Kanban Supply at a Hospital by Andy Olson

Andy completed his thesis in September 2014.  His thesis analyzes the benefits of switching to a two-bin kanban supply system at Bethesda National Medical Center.

Complete Thesis

Olson, A. S. (2014).  Benefits of a hospital two-bin kanban system (Masters Thesis).  Naval Postgraduate School.

Executive Summary

Under the Base Realignment and Closure Act of 2005, the Department of Defense was required to combine the Walter Reed and Bethesda National Naval Medical Center to form the newly renovated/realigned Walter Reed National Military Medical Center (WRNMMC). One of the difficulties during integration was the presence of logistical challenges. To eliminate these challenges, the Bureau of Navy Medicine implemented a two-bin kanban system.

Two-bin kanban is an attempt to bring a level of optimization to product availability while trying to minimize cost to the supply-chain system. In a two-bin system, product inventory is placed into two bins—primary and secondary—that addresses the rate of consumption and reorder time. When the primary bin is empty, a reorder is triggered, and product is consumed from the secondary bin until the new supplies arrive. The bins are expected to regularize the intervals between ordering, regularize the amount of product being ordered, reduce the quantity of product on-hand as it sensitizes the supply-chain to demand, and organize the products for consumption and resupply. Through all these effects, it is assumed that there will be a reduction in costs. It is these effects that we attempt to analyze in this thesis.

The results are based on twenty months of data, constituting approximately 328,000 daily supply transactions, obtained from WRNMMC’s Defense Medical Logistics Standard Support (DMLSS) servers. The data is divided from before and after the implementation of the kanban system in each hospital department to measure the effects of change to the costs of supplies ordered.

The effects of the kanban system is measured in two ways—organization benefit and inventory benefit. The organization benefit encompasses the effort the kanban system makes to bring more order and control to the logistical process. The inventory benefit is an attempt to capture the benefit of regularizing the order process, and controlling the on-hand inventory amounts.

The data we analyze shows some improvement delivered by the kanban system, but is inconclusive to show improvement across all areas where we expect to see improvement. Figures 1 and 2 represent the summarized effects for the organization and inventory benefits, respectively. From all this, we conclude, first that there are clear organizational benefits to the hospital overall. This is not true on a per-department level, but it is true of the most expensive departments. Second, explored in more detail in the thesis is the opportunity for exploiting the kanban system to optimize inventory sizes, also known as economic order quantity (EOQ). The current system at WRNMMC does not implement EOQs per item per department. However, the kanban system provides a perfect framework to implement EOQ, thus minimizing operating costs of the logistic system. We recommend that EOQs be explored in future refinements to the kanban system.

Summary of organization benefits for the departments analyzed.

Figure 1. Summary of organization benefits for the departments analyzed.

Summary of inventory benefits for the departments analyzed.

Figure 2. Summary of inventory benefits for the departments analyzed.

Outside of the results, there were aspects of this kanban system that were not analyzed. Though discussed briefly during the overview of the kanban system, the aspects of the radio frequency identification (RFID) capabilities of the two-bin kanban system were not addressed in this thesis. The greatest impact that the RFID capabilities would have will be on reducing the involvement of humans within the supply-chain loop. There are potential savings of the RFID two-bin kanban system to reduce the time spent by clinicians and material handlers in the supply-chain process. The data analyzed did not cover this or any portion of the cost-savings attributable to reducing the amount of manpower dedicated to the supply-chain. Therefore, it was not analyzed. However, we believe that further analysis involving the order costs, the manpower reduction in ordering, and EOQ would highlight further potential for the kanban system to improve the logistics process.

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