Objective:
To rationalize the number of duplicate and alternate products, services and suppliers used across the organization
Calculation:
| Total number of items inactivated | 20 days | |||||||
| x | x 100% | |||||||
| Total number of active items at start | Number of workdays in the month |
Target
To be set by individual organizations depending on their size, circumstances, priorities and initiatives
Background Details
Rationale
A comprehensive up-to-date item master file is critical to manage frequently ordered products and track and report usage statistics. Usage data are required to support product standardization efforts and better contract management.
Benefits
Process Efficiency
Database management drives more effective contract management and product standardization, reducing the variety of products ordered and the associated administrative burden on the supply chain department.
Customer Service
Eliminating duplicate and obsolete items in the item master will lead to an accurate database to simplify the ordering process for customers.
Underlying Leading Practices
Identification of Product Standardization Opportunities
Reducing the variety of items in the master file through standardization and rationalization of products enables better pricing through higher volume purchasing and reduced administrative burden.
Contract Centre of Excellence
A common repository of contract knowledge and centralized contract development enables an organization to negotiate optimal pricing and contract conditions to support the standardization of items.
Comprehensive Understanding of Spend Data
Analyzing the product usage history by item, category and cost centre enables an organization to reduce items in the item master by standardizing items and deactivating infrequently ordered items.
Target Considerations
Establishment
Targets will be unique to individual organizations as the appropriate percentage of items to be deactivated is dependent on a number of factors. These include:
- Size and scope of the organization;
- Stage of existing centralization, standardization and strategic sourcing initiatives;
- Criteria for item deactivation; and
- IT-system functionality.
This metric is useful to help individual hospitals meet their internal targets but has little comparability across organizations. Before implementing this metric, organizations should collect data for six to twelve months and then establish appropriate goals based on current improvement initiatives.
Adjustment Factor
Due to the different lengths of months and the presence of holidays, the number of working days per month varies from 19 to 23. This could have an impact of over 20 per cent difference from month to month, making comparisons difficult. To avoid the issue, the calculation includes an adjustment factor (20 divided by the number of working days in the month) to normalize each month’s data to a 20-day month (four full work weeks).
Related Metrics and Standards
| Related Metrics: | Related Standards: |
|---|---|
| 1.1 Percentage of Active Items under Contract 3.1 Number of Purchase Orders in One Month |
1.1 Purchasing Policies and Procedures 2.2 Inventory Policy 4.2 Item Master Management Policy and Processes |
Implementation
Calculation Parameters
Calculation:
| Total number of items inactivated | 20 days | |||||||
| x | x 100% | |||||||
| Total number of active items at start | Number of workdays in the month |
| Variable | Include | Exclude |
|---|---|---|
| Total number of items inactivated | Include number of items deactivated in the master file for:
|
Do not include number of items deactivated in the master file for:
|
| Total number of active items at start | Include number of active items in master file at the beginning of the month for the categories above | Do not include inactive items
OR |
| Number of workdays in the month | Include all regularly scheduled working days in the month | Exclude:
|
| 20 days | Days in month adjustment factor |
Data Accessibility Rating
EASY – Data are available for computation
Possible Data Sources
Electronic
Procurement and Inventory Modules:
Many supply chain information systems generate new sequential numbers when items are added. To calculate the Total number of active items at start, organizations must subtract the number of deactivated items from the ID number of the last item in the master file at the beginning of the month. However, the Working Group identified that many information systems have difficulty tracking deactivated items. As a result, a custom report may be necessary. To determine Total number of items inactivated, the number of deactivated items at the beginning of the month must be subtracted from the total at the end of the month.
Manual
If custom reporting is not possible, the organization could conduct a manual comparison of the item master at the beginning and the end of the month to calculate this metric. The calculation for the Number of workdays in the month should be based only on standard workdays — exclude statutory holidays and other organization-wide acknowledged days off.
Implementation Challenges
Challenges:
- Organizations often lack processes and defined responsibilities associated with the item master. Ensure an item master management policy and process for deactivation are in place, and responsibilities for managing the item master must be assigned before implementing this metric.
- Some organizations may have challenges excluding food and pharmacy items if they are maintained within the same system. If possible, the numbers should be manually adjusted; otherwise, the organizations should document the resulting inconsistencies.
- Many hospitals reuse product numbers, resulting in lost history for older items. This procedure should be discontinued to ensure the item master file is accurate and up to date.
