Managing Medical Item Inventories Under Order Loss*

In hospitals, replenishment order information for medical items go through multiple departments before it is submitted to the medical supplier. At times, order information is inadvertently lost on the way, leading to order loss. In this article, using our case study conducted at magnetic resonance imaging (MRI) units of a hospital, we propose a periodic review base stock inventory policy that takes order loss into account. Our proposed inventory policy helps in two respects. It provides insights about how to mitigate order loss and establishes a minimum inventory cost benchmark for hospitals so they can readily conduct incremental cost-benefit analysis before implementing a process improvement. We find that more frequent order losses do not necessarily lead to higher base stock levels. The review period plays a key role. We empirically find that, even when order loss is rare, the inventory costs go up appreciably. Hence, we also quantify the potential benefits of two technology features to improve a hospital's ordering process: computerized order entry and transfer (COET), which may eliminate order loss, and real-time item tracking (RTIT), which reduces inventory costs further via continuous review of inventory. Our results indicate that savings by our proposed inventory policy or the two technology features are greatly increased at high service levels, percentage of time in stock, which is true for many hospitals.