Push, Pull, Or Mix It Up

According to Mentzer, et al (Ballou, 2004), "Supply chain Management (SCM) is defined as the systematic, strategic coordination of the traditional business functions and the tactics across these business functions within a particular company and across businesses within the supply chain, for the purpose of improving the long-term performance of the individual companies and the supply chain as a whole" (p.5).

In order to build an efficient and successful supply chain management an efficient and successful supply chain management system, there must be five basic components that are considered and acted upon. These components are Plan, source, make, deliver, and return. Each of these components is discussed in the following paragraphs.

The planning component is critical to the success of a good SCM system. This is the step where strategies are developed as well as metrics to measure the performance of the system. Ben Worthen(2006) states, "You need a strategy for managing all the resources that go toward meeting customer demand.... A big piece of planning is developing a set of metrics to monitor the supply chain so that it is efficient, costs less and delivers high quality and value to customers". In a medical setting, such as a hospital, it is of utmost importance that physicians have all the supplies they need to care for the patients at their fingertips - especially in life or death situation when time is too precious to waste. The main objective to any strategy a hospital chooses should be to have materials available at all times in order to ensure the smooth flow of care for patients while keeping costs under control.

According to Susanna Moon(2004), "Supplies routinely consume one-fifth of hospitals' net patient revenue, representing the second largest expense after labor". This is why it is imperative to develop metrics that help keep costs and inventory under control.

According to Ben Worthen(2006), to source is to, "Choose suppliers that will deliver the goods and services you need to create your product....And put together processes for managing the inventory of goods and services you receive from suppliers, including receiving shipments, verifying them, transferring them ... and authorizing supplier payments". Memorial Hermann Healthcare System in Houston put a process in place that helps to keep inventory costs under control while ensuring that supplies get replenished. Susanna Brown (2004) states, "Frank Brown, vice-president and chief executive officer of post-acute care... has negotiated purchasing terms with Cardinal Health and another distributor, along with some small vendors, in which the hospital pays for supplies only once they've been scanned out of inventory and the product has been reordered". This ensures that (Moon, 2004), "Less of the healthcare organization's cash is tied up in inventory and cash flow is improved because the billing period... has been shortened".

In manufacturing, the make component is the processes used to make the product, test it, and package it. In the healthcare field, this is the component where the processes for delivering care to patients are developed and productivity and quality of care are measured. While this component may be the most measured, and therefore the most tedious, it is critical to the success of the new system. By measuring productivity, you are measuring potential income and how much money the hospital can bill per day. This is why the processes must be carefully planned in order to optimize physician productivity and maximize income.

The deliver component is the (Worthen, 2006), "... part that many insiders refer to as logistics". This is the stage where care id actually received by patients and the billing system is set up. This is the part that all the planning is put to work and when the fine-tuning takes place. It is this part when billing cycles are improved and customer satisfaction is closely monitored. The supply chain manager plays a critical role in this area because this is also the stage where you will find out how well the new system works at keeping supplies on hand as well as how it works with keeping costs of high-end devices doctors prefer. According to Susanna Moon (2004), "...doctors have long ruled the hospital supply chain.... For example, 30 doctors working at the same hospital can often demand 30 different products for the same procedure.... [Administrators are] questioning product differences, working more closely with clinicians and applying practices such as value analysis to try to determine the true value of a product and whether any distinctions merit a purchase".

Finally, the return component is where systems are set up for billing errors. There are strict procedures for corrected claims with medical insurance companies such as Blue Cross, Medicare and Medicaid. Hospitals have to follow these procedures to the letter or the insurance companies can refuse to allow future claims from the organization. This can cost the hospital literally millions of dollars in future revenue.

When deciding which type of strategy to use for your supply chain, it is important to first gain an understanding of the different types of strategies. These are push inventory control, pull inventory control, and hybrid high-level strategies.

One example of a push system is the MRP system (Materials Requirement Planning). This is described by Laith Abuhilal, Ghaith Rabadi, Andres Sousa-Poza (2006): "The orders come to the manufacturer in quantities of EOQ, with probabilistic inter-arrival times. The manufacturer updates the forecast on a monthly basis, utilizing the moving average forecasting technique, and the forecasts are used for updating the ROP and EOQ values. The forecast is transformed into a weekly master production schedule (MPS) through taking the proportion of the monthly forecast. The weekly MPS quantity is issued from the "raw materials store" to the "production floor," in order to be processed. Whenever the raw materials inventory position (which is equal to on-hand inventory plus on-order inventory), goes below the ROP, the EOQ is ordered from the supplier". Although this is described in a manufacturing environment, it can easily be applied to a healthcare environment.

When setting up a push inventory control system in a hospital, an economic order quantity (EOQ) is first calculated using forecast models such as moving average forecast. Then, a reorder point (ROP) is determined. This is the lowest point at which inventory levels can fall to before the organization could run out before the new order is received. When the supplies fall to this level, the EOQ is then ordered from the supplier. The problem with this system is that it does not allow for defective supplies or the possibility