RecReport v2 final paper

Inventory Control Optimization 1

Inventory Control Optimization

Courtney Fenwick

Tenet Florida Physician Services (TFPS)

March 21, 2014


Table of Contents

Executive Summary………………………………………………………………………….3

Introduction..............................................................................................................................4

Recommendation: Adopt a Software Bridge ……………………………………………...6

Current Manifests and Tracking………………………………………………………………8

Modernize and Streamline Processes…………………………………………………………9

Accurate Taxation, Billing, and Depreciation………………………………………………..11

Counter Argument and Rebuttal………………………..…………………………………….12

Conclusion……………………………………………………………………………………13

Bibliography………………………………………………………………………………….15

Executive Summary

This report examines the problems faced by both the inventory and the finance department of

Tenet Florida Physician Services (TFPS). Discussed are the causes of inefficiency, loss of


capital, low output, and un-timeliness. These effects are the results of the outdated, manual, and

substandard inventory control processes currently being used by Tenet.

A software bridge should be adopted that will utilize existing software and hardware to

modernize and streamline current inventory systems. This option will maximize sustainable

profitable inventory control for many years to come. It is the most cost effective solution, with

the greatest ancillary benefits. This represents the greatest return on investment (ROI) of any

available option.

Current manifests and real time tracking will save TFPS time and money. Tenet will also

benefit from increases in output through up-to-date and efficient logistics. The ability to update,

track, and to add items in real time through the use of SKU numbers will greatly reduce

confusion and mistakes. By keeping control and maintenance of TFPS inventory systems in-

house, Tenet maintains security and stays in charge of its processes.

Modernizing and streamlining outdated processes will make human errors almost non-

existent. It will allow for a single step, multi-item approval, which will unburden several

departments for greatly enhanced output and efficiency. The cost is only 4% of Tenet’s

estimated assets’ net realizable value. Tenet will benefit from a 400% ROI in the first year

alone.

Accurate figures for billing, depreciation, and taxation are crucial for maximizing revenues.

Instant updates to billing statements will allow TFPS to realize the highest income possible from

operating procedures. Physicians will experience more job satisfaction, leading to longer

employment retention, and better patient care. Obsolete and depreciated medical equipment


must be accurately tracked and accounted for. These corrections will help Tenet to save one

hundred thousand dollars a year and a total of a million dollars in ten years.

Writing a specialized program and an app from scratch takes a year to develop and

implement. There will be bugs to work out and problems at first. These minor and short lived

inconveniences are a small detraction when compared to the realizable gains. Increased output

and efficiency, one hundred thousand dollars in annual savings, and increases in billing revenue

far out-shadow any growing pains.

As expansion continues the current system will cause greater losses of money, inventory,

resources, and time. TFPS must update, modernize, and automate its’ inventory control systems to

stem the increasing loss of capital from improper inventory practices.

Introduction

For the past seven years Tenet Florida Physician Services (TFPS) has been losing

extraordinary amounts of money annually. Inefficient, outdated, and flawed inventory processes

are to blame. One of TFPS major revenue streams comes from the services provided by its’ over

one hundred physician partner practices, based from Miami to Port St. Lucie. Due to inaccurate

manifests and billing, Tenet routinely loses income in this area from disgruntled doctor

complaints and conciliatory concessions. Sometimes this continues to the point that the

physician leaves Tenet all together. Over payment of taxes is another major source of income

depletion. TFPS cannot accurately list its inventory assets, the depreciation of those assets, nor

is it aware of the correct amount of storage needed to house those assets. This causes large

overpayments in taxes that are an unnecessary source of lost income. Tenet continues to lose


money in the cost of time and manpower needed to move this inventory. These are mistakes that

result from a lack of proper inventory control.

These issues have arisen as a result of past efforts to establish a working and sufficient

inventory control system. In the past, an outside firm was hired to establish inventory protocols

and severely botched the job. This led to TFPS having to salvage the situation and recognizing

the importance of keeping control of its inventory in-house. Neglect of the deteriorating

situation and company’s growth are the two major factors contributing to the continued

degradation of Tenet’s inventory processes. As TFPS moves forward into the future, inventory

concerns will continue to multiply, as will the cost. The situation will become ever more

problematic unless it is addressed immediately.

