Computerized inventory management systems help labs stay in control

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eagents, disposables, and equipment are critical to operations of the medical laboratory. Overall, these supplies constitute close to 50% of a lab's operating budget — which can range from $50,000 to $10,000,000 per year — and are an asset that needs to be managed. Inventory control is important for a number of reasons; lab's need to

1. maintain sufficient reagents for patient testing;
2. track dates when a lot number was in use and none of the reagents are expired;
3. improve operating budget by limiting the on-hand inventory and associated costs;
4. know when to order reagents and in what quantity; and
5. operate within established regulatory guidelines and good laboratory practice.

Along with ensuring timely patient testing there are regulatory requirements which dictate that a lab has an inventory control system in place.^1-4 The Clinical Laboratory Improvement Amendments 1988 (CLIA '88) and the College of American Pathologists (CAP) have specific references to inventory control as well as purchasing processes.^1,2 In addition, Good Laboratory Practice and the ISO certification also stress the importance of inventory control.^3,4 Documents exist which suggest how inventory control can be implemented.^5,6

Definitions used in inventory control

Acronyms and phrases used in inventory control include:

• ROP — reorder point, the quantity of reagent when a new order is to be placed.
• QOH — quantity on hand.
• DQOH — desired quantity on hand, the ideal quantity which usually includes a “safety stock.”
• Par level — analogous to the DQOH.
• Inventory turns — the number of times that inventory cycles or “turns over” during the year. A high inventory turn reflects rapid use of the supply. Low inventory turns usually suggest overstocking.
• Inventory valuation — the cost of the on-hand items. Items which outdate prior to being used or become obsolete before being used constitute an inventory write-off.
• Carrying cost — the cost of holding inventory which includes space required, insurance, spoilage (expired reagents), and obsolescence.
• Periodic or cycle counting — a fixed time interval for a physical count of the inventory.
• Perpetual inventory — a frequent or real-time physical count of the inventory.
• Forecasting — an estimate of future demand.
• Item record — the master record for an item with identifying and descriptive information.
• Inventory item — reagents, supplies, and other items used in the laboratory.

Structure and function of an inventory control system

The basic structure of an inventory control system starts with listing all items used by the laboratory. The items should be tracked by name or an internal identifier. Each item record should contain the following fields: catalog number; primary vendor; price; storage location; department; ROP; DQOH; and alternate fields are also helpful such as the work area, instrument or other categories (e.g., molecular, POCT, STAT).

Typically, the items to count are organized in such a way as to make clear what is needed to the person or staff in a particular area of the lab who are responsible for the item(s). These areas are typically defined by job functions such as a department, work area, instrument, frequency, and so forth. Most inventory control systems use periodic (cycle) counting rather than a perpetual system. Remember, a periodic system is a physical count at a defined interval, whereas a perpetual system tracks items in and out of the inventory in real-time. The item record shown above, however, is useful for both the periodic and the perpetual system.

Functions of an inventory control system

The primary purpose and function of a laboratory's inventory control system is to ensure that sufficient in-date reagents are available. Other benefits include:

1. knowing at a glance the QOH, ROP, and DQOH for any item;
2. determining when to order reagents and in what quantity;
3. knowing which lot number is in use, when it will expire, and the QOH;
4. having a requisition for all items which are at ROP.

Other functions useful to have include:

1. tracking items by scanning a barcode label;
2. tracking items sent to offsite locations;
3. calculating the inventory valuation;
4. maintaining a complete vendor database including the purchase order/contract which contains the details;
5. tracking equipment inventory, asset value, and service history;
6. analyzing/reporting on all aspects of inventory/purchasing.

Types of inventory control systems

There are three basic types of inventory control systems^7,8: paper worksheets or index cards; spreadsheets; and commercial inventory management computerized systems.

Paper worksheets and/or index cards are easy to use and inexpensive. Worksheets or cards typically are easy to learn, and they work well in a small laboratory with a limited number of items to track. Drawbacks include the inability to extract objective data for analysis and difficulty tracking large numbers of items. In addition, the paper system becomes more labor intensive as greater control is required.

Spreadsheets have the benefit of data storage and retrieval, which allows for some analysis of inventory levels. A spreadsheet system is inexpensive, easy to use, and can be set up to provide some analytic reporting for determining the value of the inventory. More complicated reporting can be challenging, and associating items with other fields such as lot numbers can be difficult since a relational database may be required. In addition, attempts to automate the physical count using barcode scanning with a spreadsheet generally is not practical.

Computerized inventory management systems provide many benefits that are hard to obtain using paper methods or an in-house spreadsheet.^7,8 Systems that are specific to the lab can be used relatively quickly without a significant learning curve or system customization. The ability to analyze the inventory, item usage, purchasing history, and other areas (e.g., lot numbers, equipment) are important improvements to spreadsheets and paper systems. A computerized system allows the lab to automate some of the manual physical counting steps using barcode scanning and provides the ability to analyze all aspects of inventory control and purchasing. If the system includes equipment tracking, it can be used to determine the capital asset as well as track the service history and lifespan of equipment.

The ability to streamline and automate many of the inventory control tasks will be increasingly important to reduce hands-on time while improving the analysis of trends, reducing stock-outs, and avoiding expiring reagents. The ability to ensure that the right reagent in the right quantity is present at the right time is critical to laboratory operations. Given that reagents are approximately one-half of most labs' operating budgets, a continued focus on this expense will assist the laboratory in continuing to provide accurate and timely laboratory testing at the lowest cost.

Thomas M. McHugh, MS, MLS(ASCP), is the director for Laboratory and Pathology for St. Joseph Health System, Queen of the Valley Medical Center, in Napa, CA, and a member of APICS — The Association for Operations Management.

References

1. CLIA 493.1252. Standard. Test systems, equipment, instruments, reagents, materials and supplies.
2. College of American Pathologists (CAP), General Checklist GEN.61900. “Is there an effective supply inventory control system in operation?” College of American Pathologists, Northfield, IL.
3. ISO 15189 medical laboratories – particular requirements for quality and competence. 4.4, 4.5 and 4.6.
4. Ezzelle J, et al. Guidelines on Good Clinical Laboratory Practice. Bridging Operations between Research and Clinical Research Laboratories. J Pharm Biomed Anal. 2008;46:18-29.
5. Clinical and Laboratory Standards Institute. Inventory control system for laboratory supplies; Approved Guideline. Wayne, PA. 1994. CLSI document GP-6A.
6. Clinical and Laboratory Standards Institute. Application of a quality management system model for laboratory services; Approved Guideline, Third ed. Wayne, PA. 2004. CLSI document GP26-A3.
7. Arnold JRT. Introduction to Materials Management 6th ed. Prentice Hall Upper Saddle River, NJ. 2007.
8. McHugh TM. Supply chain management in the clinical laboratory. CLMR. 2006;20(1):E4.