EXECUTIVE SUMMARY              

The United State Healthcare Reform Act is dramatically altering market dynamics for Health Care suppliers. With the current U. S. demographics, the healthcare market is on the brink of massive growth as our population ages and insurance coverage is extended to more Americans. New government healthcare policies and regulations are taking effect within the next few years in order to control escalating healthcare costs as the healthcare needs of its constituents evolve.

In 2011, The Operari Group was asked to help a Manufacturing Company meet the changing requirements of the healthcare laws taking effect over the next few years.  This manufacturing company is an industry leader, providing many different quality products and services to a growing customer base. This company is known throughout the industry for its continuous improvement, world class service and aggressive adaptation to market changes. Through the continuous evaluation of the efficiency of its operation, this company pinpointed a specific area, Service Parts Inventory, as an area of particular interest. 

The Operari Group was approached and contracted to assist the organization in reducing these inventory levels through the understanding of its inventory systems and processes. The Operari Group conducted a rigorous six-week assessment of the various service part inventory level functions as well as any other related/linked processes.  Operari agreed to provide the following:

• An assessment of the Service Inventory Reduction Project
• Establish baselines of current process operations
• Identify areas of opportunities to improve process operations while reducing the service parts inventory levels

 This assessment culminated in the delivery of a written summary of current status, potential areas of improvement and an overall assessment of the company’s service parts inventory levels and systems support.  This study also provided a comprehensive list of possible improvements that include potential cost savings as well as process improvements. 

THE COMPANY

 The Health Care Manufacturing Company that the Operari Group worked with currently sells and services medical devices, equipment, and accessories across the country in the 48 contiguous states.  The Executive Management Group of the company recently raised questions as to how much inventory is required to support and maintain over 50 District Repair and Delivery Centers and Warehouses across the country.  The complexity of this question is increased by the fact that the company is currently supporting many separate and distinct versions of their products at the same time.

LINES OF BUSINESS

The company supports 3 distinct Lines of Business for their Products.

• Temporary Medical Units.
• Rental of Company owned Medical Units.
• Standard Service & Rehab of Existing Customer Owned Medical Units.

COMPETITION

The company sells medical equipment through several channels including company owned stores and through internet and telephone channels.  There is increasing competition, particularly in the direct sales channels, where individuals can readily choose among many different providers.  While this company is a well-recognized brand, they must continue to meet increasingly high expectations for customer service to remain competitive in this marketplace. 

 CHALLENGES AND OPPORTUNITIES

 The Operari Group evaluated the possibilities of reducing the inventory levels through the understanding of the company’s inventory systems and processes. The company faced challenges and opportunities in the following distinct but inter-related areas:

1. Opportunity to Reduce Slow-Moving Part Inventory
2. Opportunity to Balance Part Lead Time and Inventory Levels to maintain Service Completion Metrics
3. Define Inventory Applicable Metrics. 
4. Opportunity to Increase Part Consumption Rate
5. Opportunity to Decrease the time between Allocation of the Service Part to the Billing Process

Other challenges and issues facing the company included Data Quality issues, Parts Differentiation, Disparate Parts Databases and Control of Inventory Movement. 

STRATEGIC GOALS

 Given these challenges, company executives focused on the following six strategic goals:

Decrease Lead Times

By conducting an analysis of the entire Order to Receipt Process including a Part Lead Time analysis and looking closely at the inventory ordering process, the Operari Group balanced  inventory part lead time with proper inventory levels while still maintaining service level metrics.

Increase the Rate of Part Consumption

Through an analysis of the rate of service part consumption, the Operari Group identified activities and areas to reduce the slow-moving parts inventory by defining applicable inventory metrics, increasing part consumption rates and building future monitoring mechanisms to best track required inventory levels, defining obsolescence processes and timelines with rates of usage. 

Reduce Service Part Inventory Levels

The Operari Group evaluated and determined the current optimum  inventory levels needed by a system where agile inventory levels change based on the growth of organization along with the industry.

Enhance Overall Operational Efficiency

The Operari Group had to ensure that the decrease in Inventory Costs would not impact current Service Levels.  The Operari Group determined that decreasing the time between the allocation of service parts and the billing process allowed the organization to improve cash flow significantly. 

Inventory Information Integrity

The Operari Group determined that Data Quality Issues were a major factor in this Project.  By reviewing and understanding the Billing & Inventory System s, the Operari Group was able to significantly improve the data collection efforts of the existing Inventory Systems.      