This recommendation report will highlight the benefits, both immediate and ancillary, along

with the savings of capital that will be achieved by correcting these issues. Upgrading, updating,

and automating Tenet’s inventory control systems will enhance efficiency across multiple

departments. It will decrease human errors, allow for more timely processes, and streamline the

company’s logistics. “Automation systems are now pervasive in modern industry and are

becoming increasingly integrated with the business systems that run the rest of the enterprise”

(DiFrank, 2011, p. 50).

The report will focus on three major areas in need of immediate improvement. The need for

current manifests and real time tracking will be examined first. The benefits of modernization

and streamlining processes will follow. The next area will focus on the need for accurate

numbers for billing and taxation purposes. Counterarguments along with rebuttals will then be

discussed, followed by a summary conclusion.


Recommendation: TFPS must implement a Software Bridge

TFPS should invest in and institute the development and implementation of a software bridge.

An outside firm will build a software bridge through the development of code from scratch that

will provide a multitude of benefits for several departments within Tenet. The bridge will allow

communication between the finance department’s software (IMMS), the inventory/IT

department’s system (Share Point/OCS), and the current system which communicates to

departments in the rest of the company (S2K).

The software bridge will utilize the existing company software systems and hardware

to create a sustainable and profitable inventory control process for many years to come. The

bridge will allow communication of data between departments. This will automate all the

information and eliminate most human error in the current process. Cloud based software will

allow inter-department access to the inventory manifests, one step approval processes, and real

time updates. The bridge will empower the inventory staff to make corrections to erroneous

SKU descriptions, add to manifests, track locations of inventory items in real time, and update

information as needed for accuracy. The bridge will come with an app for mobile “Smart”

devices (phones, tablets, etc…) that will enable the camera on these items to act as a barcode

scanner. This will allow Tenet to make optimal use of existing hardware instead of purchasing

new and expensive specialized equipment. “Personal Digital Assistants (PDSs) and other

computers that can be held in the hand, provide a way to send information to caregivers in a very

timely manner” (Smith, 2000, p. 40). Optimization of inventory allocation and logistics will also

save TFPS money in manpower, warehousing, and transportation costs.


The finance department will also be a major beneficiary of the software bridge. One of the

departments’ largest impediments has been the single item, multi approval process currently in

place to affect any changes to manifests whatsoever. The bridge will enable finance to approve

multiple items at a time with a single step approval process. Finance will be able to view and

track specific pieces of inventory in real time. They will be able to instantly update incorrect

billing to physicians, thus placating the doctor practices, increasing billable revenue, and

reducing physician turnover. The finance department will be able to focus on their core duties

such as taxes. Additionally, the bridge will help finance track and account for depreciation as

well as obsolete medical equipment. “Obsolescence, shrinkage, and damages are key indicators

of inventory management effectiveness and should be tracked as a percentage of purchases,

production, or sales. Taking corrective action when amounts exceed acceptable levels can

reduce costs” (Sears, 2009). It will allow them accurate figures from which to file taxes on total

inventory value, and to not overpay on an inflated estimate. The automation of the processes

will greatly decrease human error from incorrect inputting of information, misunderstandings,

and misinterpretations.

The software bridge will require a year to write the code, build the app, and implement. “The

cost is approximately twenty thousand dollars for the completion of the software programs and

implementation. This amount is only four percent of the overall estimated value ($500,000 est.)

of the entire inventory of TFPS” (McCauley, personal communication, February 8, 2014). The

bridge will save the company a minimum projected one hundred thousand dollars a year, starting

from year one. The bridge will pay for itself four times over in the first year alone, accumulating

to a four hundred percent ROI. The system will save Tenet one million dollars in ten years from


expanded revenue collection from billing, correct taxation, appropriate storage expenditure, and

resource allocation. Once proven by TFPS, the software bridge can be expanded company-wide.

This approach will give Tenet in-house control of its inventory, processes, and expansion.

Tenet will save hundreds of thousands of dollars in licensing fees and expenses by, instead,

adopting a program that expands upon existing software. Tenet’s in-house IT department will be

able to take over the maintenance and upgrades to the Software Bridge and app once the program

is installed and running. TFPS will enjoy further savings by utilizing existing inventory and

finance employees who are already current and trained on the software systems involved. This

will have the effect of making existing staff more valued and boost morale in these divisions.

