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Supply Chain: Health care reform

Automated materials handling and data collection systems are transforming the health care supply chain.
By Bob Trebilcock, Executive Editor
April 01, 2012

Hospital logistics
Health care manufacturers and distributors have recognized the importance of their supply chain operations for years. Large hospital systems with 600 to 1,000 beds are coming to realize that they, too, are supply chain organizations and are developing hospital logistics to optimize the storage and flow of inventory through a facility.

“Health care provider groups are facing tremendous financial pressures,” says Tecsys’ Brereton. “Medicare and insurance payments are being squeezed as patient expectations are rising. They no longer have unlimited funds. They are trying to improve patient care while improving their business model.”

In fact, hospitals have many of the same complications as a direct-to-consumer distribution center. For instance, a large hospital delivers thousands of individual orders to hundreds or even thousands of delivery addresses within a complex. What’s more, the range of products and number of SKUs is complex: a typical hospital delivers surgical kits to an operating room, replenishes supplies in the supply rooms at a nurse’s station, manages the hospital gift shops, fills thousands of individual prescriptions and meal orders, as well as items like towels and sheets. It also has a reverse logistics requirement, removing trash, dirty laundry and empty food trays from the hospital.

Inventory is a significant cost.

Not only do supplies get squirreled away at nurses’ stations, but hospitals face the same SKU proliferation as retailers.

For example, physicians have the ability to order Physician Preference Items, or PPIs. The result is that three different physicians in the same department may each use similar tools from different manufacturers for the same procedures or treatments. “Imagine if every client who walked into a drug store could design their own shampoo and asked you to carry it and you get a sense of the problem,” says Brereton.

Warehouse management systems are bringing the same level of inventory management to hospital logistics that they brought to the distribution center a decade or two ago.

“You can translate millions of dollars of inventory back into cash within the first year by not having to replenish areas that may already have inventory squirreled away because nurses and doctors didn’t trust the old system,” Brereton says. Those same systems are then used to direct the order fulfillment processes at a very granular level. “We are working with a hospital system in St. Louis that is using a WMS to break down bulk items into patient dosages that are tracked right to the bedside and to the patient’s bill,” says Brereton.

Similarly, hospital systems are adopting the same automated materials handling and data collection solutions for their systems as health care manufacturers and distributors. Those include horizontal carousels, mini-load systems, pick-to-light and voice-directed fulfillment systems for storage and picking as well as AGVs to deliver product from the warehouse area into the hospital itself.

“You don’t want the same person handling patient dosages who is handling food trays and hauling trash,” explains Jay Yale, managing director for Frog AGV Systems. “A stainless steel AGV virtually eliminates contamination from human handling. What’s more, we can build in three or four security checks to ensure the accuracy of a delivery. And, an AGV delivers on time on a 24/7 basis.”

Those same requirements for clean, timely and accurate deliveries are driving the implementation of other technologies such as carousels and pick-to-light. “The hospitals we are working with are using automation to improve accuracy and control labor costs like any other facility,” says Denny Arciero, director of distribution solutions for Systems Logistics. However, automation works well with the heightened urgency associated with hospital operations. “You’re supplying the nursing stations, operating rooms and patient rooms,” Arciero says. “On-time delivery is a must.” 

Adds Brereton: “Our industry has always been about delivering the right product to the right place at the right time. Hospitals are realizing that automation and supply chain software drives down the cost of providing health care, saves lives, and improves the patient’s experience. That’s what this is all about.” 

Companies mentioned in this article
Frog AGV Systems:
System Logistics:
TAKE Solutions:

Cleveland Clinic’s health care reform
One of the nation’s premier medical centers transformed a manual, paper-based warehouse into a state-of-the-art facility using automated materials handling technologies to optimize the delivery of food, supplies, medications and surgical tools to more than 14,000 locations.

Right piece, right place, right time

At Children’s Hospital Colorado, a new 298-bed hospital facility outside of Denver, three 52-foot-long horizontal carousels integrated with pick-to-light technology and order processing software (Kardex Remstar,, are managing the delivery of more than 141,000 pieces a day to nurses and clinicians, or 52 million pieces a year.

Processing orders
The hospital stocks an estimated 1,700 SKUs in the stockroom that are managed by the hospital’s enterprise resource planning (ERP) system.  The horizontal carousel is used to fill broken-case piece picks, known as low units of measure inventory, according to Richard Hire, director of materials management. Bulk case inventory and larger supplies are stored in an adjacent shelving area.

The stockroom is responsible for three types of orders:
• It replenishes 147 supply cabinets located on the patient floors.
• It fills orders for clinicians who request supplies, such as diapers, that are not inventoried and stocked in the automated supply cabinets.
• The stockroom also supports restocking of ambulatory cabinets.

Dynamic picking and fulfillment
Regardless of the type of order, the fulfillment process is the same. Orders are entered into the ERP system and then routed to the carousel’s order processing software. When an order selector at the carousel initiates the picking process, the three horizontal carousels spin and position for the first pick.

Directed by pick lights, the order selector picks the exact quantity of a specific item for the order. The order selector confirms the pick by pushing a green “task complete” button and places the item on a delivery cart. As the order selector is picking the first item, the other carousels spin to position the next item to be picked.

Once the delivery cart has all necessary supplies from the horizontal carousel area, the cart is moved to an associate who picks any remaining items from the bulk area. When the order is complete, the associate takes the order up a few floors to restock the automated cabinet, delivers the supplies to a clinician, or restocks the ambulatory cabinet. As a department standard, all orders are filled and delivered within two hours of when the order was placed.

Since hospitals must respond to emergency situations, the system allows an order selector to pause a current order to fulfill a hot order needed immediately by a clinician.

As with all major projects, Children’s Hospital Colorado calculated an ROI for the project. The payback, however, is measured in more than cost savings. “Our main focus is to keep the nurse at the bed with the patient ensuring we provide the best patient experience possible,” says Hire. “The horizontal carousels in the stockroom help us do just that.”

About the Author

Bob Trebilcock
Executive Editor

Bob Trebilcock, executive editor, has covered materials handling, technology and supply chain topics for Modern Materials Handling since 1984. More recently, Trebilcock became editorial director of Supply Chain Management Review. A graduate of Bowling Green State University, Trebilcock lives in Keene, NH. He can be reached at 603-357-0484.

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About the Author

Bob Trebilcock, editorial director, has covered materials handling, technology, logistics and supply chain topics for nearly 30 years. In addition to Supply Chain Management Review, he is also Executive Editor of Modern Materials Handling. A graduate of Bowling Green State University, Trebilcock lives in Keene, NH. He can be reached at 603-357-0484.