CASE $9\mathrm{.}1$

Forecasting Suply Use

More and more healthcare institutions seek to reduce costs while increasing the quality of care. Accurate forecasts of the use of medical supplies represent an important element of this effort. Overordering supplies drives up costs, and underordering supplies also can drive up costs and compromise care.

The stakes can be high. Caldwell Memorial Hospital, a $110-$bed hospital in North Carolina, saved $$2\mathrm{.}62$ million in less than six months by consolidating and eliminating excess supplies $($Belliveau $2016).$ The hospital used a Lean approach to inventory management, which involves streamlining and simplifying the inventory and ordering systems.

In addition, a number of hospitals have expanded their use of just$-$in$-$time inventory management $($Green $2015).$ This method reduces, but does not eliminate, the need for forecasting accuracy. Some supplies are highly specialized and are used intermittently, so they must be ordered well in advance. The savings can be substantial. Mercy Hospital in Chicago was able to reduce its inventory by $50$ percent using just$-$in$-$time inventory management $($Green $2015).$

Discussion Questions

What share of hospital costs do supplies represent?

Why would overordering supplies drive up costs?

$-$Why would underordering supplies drive up costs?

Can you offer examples of Lean inventory management? Does it work well?

Can you offer examples of just$-$in$-$time inventory management? Does it work well?

Can you offer examples of supplies that have to be available at all times?

$-$What are the main challenges to making accurate forecasts of supply use in hospitals?

$-$How would you forecast supply use in the emergency department? Why?

$-$How would you forecast supply use in hospital clinics? Why?

Would you use judgment in making these forecasts? Why?

$-$Would you use statistical models in making these forecasts? Why?

$-$How are supply chain forecasts different for hospitals than for retail? For manufacturing?