Par Replenishment Means You're Not Managing Inventory

By John Freund

Most Hospitals Don’t Manage Inventory
I was recently in the New York area helping a few hospitals with a closer examination of their inventory processes. Everywhere I went, I bumped into a requisitioning method I call “par replenishment,” which seems to be the most common form of supply orderingfound in hospitals today. Here’s what is supposed to happen – supply technicians enter a supply room and visually scan each item on the shelf.  If they see something that appears to be low, they’ll scan the item using a barcode scanner on a mobile computer, then enter in the current quantity on the shelf. This quantity will be compared against a par value and, if needed, generate a requisition to restock the item.

Par Replenishment is Not Inventory Management
The problem is that par replenishment is a requisitioning tool. Hospitals using par replenishment have put inventory management responsibilities into the hands of the technician responsible for each stocking location. It’s an extremely labor intensive system and it’s very easy to make mistakes.  For example, a supply tech can easily miss an item on the shelf that’s fallen below par, resulting in a stock-out.  Stock-outs then cause nursing to lose faith in supply chain, driving them to create their own personal safety stock of supplies stored in ceiling tiles, drawers and nooks in the nursing station.  Next in line, there’s a doctor upset by the stock-out, so nurses ignore purchasing contracts and rush-ship materials, costing the hospital excess dollars in both item cost and freight. Now we have an overstocking situation, which has not only cost more money, but also results in waste from expiring products. (Nobody ever checks the expiration date on the boxes hidden in the ceiling tiles.)

In a hospital relying on par replenishment, the supply techs believe they have the best knowledge of the velocity of supplies and simply use the par level as a number to calculate the size of the order they want.  Why else would they insist on having the par value displayed on the label or scanner?  They need to see the par value so they know what to report as the current inventory, in order to get the quantity they believe they need.

During my visit at one NY facility, I encountered a supply tech I’ll call Manny, who was restocking the ED. Manny explained how he reported inventory on an item at two, even though there were four on the shelf.  With a par level of four he knew the system wouldn’t order anything if he reported the current inventory of four. So instead, Manny reported inventory at two to generate an order for two. This was because he knew that two would be gone by the time the order arrived and he came back to restock. In fact, two had been used by the time he came back to restock the room.
So Manny was clearly right – he knew the room, which items moved fast, which didn’t. But then I asked what happened when Manny went on vacation – and his boss told me that it was chaos, with stock-outs happening every day.  That’s because Manny’s replacement doesn’t know the velocity of the items in the room.  And because par replenishment doesn’t provide the transaction data needed to understand velocity, all of the par values were wrong.  When the substitute tech actually entered current inventory, it wasn’t enough to meet the velocity and stock outs happened.

Is Manny doing anything wrong?  He’s a great guy, but yes – Manny needs to enter the actual current inventory. But he probably inherited a group of distressed clinicians who’d been bitten by stock-outs due to incorrect par levels, so he fixed the problem by gaming the system. No doubt he knows what he is doing and has a great feel for the velocity of the items in his room.  But this example points out that par levels in a par replenishment system mean nothing. Manny’s job would be easier if he had a system that allowed him to key in the quantity he wants to order rather than having to do par level math.

Here’s what I want us to think about: Par replenishment isn’t inventory management. It’s not based on measuring the true velocity of items in supply storage areas. Instead, it’s simply what hospitals have come to believe is an efficient way to order supplies without forcing clinicians to record consumption. As a result, in areas where par replenishment is being used, inventory is not being managed, it’s simply being ordered.

Let’s talk more about this! In the coming weeks and months, JumpTech will be launching an online user group to help us work together to advance inventory processes in hospitals.