Objective:
To reduce the number of unplanned and unscheduled purchase orders by improving planning and demand management
Calculation:
| Number of purchase orders that require rush delivery | ||
| x 100% | ||
| Number of purchase orders |
Target:
Stock: ≤ 1% rush orders
Non-stock: ≤ 5% rush orders
Background Details
Rationale
Rush orders are necessary when an item is required in less than the minimum lead time required by suppliers. These orders require a separate process and individualized attention, resulting in both higher processing costs within the organization and higher prices and shipping costs charged by suppliers. Although a certain number of rush orders are inevitable, high proportions of rush orders may be an indication of inadequate demand planning and communication with customers. Rush orders occur for a variety of reasons, mainly:
- Usage spikes
- Overreaction to perceived supply shortages; and
- Inaccurate par levels and reorder parameters for inventories.
Consistent tracking of the number of rush orders and the reasons they occurred, rather than relying on anecdotal information, enables the supply chain department to demonstrate its service-level performance to customers.
Rush orders may be reduced in an organization by:
- Increasing the scope of stocking areas managed by the supply chain department;
- Performing periodic reviews of regular use items and upgrading to stock as appropriate;
- Assisting areas that independently manage their point-of-use inventories to regularly review their departmental replenishment schedules and processes; and
- Optimizing inventory management processes and systems for Central Stores.
Benefits
Patient Care
Reducing the percentage of rush orders helps ensure that customers have access to the right product at the right time when treating patients.
Financial Stewardship
Purchasing items through rush orders adds significant cost to the price of an item relative to the normal ordering processing. Reducing the number of avoidable rush orders reduces the amount of money unnecessarily spent due to improper inventory management planning and processes.
Process Efficiency
Processing rush orders is time consuming for both hospitals and suppliers. Within the hospital, expediting rush orders creates inefficiencies for staff in issuing purchase orders and receiving and distributing items through the hospital.
Customer Service
The percentage of rush purchase orders is a good indicator of whether the supply chain department is meeting customer needs. Consistent tracking of the metric and identifying and resolving causes for rush orders enables the supply chain department to demonstrate its customer service focus.
Addressing customer concerns regarding rush orders and building trusting relationship with customers will support continuous improvement efforts in other areas, including enhanced communication with users on changing requirements, demand planning and expansion of service to new areas.
Risk Management
Reducing the percentage of rush orders reduces both clinical risks to the patient and financial risks to the organization.
Underlying Leading Practices
Baseline Forecasting
Comprehensive understanding of an organization’s requirements for stock and non-stock items helps to reduce the need for rush orders and improves quality of service and customer satisfaction.
Collaborative Planning
Collaborative planning with customers will reduce the number of unscheduled orders by ensuring rapid communication of, and response to, changes. This requires having access to the right information to forecast departmental needs.
Identification of Product Standardization Opportunities
By reducing the variety of products used in the hospital, higher levels of each product can be maintained, reducing the probability of urgent supply requests.
Strategic Sourcing
Optimizing the supplier base and focusing on strong supplier relationships will result in improved supplier performance and reduces the likelihood for rush orders.
“End to End” Supply Chain Partnerships
Strong supply chain partnerships from customers through to suppliers will ensure good communication and sharing of information to proactively communicate new requirements and forecast changes to reduce the incidences of rush orders.
Target Considerations
Future Opportunities
This is a difficult metric to monitor. The few organizations that are currently measuring it are using different calculation methods. It is therefore recommended that a review of the proposed targets for stock and non-stock take place six to twelve months after implementing to further refine the target levels.
Frequency
Reporting frequency may depend on the number of overall rush orders and the level of customer satisfaction. In the case of customer complaints or if the supply chain department detects an issue, they may consider reporting on a weekly basis until the root causes are identified and resolved.
Related Metrics and Standards
| Related Metrics: | Related Standards: |
|---|---|
| 1.2 Purchasing Response Time 2.1 Average Cost to Issue a Purchase Order 3.4 Average Lines per Purchase Order 4.2 Fill Rates to Customers |
2.2 Inventory Policy 4.1 Customer Survey Tools and Processes 5.1 Supplier Performance Management Process |
Implementation:
Calculation Parameters
Calculation:
| Number of purchase orders that require rush delivery | ||
| x 100% | ||
| Number of purchase orders |
| Variable | Include | Exclude |
|---|---|---|
| Number of purchase orders that require rush delivery | Include all rush purchase orders during a one-month period
|
Do not include regular lead time orders or any of the types of orders or categories below |
| Number of purchase orders (POs) | Include all orders released to suppliers in a one-month period that are both for the following types of orders:
|
Do not include orders that are either for the following types of orders:
|
Data Accessibility Rating
DIFFICULT – Data do not exist and are difficult to obtain
Possible Data Sources
Electronic
Procurement Module:
The Number of purchase orders would be tracked automatically by the hospital’s electronic procurement system and can be retrieved in month-end standard reports. Some systems may be unable to break out data by the specified categories.
Few purchasing applications have tracking capabilities to flag rush orders. To obtain the Number of purchase orders that require rush delivery electronically, the organization could consider installing a customized software solution and specialty reports.
Manual
Most hospitals will need to collect the data for this metric manually. The organization could consider using a logging method throughout the month or selecting a representative time period (one day, one week, etc.) to collect a subset of data. Organizations should select the option that balances the cost of collecting the data and the associated accuracy with the benefit of reporting the metric.
Implementation Challenges
Challenges:
- Increasing inventory levels is one way to reduce stock-outs and the corresponding rush orders. To ensure leading inventory management practices are still being followed, this metric must to be reviewed in conjunction with metric 2.2 Inventory Turnover in One Month.
- Monitoring this metric is not enough to improve performance. If an organization is not meeting the targets or sees an increasing trend month over month, a root-cause analysis must be undertaken. Analysis should be repeated in conjunction with more frequent reporting of the metric until the cause has been identified and a solution implemented.
- Data may be unavailable from current information systems. Due to the importance of this metric, organizations should consider a manual process to monitor performance, such as implementing a logging system.
- This metric is customer service focused, so it is important to give customers an opportunity to contribute to developing the reporting method to ensure they feel it is credible and meets their needs and expectations.
