Warehouse Consolidation Project at Manipal Hospitals Bangalore

Manipal Hospital has four hospitals across Bangalore & prior warehouse consolidation, procurement
& storage activities were undertaken independently at these units. This implied that each unit
maintained their own sourcing & procurement team who would only negotiate for their unit’s
volumes without leveraging group level consolidated volumes as bargaining tools with the suppliers.
Since, the spend on the Pharmaceuticals & Consumables category amounts to 55% of total hospital
expenses, there is scope of creating significant impact by negotiating with larger volumes.
Further as the hospitals maintained their stocks individually, they had to dedicate precious real estate
space in the hospitals for storage rooms which otherwise could have been used to accommodate 30-
35 more beds with the opportunity cost of INR 11 Mn per annum per bed. Further, with a month (INR
1Cr.) of inventory at Bulk Stores & additional 1 week of Inventory at 104 locations within the hospital,
the hospital had blocked significant amount of Working Capital. The old procurement process with
inventory updated on excel, manual approval system for indents & duplication of material codes
created no transparency & accountability in tracking of inventory. These operational challenges also
hindered customer service where stockouts & congestion at the hospital due to multiple supplier
delivery trucks & personnel effects the overall customer satisfaction.
These challenges presented the opportunity to consolidate the Procurement & Warehouse activities
as undertaken by MHB in March 2015 leading to adoption of standard processes for improving
procurement efficiencies. To begin with the Storage of Consumables were moved to a Central
Warehouse, helping consolidate all the receipts from suppliers & freeing space in hospital for
increasing bed capacity (& in turn revenue). The sourcing team was restructured into a Central
Purchasing Unit (CPU) on the lines of functions rather than divisions to enable outsourcing the
operational procurement activities to BPO & 3PL and emphasize the focus on strategic sourcing rising
out of consolidation of volume & inventory rationalization where now 14,800 SKUs (98.7%) out of the
original 16,000 will not be stocked and will have to be sourced on need basis. Consolidation &
Inventory rationalization would also lead to reduction in overall inventory levels. Adopting IT
Solutions helped create transparency & accountability in requisition & inventory management.
Material & Information Flow is depicted in the flow chart in Exhibit 1.
Warehouse Consolidation Project ceased existing processes & introduced multiple new processes for
all the involved stakeholders: Nurses, Procurement & Stores team.
Nurses had to grapple with loosing autonomy in raising indents due to the adoption of an online tool
for approval & monitoring inventory levels. Due to limited onsite stocks & the inherent lead time in
getting the item from the warehouse, nurses perceive a risk in an on-time delivery in full & thus
requisition higher than required quantities urgently. This if adopted by the other wards (104
locations) too, can create pressure on TACs stocks & can lead to stockouts forcing everyone to look
forward to the next delivery from the warehouse. Thus, this vicious circle of perceived stockout risks
leading to larger orders can be a leading cause of low service levels. From TAC & Warehouse’s POV,
tending to abnormally large number of urgent indents can also be a cause of delay in the normal
orders as the process might necessitate focus on fulfilling the urgent indents first.
Another reason for low service levels could be that the TAC & the Warehouse team start their day an
hour later than their internal customer which leads to queuing up of jobs at the start of the day which
is also unfortunately a rush hour in hospitals due to the incoming patients and doctors. Further in case
TAC does not have the entire requisition quantity available they start by delivering partial quantities
& then fill up the balance once the stock arrives from warehouse. This is leading to multiplicity in
efforts & could be the source of some confusion at the time of delivery.
It leads to another reason for the low service levels: nurses missing to acknowledge delivery & leaving
unfulfilled orders in the system which apart from decreasing the service levels will also create
confusion in the warehouse in terms of the quantities to be dispatched.
There are also external reasons contributing to the low service levels namely the city traffic. The twice
a day milk runs to the hospitals from the warehouse often gets delayed in traffic and is sometimes
only able to reach hospitals at 2 PM. The delay in the second delivery of the day requires the TAC &
Warehouse team to stay for extended hours that maybe the reason that their reporting time is 9 AM &
not 8 AM like the nurses.
Further the new processes & adoption of SAP Ariba brought complexity for the warehouse team who
now had to also coordinate between the requisitioners (nurses) & the purchase team. This along with
the 16,000 material codes in the system were baffling for the new team as they did not have any
mapping of the codes that can be interchangeably supplied. Thus, the team often lost on delivering on-
time as they did not have the knowledge of a possible substitute that can be easily supplied from
stock. These duplicate codes along with uncertain order quantities is also making it difficult for the
warehouse team to forecast future demand or identifying fast moving items.
Steps to implement identified Operation Strategy
The adoption of SAP Ariba for the purpose of inventory monitoring will be lost if the material codes in
the system are not rationalized. To begin with material code nomenclature has to be standardized so
that duplication of code doesn’t happen by ignorance. This involves creating different series for
different category of material & following a nomenclature that defines the requirement parameters in
the material code description. Further access to create new material codes has to be solely given to
Warehouse team so that they can control duplication issues. Lastly a thorough one-time check of all
the codes has to be done to identify substitutes & duplicates and block them from future use.
Inventory at ward level has to be captured to ensure that the TAC & Warehouse team has visibility in
terms of the average daily consumption & optimal inventory levels. Apart from modifications on the
software this will require discipline from all the stakeholders in terms of recording movement of
material. It is understandable that there will be some resistance from nurses in terms of keeping the
systems updated but this could be simplified for them by making available devices that can help in
effortlessly acknowledging receipt & quick issue for consumption.
Since, the hospital books appointment for surgeries upto a month in advance, the nurses must be
encouraged to raise indents for such planned surgeries as soon as the booking is made. This can also
be accomplished by booking appointment on the online tool which further automatically triggers
indents basis a pre-mapped set of consumables that will be required for the procedure.
The TAC & Warehouse team starting operations at 9 AM does lead to pilling up of indents for
delivering/ packing. This timing also leads to trucks going for deliveries during rush hours.
Considering the long hours, suggestions can be to run 2 shifts of TAC & Warehouse team instead of
one. The first shift starts early say 6 AM for Warehouse & 7:30 AM for TAC. This can help the avoid
peak hours. Also, the second half of the 1st shift can be used to pack orders for the 2nd shift’s truck
dispatches. Similarly, the 2nd shift can pack orders for the early morning shift.
The problem of traffic will require some effort in terms of understanding the peak hours on the route
of the 4 hospitals. If the truck necessarily encounters traffic while delivering to the last set of
hospitals, the team can ponder getting a smaller truck & splitting deliveries of the 4 hospitals between
them basis the locality.