Information Management, Metrics Consolidation, and Business Intelligence

The Operari Group recommended an Information Management Plan to design and implement solutions that deliver and analyze information efficiently for Management. Many common  issues were identified and are listed below:  

• No central repository of Inventory and Purchasing information – many non-integrated systems and databases
• Databases are structured for transaction processing, audit trail and operational needs; they are not organized for ease of reporting
• Lack of standardized metrics and information rules
• Some information needs require data from multiple systems
• Many informal databases and spreadsheets used by individuals for reporting, analysis, external reporting
• No standardized tools for reporting and analysis

APPROACH

 To meet these goals, the Operari Group met with Executives and Staff from all the Departments responsible for Inventory Control (Operations, Warehouse, Inventory Control Specialists, Accounting, and Purchasing).  The Operari Group worked with Operations to identify the organizations entire inventory in order to evaluate the current  model.

 High-Level Expectations

The company’s expectations for the review of Inventory and Information Systems were commensurate with its ambitious goals.  Expectations included the following:

1. Balance part lead time and inventory levels to maintain service completion metrics 
2. Reduce slow-moving service part inventory
3. Minimize impact to service order SLA’s
4. Increase part consumption  rate
5. Decrease the time between allocation of the service part to the billing
6. Define Inventory applicable metrics.  Build future monitoring mechanisms to best track towards the metrics.

Business Processes Addressed

The Operari Group addressed the following Business Processes:

• Order to Receipt Process
• Part lead times
• Inventory Analysis
• Order Process
• Inventory Consumption Process
• Service Process
• Inventory Process
• Service Programs
• In-Home Servicing
• Warehouse Servicing

Project Deliverables

After initial meetings with the company’s Staff, the Operari Group presented the following list of  Project Deliverables to the Executive Steering Committee.

1. Build the Problem/Opportunity Statement and Develop the Project Charter
2. Establish and Document Project Objectives
3. Establish and Assess Improvement Metrics & Capture Baseline
4. Build Current State Process Maps & Conduct Current State GAP Analysis
5. Conduct the Current State Gap Analysis                    
6. Use Facilitated Sessions to Build a Prioritized Improvement Opportunity Matrix and ROI Calculations

Results

In order to meet the project goals and objective of these projects, the Operari Group focused on increasing cash flow and reducing service parts inventory without impacting customer service levels.  The engagement was successful in helping the company understand the all of the components that caused the inventory issues.  Operari provided the company with specific recommendations to control inventory issues bring the organization under control as well as a strategic outlook for growth.

Initial Gap Analysis

A Process Level Gap Analysis was performed on all of the inventory processes performed in the company.   Opportunity analysis is then performed to identify efficiencies and optimization that does not currently exist within the process.  Eleven “Gaps” were identified and discussed with Senior Management. These Gaps are listed below:

1. Variable Inventory Processes
2. Service Parts are in an unknown status between the times they are utilized and delivered to the customer.  
3. Manual Ordering with Fax Technology
4. Service Parts are not serialized within the Inventory System. 
5. Multiple Models of Inventory Level Control within the Organization.
6. Data Integrity was identified as less than 100%.  
7. Application Integration Issues.
8. Forecast / Demand Planning Functionality did not exist
9. Fragmented Reporting needing Manual Manipulation to Perform Management Reporting.
10. Inventory Model Limitations
11. Vendor Managed Inventory (Just in Time Inventory)

Recommendations

By the end of the engagement, the Operari Group Identified 13 separate opportunities for the company.   The opportunities are broken into 3 main groups with the business complexity increasing as you move from left to right in the diagram below:

• Green Group – Tier 1 - Low Business Change Complexity
• Blue Group – Tier 2 - Medium Business Change Complexity
• Red Group Tier 3 - High  Business Change Complexity

The green group is more tactical in nature and the red group is more strategic.  The order of the opportunities was developed  using a scoring methodology consisting of Cost, Monetary Benefit to the Company, Feasibility, Duration and finally, Strategic Alignment. 

NEXT STEPS

 Based on the recommendations from the Operari Group, the company has already moved forward with the initial proposals from the  Process Level GAP Analysis.  A Project Plan with all 13 solutions has been developed with Tasks and Dependencies shown below.

LESSONS LEARNED

 Over the course of the engagement, the Operari Group and the company can  point to many lessons learned and incorporated in the project. 

Key Success Factors for the Project:

• Lay out a comprehensive proof of concept.
• Set clear project organization and decision competencies.
• Divide into expert teams.

A Disciplined process:

• Plan and adhere to a step-by-step process & gain commitment from all employees
• Management commitment in every project phase is an important success factor.
• The involvement of IT is critical for all project phases.
• A process for decision making is crucial for keeping the project on track.

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