TFPS represents over a hundred individual physicians’ practices and currently nets fifty-six

million dollars annually in revenues. By correcting current deficient processes and stemming the

capital losses they cause, Tenet will realize a net increase of revenue in the amount of 1.7% in a

decade or less in just TFPS territories alone. The ancillary savings as well as the company wide

savings to come after implementation have not yet been able to be factored in. They will quickly

and significantly increase these figures.

Current Manifests and Real Time Tracking

Accurate and up to date manifests, coupled with the ability to track items in real time, are

crucial to modern business models. They are a necessity in the world of inventory control. By

knowing where inventory is located and the best logistics to transport and facilitate the use of

each item, Tenet inventory staff will be much more time and cost effective. “Maintaining a

clean, orderly, properly lighted, and secure warehouse or stockroom is the basic key to

maintaining inventory control. Adding computer technology to aid in management and


administration creates a system that is current and competitive. Properly training employees in

modern techniques and standards results in a system that will be effective and profitable”

(Lefebvre, 2007). Performing inventory verification audits is one of the most time consuming

and error laden tasks performed by this division of the company. The ability to correct erroneous

SKU descriptions, add items, re-allocate items between practices, and input notes on inventory

will greatly enhance the inventory division’s efficiency and output. This will significantly affect

the department’s ability to correctly allocate resources in an optimum and timely fashion. TFPS

will save money in the form of manpower, time, and efficient logistics by offering information at

the employee’s fingertips. This system will have the ancillary benefit of increasing the inventory

staff morale by empowering them to do their jobs to the best of their ability.

The finance department will be free to fulfill its’ main job requirements by eradicating tons of

unnecessary and time consuming paperwork and approvals. Finance will become more efficient

and productive by removing this labor intensive process. Manifests will be available on the cloud

and up-loadable to hand held “Smart” devices. The added accuracy and real time updates will

allow finance to correct any errors immediately at the source. Though the approval process is

considerably shortened, it still adequately satisfies inventory control’s need for loss prevention

and shrinkage. All information will be easily retrievable to whom-ever has clearance to retrieve

it on company computers.

Modernize and Streamline Outdated Processes

Modernization through the upgrading and streamlining of the inventory control process will

make TFPS more timely and efficient as a cohesive unit. The one step request and approval

process will greatly speed up the output of several departments. Empowering the inventory staff


with the authority to make description changes, add, and transfer items without unnecessary

approval will make many tasks much more efficient. Automation in the form of hand held

device scanning of bar codes (SKU's) will streamline the auditing process and greatly diminish

human input errors across multiple departments. “The less you rely on human intervention to

identify items, input information, and track data, the more timely and accurate your records will

be” (Muller, 2011). By consolidating the amount of information which requires inventory

control safeguards, as well as by simplifying the processes involved, TFPS will effectively

streamline the out-dated and single item system currently in place.

Utilizing existing software and hardware greatly diminishes implementation costs for

Tenet. The ability to have a specialized staff that is already familiar with the core operating

system as well as the necessary checks and balances involved, will greatly diminish any extra

costs for training. It will also minimize time lost due to inactivity caused by acclimation to a

new program. The software development for the bridge itself costs about twenty thousand

dollars to create. “Being that the software development cost is only 4% of the total overall

estimated inventory value, this makes this course of action highly affordable with minimal

impact on the fiscal budget” (McCauley, personal communication, February 8, 2014). The

ability to expand the software bridge from TFPS in south Florida, to span the entire company,

makes the investment from Tenet South seem innovative and pioneering. Profits will be

maximized company-wide and the benefits will be realized by many divisions across the nation.

Through control of the inventory process, Tenet maintains the ability to upgrade, maintenance,

and expand its processes with few outside extraneous costs. TFPS retains control of its assets,

security, and future decisions. The functional lifespan is slated for as long as Tenet retains use of


its core software programs. The software bridge promises large returns in money and efficiency

for many years to come.

Accurate Figures for Billing, Depreciation, and Taxation

One of TFPS major revenue streams comes from the services provided by it's over one

hundred physician partner practices. Physician office locations range from Miami to Port St.

