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ONTARIOBUYS: Performance Measurement Phase II - User Guide - Standard 4.2

Objective:

To maintain a complete and accurate item master file with contract and purchasing information to enable effective contract management and product standardization initiatives

Definition

An item master management policy covers item master file maintenance, including how information and items are added or deleted in the master file. The associated processes should document the related responsibilities, authorities and procedures for maintaining an accurate, up-to-date master file.

Rationale

Management of the item master file ensures accurate information for supply chain management and better decision-making. An accurate item master file enables effective management of product usage, total cost of ownership and product recalls. It is also critical to have good item master management to manage contract compliance and product standardization initiatives.

Benefits

Financial Stewardship
Proper management of the item master file enables organizations to retrieve data that can be analyzed to identify opportunities for savings through product standardization.

Process Efficiency
Item master file management supports improved contract management and more efficient purchasing processes by reducing the variety of products being ordered. Maintaining accurate information also creates efficiencies by reducing errors downstream in the receiving and accounts payable departments.

Customer Service
One record per item with all the required information facilitates faster and more accurate transactions between hospitals and suppliers. This results in fewer errors and stock-outs, which ensures that customers have the required products when they are needed.

Related Metrics

1.1 Percentage of Active Items under Contract
1.2 Purchasing Response Time
2.2 Inventory Turnover in One Month
3.1 Number of Purchase Orders in One Month
3.7 Percentage of Invoice Matches
4.3 Percentage of Items Activated in the Master File in One Month
4.4 Percentage of Items Inactivated in the Master File in One Month

Guiding Principles

Organizations may encounter challenges if their item master file is not complete, up to date and accurate. The goal of the policy and processes should be to ensure consistency and accuracy in the item master.

The item master management policy and processes are intended to support hospitals by:

• Centralizing supply chain control and risk management;
• Ensuring items on contract are ordered according to contract terms;
• Enabling more efficient transactions with fewer errors;
• Helping maintain accuracy of records for traceability of items and spend analysis;
• Minimizing waste due to obsolescence, redundancy and date expiration;
• Managing the number of items and approved suppliers to control the administrative burden of supply chain;
• Managing choice of products for customers and ensuring new items, alternatives and substitutes are introduced in accordance with the agreed-on procedures; and
• Ensuring items are assessed based on factors such as efficacy, value, regulatory approvals, approved suppliers and group purchasing contracts.

Key Components

Format and Content of Item Master File
The item master file contains the master record for all purchased items. It is typically part of an organization’s enterprise resource planning (ERP) system. In some systems, the information is organized into a basic item master file and a dynamic item master file. The former usually remains static from period to period, whereas the latter changes to reflect inventory status and modifications. All pertinent contract and supply information is maintained in the master file and typically will contain:

• Product identification or part number
• Description
• Classification or category code
• Associated equipment number (if appropriate)
• Recommended supplier
• Financial coding (for charge to functional centres, and appropriate secondary code, expense or capital classification)
• Minimum/maximum stock levels including safety stock levels
• Lead time
• Units of measure for purchase (minimum order quantities/volumes)
• Economic order quantity information
• Shelf life
• Stock type and classification (disposable, repairable etc.)
• Tax status (and, as appropriate, bonded items)
• Location code
• Any other pertinent information (i.e. substitute items)

The item master file should be able to link item numbers to other alternatives or substitutes where appropriate.

Item Master Management Policy and Processes
Clear, well-communicated policy and processes for adding or deleting items in the master file must be documented and adhered to. The policy and processes should address the following:

Responsibilities and Authorities

1. Assign appropriate access and authority levels.
   This step is essential to control the size of the item master file and ensure that the information is accurate. To give the organization better control, only a small group of individuals should have access to change information.
2. Assign ownership of item master file to supply chain personnel.
   Supply chain department ownership of the item master file ensures that changes to approved suppliers, prices or other contract terms cannot be made by customers without approval by the supply chain department. For some products, it may be feasible to delegate authority to departments for setting up technical and product information but centralization of supply chain control ensures supply chain excellence.
3. Ensure proper segregation of authority.
   Segregation of authority must exist between those who have responsibility for setting up the item master file and those who can requisition or purchase goods and services from the master file.

Activation and Deactivation Processes

1. Use standard nomenclature.
   It is important to use consistent naming conventions (for example, based on ANSI or UNSPSC standards) for each unique item. The standard naming conventions should provide details for how to add the name of a new product and how to classify different sizes or types of that product as separate entries.
   
   Development of a clear, comprehensive nomenclature system is critical to ensure accurate and searchable information. A future initiative may be to create a standardized nomenclature system to be used across all Ontario hospitals.
   
2. Establish a product evaluation committee.
   This committee should include representation of all key stakeholders, users and supply chain staff. Its purpose would be to assess and approve new items and agree on what items should be deactivated, based on established criteria. The committee could also outline exception criteria and processes for medical emergencies and other unplanned events.
3. Establish a review process of supply inventory.
   A periodic review of old items or unusual usage patterns should be established.

Implementation Challenges