available stock throughout
a healthcare setting. While inventory does carry its own version of associated costs, there is value
associated with having an item at the time it is required, especially in the healthcare treatment of
patients and families. As you review the material in Module 6, remain mindful of the different types of
inventory methods and the implications of not having items readily available in-patient care.
Learning Outcomes
1. Assess the pros and cons of maintaining inventory.
2. Differentiate between perpetual and periodic methods.
3. Explain common accounting entries for inventory management.
4. Calculate common inventory ratios.
6.1 What is Inventory Management
For many industries, inventory can be viewed through a variety of lenses. From a business perspective,
some managers see fixed asset inventory as sunk costs that provide no value or benefit for an
organization. Fixed assets typically include items such as clinical equipment, medical equipment, and
furniture and fixtures. These items usually cost more than $1,000 and have a life expectancy greater
than one year. For this reason, many operations managers, including those in healthcare organizations,
have become interested in just-in-time methodologies of inventory management. However just-intime inventory management methodologies of inventory management.
However, just-in-time inventory management tends to be a fragile trap for healthcare operations.
“Just-in-time (JIT) inventory management, also known as lean manufacturing and sometimes referred to as the
Toyota production system (TPS), is the process of ordering and receiving inventory for production and customer
sales only as it is needed and not before” (Peavler, 2016, para. 1).
Metrics should not create a need for additional resources and requirements that do not add to the
quality or outcomes associated with patient-care services.
Inventory management is concerned with managing the amount of material stored in a storage site, storeroom,
or warehouse. Langabeer and Helton (2021) declared that inventory represents the acquisition and storage of
goods and materials that may not be consumed today (have some value in the future) but will be used within a
normal operating cycle. For healthcare managers, inventory is somewhat difficult to explore; often, those who
are clinically minded (especially) tend to view inventory as merely the utilization of supplies on a per-procedure
basis. What tends to happen is that enough inventory may not be available to ensure that each time those same
supplies are consumed, enough will be available to fulfill future demand.
From an operations management perspective, it may be immediately clear to some why this would prove a
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problem. For others, further elucidation may be necessary. Thus, Ledlow, Manrodt, and Schott (2017) argued
that inventory is important to all businesses for three principle reasons; click through them below:
Independence: Inventory allows businesses to maintain independence in operations.
Contingencies: Inventory allows an organization to continue operations during sharp increases in demand for its
products or services (contingencies).
Flexibility: Inventory allows an organization to continue operations during sharp increases in demand for its
products or services (contingencies).
Therefore, one inherent goal of inventory management is to ensure that required supplies and products are
available and accessible to clinical staff members when those products are needed most. Amid some levels of
frustration and concern about the lack of value that inventory may present, healthcare organizations continue
to look for ways to reduce supply chain costs while enhancing patient safety, efficiency, and productivity. One
way this can be done is through an inventory practice that is steeped in value analysis and nested among the
strategic goals and objectives of the organization (Graham & Cusick, 2016).
6.2 Types of Inventory
Within any industry, there are several management models that can be used to approximate needed
inventory levels. The no-one-size-fits-all approach can be leveraged for any inventory management
scenario. Within our text, four of those methods are now emphasized: perpetual, periodic, first-infirst-out, and last-in-first-out. There are also others with which you may feel compelled to gain
familiarity. Most healthcare organizations will use a combination of the four methods mentioned, as
detailed in the following tab activity.
Inventory management of each of these categories varies, and it is important these categories are
managed properly. Logistics—of suppliers, the facility, and customers—is a key component of inventory
management. It is necessary to effectively communicate with key stakeholders in this process to form
a successful collaboration and to have the right inventory in the right place at the right time:
Perpetual Inventory: Perpetual inventory is a method of accounting for inventory at the time of use through
(often) computerized point-of-sale systems and enterprise asset management software. Perpetual inventory is
based on consumption (Ledlow et al., 2017). Perpetual inventory is a means by which a running record of the
inventory balance is maintained at all times (Langabeer & Helton, 2021). Supply chain disruptions are a very real
risk in healthcare and, unlike in other industries, when a lack of inventory results in the non-availability of a
product, people’s lives can be at risk (Graham & Cusick, 2016).
