From American Clinical Laboratory, Vol. 18, No. 5 June 1999

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Computerized Material Management, Inventory Control and Purchase Orders in the Clinical Laboratory by John Chapman MT (ASCP)

Introduction

The clinical laboratory uses hundreds or thousands of different supplies from many different vendors. To be able to perform patient testing in a timely fashion the laboratory must have sufficient volume of each supply. However it is prudent to maintain a low inventory stock to save on storage space, to reduce the chance of reagents expiring before they are used and to reduce the amount invested in the in-stock inventory. Our current system used lists of all supplies by section of the laboratory and vendors were organized in an index card file. Technologists and laboratory assistants performed a weekly or monthly physical count of the supplies. A technologist familiar with the workload and operations reviewed the lists of supplies weekly in order to determine what to order. Requests for purchase orders were written into a book that was submitted to the business office and a purchase order was produced and sent to the vendor. When a shipment arrived supplies were stored in the appropriate location. We found it difficult to rapidly retrieve information from our files such as our customer #, the current price for a supply, a list of all vendors used a list of all supplies purchased from any one vendor, a summary listing of purchase orders generated, etc. The list of difficulties using our manual system prompted us to evaluate an automated inventory and purchase order system.

We first evaluated and then switched to a computerized application called InvMan (Inventory Manager, COVE Laboratory Software) which is a Windows application. The application was easy to install and it took about 30 minutes. It took about 8 hours to fully train our users to be familiar with the features in InvMan; the on-line help and User Guide were helpful.

Physical Count of the Inventory

InvMan has at least 3 different methods for accomplishing the physical count of in-stock supplies. We chose to use Worklists which allow us to organize supplies into groups such as the frequency of counting (e.g., weekly), work rotation with the laboratory (e.g., STAT) or any other grouping. The Worklists are used to direct and organize the counting of supplies. The physical count of the inventory is automated by using the portable bar code scanner (DuraTrax, Videx, Inc., Corvallis OR) and the bar code label printer (LabelWriter XL, CoStar, Greenwich, CT) which are supplied by COVE Laboratory Software. Once each label is scanned, using the portable scanner, the counts are uploaded directly to InvMan. We found that this system reduced the hands-on time for the physical counting of the inventory by >60% (2.5 hours per week versus 1 hour per week), as well as reducing counting errors.

Producing Purchase Orders/Knowing what to Order

Our system of determining what to order as well as how much to order was labor intensive and needed to be streamlined. InvMan generates purchase orders in an organized and rapid manner. We found the PO by ROP process especially useful. InvMan produces the PO automatically and includes all supplies needing to be ordered as well as the quantity to order. The PO is can be edited with supplies added or deleted and quantities changed if needed. In addition to the PO by ROP method InvMan provides for three other related, although slightly different, procedures for the generation of Purchase Orders.

Receipt of Shipments

When a shipment is received in our laboratory it is unpacked and the packing list is matched with the originating PO that is easily retrieved from InvMan. Labels are automatically printed, with or without bar codes For each supply in the shipment and a stock list is printed listing the supplies in the shipment and where each is stored. The quantity of each supply is automatically added to the quantity on hand in InvMan. Back-ordered supplies are calculated by InvMan. Each supply received has the lot # and expiration date entered into InvMan. The receipt and recording of shipments can be performed by anyone in the laboratory and the linkage of the shipment to the PO is easy within InvMan and it is an easy task to ensure that the shipment received is intended for the laboratory.

Equipment Inventory

InvMan has a range of equipment functions for the laboratory. A rapid report lists all equipment in the laboratory including model, serial #, hospital property #, vendor, date purchased, location, owned, leased or reagent rental, etc. This report alone has been used multiple times from providing an up-to-date listing for audits to reporting the equipment used by the laboratory to the State Department of Health. In addition to this Equipment Details Report we can enter problems on any piece of equipment and the Action Taken to solve the problem as well data on preventive maintenance work. Reports for problems/action taken and maintenance are easily produced.

Reports, Queries and the Want List

Part of the drawback with a manual system or an in-house spreadsheet/database system is the inability to easily and rapidly analyze the inventory, purchase order and equipment data. InvMan provides 16 canned reports as well as a query wizard. The 16 canned reports cover all of the data with reports such as the Cost of Stock Report, Items at ROP with PO Details, Lot Number Report and Vendor Details Report. All reports can be printed as well as saved to a file.

The Query Wizard has been useful for the creation of unique searches of the database. We have found great utility in searches such as "list all items which cost >$500 and have a quantity on hand of >5 and are from the vendor Acme Scientific". All queries can be saved and run anytime to analyze the data.