Lucie. Medical equipment used in day to day operations is charged to the physicians as part of

daily operational costs. These costs, while often incorrectly allocated, lead to physicians

complaining about incorrect billing to their practices. The physicians’ complaints are usually

justified. TFPS must make concessions for errors on its part due to an inability to correct

mistakes in a timely fashion. These doctors can become disgruntled and leave Tenet, taking their

practices and patients with them. Tenet must update and streamline its’ inventory process to

maximize capital gains from this revenue strain. Real time updates, coupled with item

description corrections, would negate rental rebates entirely. This will help keep the physicians

happy and save Tenet money on employee turnover and lost revenues. “Further, improving

internal service levels also positively impacts patient care and this, in turn, should be led to

increases in external measures of customer satisfaction and customer perceptions of service

quality” (Nicholson, Vakharia, & Erenguc, 2004, p. 272).

Accurate inventory manifests of company assets are a major aspect of tax payments. By

using a policy of estimation of value, Tenet errs on the side of caution, and constantly overpays

for its assets. Accurate asset valuation depends on aspects such as depreciation, current market

value, and if the piece is even in Tenets’ inventory or not. This information will be automatically

updated as the product is tracked. The ancillary costs of doing business based on inventory


logistics must also be considered. Transportation and storage are two major points of ancillary

spending. If medical equipment has passed its useful life span and becomes obsolete, TFPS

needs to remove or replace it as soon as possible. The software bridge will allow for notes to be

inputted into the system for tracking. TFPS will be able to not only track the location of its

inventory, but also the condition of each item. “This information is automatically updated as the

product is tracked. This information can be used for such functions as invoicing, loan

information, and inventory control. It also allows the company to keep track of when any

damage occurs to the product” (Smith, 2000, p. 40). Maximizing warehouse space and

condensing holdings for storage will save money as well. The effects of this course of action

will save TFPS over one hundred thousand dollars a year, starting at year one. That is equal to

one million dollars within ten years.

Counterargument and Rebuttal

The main concern with this approach to modernization is the fact that the code to link the two

existing systems, and build the interactive app, must be developed from scratch. This raises

several valid points that should be addressed. Topics such as the cost, time of implementation,

bugs, updates, and maintenance are of immediate concern.

While adopting a policy of using hand held and task specific scanning barcode readers

may be slightly less costly, it’s not by much. This also only addresses one aspect of a dynamic

and multi-layered dilemma. Pursuing this option will lead to greater spending in the near future,

which would quickly far exceed the cost of the software bridge

The software bridge is a new piece of software written specifically for TFPS and its needs.

Development is started from the base code and this means that there will be bugs and fixes that


must be attended to at first. These incidences will be relatively minor and short lived. Tenet’s

IT department will take over operations and maintenance once the program has been uploaded

and a buffer period of two months has past. This allows time for the code writers to phase out

any bugs and to teach the IT department how to manipulate and maintain this software. Keeping

the project in-house will allow swift response and short turnaround times on any future issues.

Problems that arise will be quickly and efficiently rectified. Little inconveniences of this sort are

a small price to pay for the much needed upgrades in processes and efficiency that the software

bridge will provide. The money that TFPS will save in the first year of operation alone more

than justifies the efforts associated with bringing this project to fruition.

The software bridge does have a one year time frame of development and implementation.

This represents a significant investment. The capital losses that TFPS is experiencing will

continue during that period. No other option available to TFPS will stop the loss of money for

the following year. The software bridge represents the best option for significant savings. The

time frame necessary to develop, write the code for the app, and implement the bridge is

necessary due to the complexity and the scope of the undertaking. A years’ time is a short span

when compared to the decade of operational life that the bridge will provide. The amount of

money Tenet will save over its operational lifespan is immense.

Conclusion

As Tenet expands, so too does the amount of inventory. The size and the scope of its’

operations will become ever larger. Logistics are a key component of efficient business. TPFS

must update and optimize its software, processes, and practices if it hopes to maintain its status

as an industry leader. Now is the time to correct these grievous issues. The longer that TFPS


postpones action, the more compounded and complex the problems it faces become. Tenet is

becoming its own largest obstacle to maximizing growth, service, and revenue. Employee

morale and empowerment are also strong influences of a company’s success. Both the staff of

the inventory and finance department is ready, willing, and able to help move the company

forward to the next generation of healthcare. The future evolution of Tenet as a corporation

depends on the board making the best decisions possible. As expansion continues, the current

system will cause greater losses of money, inventory, resources, and time. TFPS must update,

modernize, and automate Inventory Control Systems to stem the increasing loss of capital from

improper inventory practices.


References

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