Periodic Inventory: Periodic inventory is a system of inventory in which manual updates are provided
on a periodic basis. This differs from perpetual inventory systems, where updates are made
automatically. Periodic inventory does not keep a running record of items that are sold or purchased,
so a real-time balance of inventory on hand is never available. Periodic inventory relies heavily on
physical counting and observation of goods because no system is used to track balances (Langabeer &
Helton, 2021).
FIFO: First-in-first-out (FIFO), according to Ledlow and colleagues (2017) as well as Langabeer and
Helton (2021), is likely the most common valuation method in healthcare. FIFO assumes that the first
unit purchased is the first unit sold, and therefore the units that are remaining in inventory are the last
units purchased.
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LIFO: Using the last-in-first-out (LIFO) method, the premise is that the last unit purchased is the first
unit sold. This can prove problematic in healthcare as this method does not truly reflect the physical
flow of goods in the conduct of patient care. When considering patient care, most medical supplies
and drugs have expiration dates that require earlier products to be sold first (Langabeer & Helton,
2021).
6.3 Significance of Inventory Management?
Valuation, an estimation of something’s worth, is an assessment of the financial value of an asset
(Langabeer & Helton, 2021). This is an important concept and has broad financial implications for
many types of industry; in healthcare, valuation is not well understood. Too often, healthcare
professionals view inventory as a sub-optimal way to manage supply; we have already indicated the
problem and concern of not having inventory at the time it is needed.
Effective inventory management requires emphasis and consideration during the development of an
organization’s strategy; proper planning and adjustments to the plan may be required for an
organization to stay on target. Proper inventory management is critical to all for whom the supply is
necessary for the treatment of patients. For example, within a typical hospital, the perioperative
department (e.g., surgery and associated services) routinely generates 50%-60% of the revenue for an
organization while accounting for nearly 30%-40% of the expenditures. From an operations
perspective, this does account for a large cost, but what is the cost if a patient dies during surgery
because the right item was not available at the right time?
Now listen to the podcast to see how COVID has impacted hospital supply chains and how it might be
improved because of the pandemic: https://youtu.be/W9ZU_80coWA
6.4 Inventory Accounting
We often use the terms supplies and inventory interchangeably, however as we take a closer look at
the two terms, they are quite different. Supplies are held in a hospital, and they differ from inventory
based on timing and the ability to charge. According to Langabeer & Helton (2021), the timing of
supplies is based on the items purchased and when they are consumed (p. 245). If supplies are bought
and used in the same period, this would classify as a supply expense. However, if supplies are bought
within one period and then utilized in another period, the items not used within the time frame
become capitalized inventory, and are now an assent on the balance sheet. This is what distinguishes
supplies from inventory when looking at the financial aspect of supply chain management.
When considering inventory, the customer and patients’ needs must come first; inventory should be
managed in a manner that is mindful of the lowest possible levels, given extant SCM systems, including
the effects of variation (Graban, 2016). Excessive inventory, or more inventory than is required to
sustain operations, is wasteful. Operations management professionals should work to ensure that too
much inventory is not being retained at levels that potentially waste space and capital. At the same
time, however, reacting to inventory shortages (stockouts) leads to additional organizational waste
when employees must go elsewhere to search for items or additional financial requirements when
supplies must be purchased under emergency circumstances (Graban, 2016). Finding the right balance
is essential.
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Tracking Inventory with Technology
Technology has assisted operations management professionals in ensuring that waste of capital is
limited. While not an example from healthcare, the following video provides an example of one
business’s success story:
https://www.linkedin.com/learning/supply-chain-and-operations-management-tips/track-and-traceyour-products?autoAdvance=false
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