Hospital System Eliminates Storerooms

March 1, 2004
The "flexible service center" concept could reshape the look of storage and distribution for hospital supplies.

University Hospitals Health System (UHHS) is one of the larger health caresystems in Northeast Ohio, with eight hospitals, five partner hospitals,and more than 150 health care facilities, including skilled nursing, elderhealth, rehabilitation and home care services. The system is attempting anindustry first ? eliminate hospital storerooms and warehouses in favor of acentral warehouse, or flexible service center, that will handledistribution of medical supplies.

The challenge

According to Dennis Maher, vice president for supply chain services, UHHS,the driver for this endeavor was the lack of space in the hospitals. Eachhospital has its own warehouse or storeroom, which purchases supplies frommanufacturers and distributors to replenish their stocks. The problem isthat these storerooms provide precious little storage capacity.

In the system's flagship hospital ? University Hospitals of Cleveland, a947-bed facility ? the storeroom occupies only 5,800 square feet. Inaddition to space considerations, Maher wanted to reinvent materialhandling in the hospital environment.

"We believe that we have taken material management as far as we're going totake it in a traditional model," Maher says. "The service center lendsitself to automation, and to standardization and better inventorymanagement. We will take many of the items that traditionally have beenbought in direct departments and take them into the service center."

The innovation

UHHS is closing the storerooms in its eight hospitals and movingdistribution operations to a 60,000-square-foot service center inGlenwillow, Ohio, a Cleveland suburb. The service center will store anddistribute the supplies to its member facilities, thus freeing space in thehospitals so they can be turned into revenue generators.

UHHS partnered with Pharmed Group Holdings Inc., a medical suppliesdistributor based in Miami, to undertake the project. Locally, PMG Group ofOhio, a Pharmed subsidiary, will run the service center.

Maher explains the concept of the flexible service center: "We are changingthe terminology. Traditionally, you hear people talk about 'in-stock' and'non-stock.' We're talking 'distributed' and 'non-distributed.' Very littleby way of SKUs and dollars will go directly into the hospital.

"In the beginning, we're not going to handle pharmaceuticals. They'll becoming into the hospital, and maybe some of the perishable goods will comeinto the hospital, as well. Other than that, we are looking to take as muchproduct as possible to the service center. It arrives in a PMG truck, andwe're able to get it distributed within each hospital or organization.

"From the beginning, we used the expression, 'We're going to close thestorerooms.'"

The center is designed in direct contrast to the traditional method ofstorage and distribution at hospitals. Rob Matevish, senior vice presidentand general manager, PMG Group of Ohio, points out the immediatedifference. "If you looked at the UHHS hospitals' loading docks a year ago,there were hundreds of trucks delivering there, all dropping off small tointermediate-sized loads. We're trying to streamline that process. If wecan get the efficiencies, we can do staffing properly."

Matevish notes that the service center was designed with an emphasis on theword flexible. "When you walk through the service center, you can goanywhere from where there's a low unit of distribution, then a bulk unit ofdistribution, then walk to a 3PL area, and they're handling these sharedservices. Two years from now the service center won't look any different,other than it's going to be really busy."

Tom Seliquini, principal of operations for the material handling systemintegrator, National Medical Logistics LLC out of Richmond, Virginia, saysthat because the material handling infrastructure is designed to make bestuse of warehouse cube, future growth will be upward rather than outward.

"The low-unit-of-measure pick module is in a rack-supported mezzanine, and as volume grows, we'll add a floor," he explains.

"It can expand up to three floors. This system enables UHHS to receiveitems directly to the nursing floors of the hospitals, where the items areconsumed -- no bulk shipments to a storeroom."

Low-unit-of-measure picking is unusual in traditional hospital fulfillment.Seliquini likens it to point-of-sale technology in retail, only servingindividual patients.

"Once PMG gets its new Oracle ERP system up and running in Cleveland, therewill be an interface between the conveyor PLC and the order managementsystem so conveyance will be intelligent," Seliquini concludes. "The ordermanagement picking instructions will be uploaded to the PLC running theconveyor so that a tote destined for a particular patient or nursingstation will travel the conveyor and be diverted to the appropriate pickzones."

Maher is excited about the 3PL opportunities the center presents. "Thereare plenty of things you can do in a shared environment and save money," hesays. "For example, our shredding costs are unacceptable. I could ask PMGto open one of the dock doors and attach a big shredder to it, payingsomebody $7 to $8 an hour to shred documents. They're here all the time.They could take boxes or containers to the warehouse, unlock it and shred,then bring the containers back.

"That's a very simple shared service that we do today that probably runsour health system somewhere in the neighborhood of $250,000. We couldprobably cut that cost by almost 75 percent."

Maher hopes that manufacturers will treat the service center as if it werea distributor.

"We have some manufacturers who won't go through distribution but are usingour service center," he says. "As a result, we've been able to be a littlemore innovative in the way we're buying, and we've been able to see somesignificant savings from that. Some examples are pacemakers, ICDs andcochlear implants."

The results

The UHHS flexible service center shipped its first box on October 1, 2003.The center is currently supplying the eight hospitals within UHHS, andMaher notes that the service can expand to 14 facilities. Pharmed hasinvested approximately $10 million in the service center, which uses apaperless order system and some of the latest tracking technology,including bar code readers. At full capacity the facility's conveyor systemwill be three levels high. The operation currently employs 11, with plansto grow to 25 within the first year-and-a-half.

According to Maher, the center's annualized sales are about $12 million,which he claims is ahead of projections. He expects to be at an annualizedsales run rate of $18 million by mid-year. The fully implemented programwill provide Pharmed annualized sales from this location exceeding $6.5million by 2005.

Additional benefits will come in savings to UHHS. "The savings are going tobe driven by multiple areas," Maher claims. "There will be savings from adifferent approach to contracting, and savings in standardization. Mostactivities are going to be centralized, but because of the investmentthey've made, I know there will be production improvements."

Material handling system providers

3M Co., Atlanta; reflective tote tape,

Akro-Mils, Akron, Ohio; plastic totes,

Carron Net, Two Rivers, Wisconsin; rack netting,

Conveyor Handling Co., Elkridge, Maryland; conveyor installation,

Creative Systems, Edgewood, Kentucky; emergency stops,

Crown Equipment Corp., New Bremen, Ohio; reach, order selector andcounterbalanced lift trucks,

Eagle (MHC division), Clayton, Delaware; wire shelving,

Hytrol Conveyor Co., Jonesboro, Arkansas; conveyors,

Interlake Material Handling, Naperville, Illinois; pallet rack,

J & L Wire, St. Paul; wire rack, decking,

Ladder Industries, Goodyear, Arizona; conveyor crossovers,

Lewco Inc., Sandusky, Ohio; merge,

National Medical Logistics, Midlothian, Virginia: warehouse design,

Sentry Protection Products, Lakewood, Ohio; column protectors,

South Atlantic Controls, Williamsport, Maryland; controls,

Symbol Technologies, Holtsville, New York: hand-held/wrist scanners,

TMI Inc., Pittsburgh; truck stops,