Par Levels vs. Kanban Systems for Healthcare Organizations
Many healthcare organizations manage their supplies and medications using a par level – to be honest this is commonplace in most hospitals.
Here is how a par level system works:
- Par levels are set for an item (aka the amount that should be available at any time for an item).
- When an item falls below “par,” it is replenished.
It sounds simple in principle, but to bring an item to “par” involves cycle counting or a physical inventory. Most healthcare organizations bring their inventory to “par” on a daily basis. The daily counts are a non-value activity which increases costs and manpower in your supply chain department.
To make matters worse, some supply managers do not actual that a count – they look at the items and guess how many they need to restock to get the materials to “par.” Most cost accountants will tell you that this can cause an excess in inventory plus unexpected costs on your income statement.
It is of interest that par level inventory is not used in world class manufacturing companies even though they have the same goals as a healthcare organization: to maintain a consistent quantity of inventory on hand.
Kanban literally means “card” or “billboard” in Japanese. It was developed by Toyota to improve and maintain a high level of production and move to a “Just in Time” system. At this point, you may be wondering how a system used by Toyota can help your healthcare organization. Many healthcare organizations are moving to a visual two bin Kanban system.
Here is how it works:
- Both bins are filled a set fixed quantity.
- When one bin is empty, it is moved behind the full bin and a card is flipped on the bin.
- The empty bin signals the supply managers to refill it to the fixed quantity.
- While we are waiting for it to be refilled, inventory is pulled from the other bin.
I think that we can see one of the main advantages of a visual Kanban system – reduced cycle counting, which means less non-value activity in your supply chain department.
We are starting to see a trend towards Kanban systems in healthcare and hospitals. The feedback has been positive since it has eliminated daily cycle counts, reduced trips to the storerooms, and freed up materials managers to focus on other issues.
Have anything to share regarding using par level or Kanban systems in your healthcare organization or hospital? I’d love to hear from you!