The Ottawa Hospital’s Supply Chain Transformation

I’ve been hearing about hospitals implementing warehouse management systems (WMS) in France and Canada. This is a new industry for WMS. So, when Oracle (an ARC client) mentioned that The Ottawa Hospital (TOH) was a WMS customer, I asked if I could interview them. Oracle put me in contact with Cameron Love, Vice President of Planning, Support Services and Clinical Programs at TOH, and with Joanne Read, Director of Logistics, who were both gracious enough to talk to me.

The Ottawa Hospital has three campuses and about 1,200 inpatient beds. The hospital began a supply chain transformation in 2004, which was aided by the province of Ontario’s willingness, starting in 2005, to fund operational excellence initiatives in back office and supply chain operations.

This transformation was based on a Supply Chain Strategic Plan the hospital developed to improve the efficiency of delivering Material Management services, as well as to achieve a benchmark cost profile within the industry. The strategic plan was organized around seven key initiatives aimed at reducing supply chain management costs and providing customer-focused service to support quality patient care.

Implementing Oracle’s e-commerce solution, for example, could improve procurement by enabling full electronic integration and increased collaboration with suppliers. The end-to-end supply chains of hospital supplies and operating room instruments could be improved through a collaborative demand management process; an extended supply chain monitoring and replenishment process; and centralized warehouse and distribution services based on Oracle’s WMS solution. In effect, the hospital wanted to get leaner by ordering and stocking only what it truly needed. 

This transformation could create larger opportunities for The Ottawa Hospital. There are 17 hospitals in the region and they are exploring the possibility of leveraging their total procurement spend to realize savings. Once TOH has transformed its internal processes, it will play a leading role in regional sourcing. 

TOH implemented the Oracle WMS solution this past year. Hospitals, unlike a traditional warehouse, have storage locations that are more distributed to support patient needs. Like a traditional warehouse, it barcodes and scans the 4,000 stock keeping units (SKUs) it receives and distributes out of the warehouses. 

Goods are picked and consolidated on carts that travel to respective storage unit locations. There are approximately 800 clinical unit locations at TOH containing inventory sourced from the warehouses. Each storage unit has between one and three carts with up to 30 SKUs. Nurses can pull items off a cart as needed without scanning them. 

To keep the total inventory count in the WMS correct, supply attendants use wireless handheld devices to scan goods onto the carts. There is also a cycle counting methodology at the cart level based on min/max levels set per item. Carts with high velocity inventory get counted more often. Real time monitoring of what is put onto the carts allows the hospital to cycle count only about three times per week instead of daily (other than for critical SKUs which are counted daily). Cart-level inventory counts can trigger TOH’s ordering system, which is integrated to the WMS, to place an order for needed SKUs.   

Because a key goal was to ensure that needed inventory was on the carts, it was critical that the min/max levels on the cart – what they call “par levels” in this industry – were set correctly. The WMS project took two years, much longer than a typical implementation, in large part because getting these par levels set correctly took time. Keeping them correct involves examining inventory and usage data on an ongoing basis, as well as collaborating with nurses to understand why a SKU is moving slow or fast, and whether it makes sense to change the setting.   

In hospitals, quality patient care is the ultimate goal. But quality care can often be achieved at a lower cost. TOH put in place a Product Evaluation Committee to ensure new products are reviewed by all interested stakeholders prior to being ordered and placed in inventory. No product can be ordered unless it is on the approved list managed through the Product Evaluation Committee. If a doctor wants a new product to be sourced, they must make their case to the committee. The committe looks at whether there are already similar SKUs available and then balances clinical need against costs.  

The hospital’s business case outlined a four year payback, longer than what most companies achieve when implementing supply chain programs. However, its goal was not only to reduce supply chain costs, but also to enhance patient care. This program delivers the right products, in the right quantities, to the right clinical locations. 

In conclusion, TOH’s supply chain was interesting, but its discussion about implementing best practices was even more interesting. In preparation for this project, the hospital examined supply chain best practices in both private industry as well as leading hospitals in Europe. I’d love to hear US hospitals start to talk and think this way too.