The Want List allows anyone in the laboratory to list supplies that need to be ordered. We switched from having a blackboard in the lab onto which technologists and lab assistants would write the supplies they felt we needed to using the Want List in InvMan. When a PO is generated InvMan automatically removes the supply from the Want List.

Cost Analysis

While InvMan provides our laboratory with a system to organize and streamline our material management duties we wanted to determine if the apparent benefits of InvMan could be expressed in terms of increased efficiency and cost savings. A time and cost study of our manual inventory system versus using the InvMan system was performed and the summary is presented in Table 1.

We have calculated our annual cost in personnel time to be $15,968 using our manual system, this contrasts to what we believe our current personnel costs are of $4,798 by using InvMan, which is an annual savings of $11,170. Other benefits of InvMan have been difficult to quantify including the ability to rapidly and accurately report on the inventory, to provide data to inspectors or auditors of the laboratory and to be fully informed when negotiating with vendors. In addition the ability to record lot numbers for any supplies along with rapid reporting of the lot numbers, and expiration dates has been helpful. Since we maintain all of our purchase orders in InvMan it is easy to review the history of how many purchase orders were generated per vendor as well as to ensure that supply prices are correct. Too often the laboratory supervisor or manager is not involved in the actual generation of a purchase order and verification for payment of an invoice. InvMan now allows us to ensure that our purchase orders contain recent prices and that we do not pay invoices with incorrect amounts or invoices which are misdirected to our laboratory.

While the annual savings with InvMan are significant there are one-time costs for getting started with InvMan of about $6,220. These are recovered within the first year of use and if a PC already exists in the laboratory, as it did in ours, there is no need to purchase an additional PC (making our initial set up costs about $4,220).

In our cost analysis we used $24/hour for personnel which is an average figure assuming that a medical technologist is performing most of the duties and includes a 19% increase of the salary to cover paid-time off and benefits. Since there may be a mix of individuals performing these duties (laboratory assistant or clerk receiving shipments and stocking shelves or a buyer generating a purchase order) this average cost per hour may be different in other laboratories. By using InvMan generated bar code labels and the portable scanner we were able to have a laboratory assistant perform the majority of the physical counts of the in-stock inventory ($17/hour for a laboratory assistant versus $24/hour for a medical technologist). If the skill mix of the individuals in charge of material management changes this can have an impact in lowering the costs for performing inventory duties

Summary

The management of supplies, purchase orders and equipment is of critical importance to the operation of the clinical laboratory. InvMan has reduced our hands on time for performing the counting of the inventory and the time required to generate purchase orders. These changes are saving the laboratory about $11,170 per year in personnel costs. While the use of a structured system such as InvMan imposes some constraints on the user we found that InvMan helped us to organize all of our supply, vendor, location, PO and equipment data. We have been able to respond more rapidly and accurately to inquires for information related to our inventory. The varied functions of InvMan provide flexibility to the laboratory and allowed us to define the inventory as best fit our particular situation. COVE Laboratory Software has produced an application that is well suited to its target audience. InvMan has performed well in our laboratory and has allowed us to make significant improvements to our material management system.

John Chapman, BS, MT (ASCP), SM is the supervisor of microbiology for the Clinical Laboratories at Mt. Zion Hospital, San Francisco, CA. He has 10 years of experience in the clinical laboratory.

Table 1

Material Management Function

Manual (non-InvMan) System costs per year

InvMan System costs per year

Physical count of the in-stock inventory

$6,240 (260 hours)

$1,872 (78 hours)

Generation of purchase orders

$5,000 (500 purchase orders per year at 25 minutes per purchase order)

$250 (500 purchase orders per year at 75 seconds per purchase order)

Receiving shipments and stocking supplies received

$984 (41 hours)

$396 (16.5 hours)

Equipment problem and maintenance documentation and reporting

$1,248 (52 hours)

$408 (17 hours)

Retrieving information such as vendor address, customer #, supply pricing, quantity on hand, equipment details, etc.

$1,248 (52 hours)

$216 (9 hours)

Routine update of data such as index card file for vendors, manual listing of equipment, or all InvMan data files

$1,248 (52 hours)

$936 (39 hours)

Set up costs for training (one time cost does not recur per year)

0 (already in place)

$720 (30 hours)

Costs for inventory management tools (one time cost does not recur per year)

0 (already in place)

$5,500 ($2,500 InvMan, $800 scanner, $200 label printer, $2,000 PC)

Annual Cost (does not include set up and initial purchase of InvMan system)

$15,968

$4,798

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