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AHRMM Keys

The AHRMM Keys for Supply Chain Excellence are Key Performance Indicators (KPIs) that set the standard for supply chain management in the health care field. AHRMM has developed the AHRMM Keys for Supply Chain Excellence – essential Key Performance Indicators (KPIs) that every health care supply chain should be measuring; basic metrics for supply chain professionals in multiple settings (acute care hospitals/systems, ambulatory providers, physician organizations, integrated delivery systems, etc.) to evaluate the health of your supply chain and move you closer to operating from the intersection of Cost, Quality and Outcomes (CQO)

The KPIs are intended to allow health care organizations the ability to benchmark their own performance and progress in the various metrics they are measuring, as well as allow them the opportunity to conduct comparative analysis with other, similar organizations who are tracking and trending the same KPIs.

The AHRMM Keys will help you:

  • initiate continuous process improvement dialogue with key stakeholders
  • demonstrate supply chain performance
  • change the conversation with the C-suite to make supply chain more strategic partners
  • unlock health care supply chain excellence
  • operate from the intersection of CQO

These KPIs are industry-standard metrics that define the essentials of supply chain performance. In July, AHRMM released 12 essential Key Performance Indicators (KPIs) that set the standard for supply chain management in health care. The phase one metrics define the essentials of supply chain performance in operations and finance. Twenty new essential Keys in the areas of data standards, environmental sustainability, patient safety, and resiliency were released in January 2021. The AHRMM Keys were inspired by HFMA’s Map Keys for revenue cycle performance and were designed similarly.

Data used to calculate the AHRMM Keys will come from a variety of sources; the most common data source for each key has been included in the template. Please use the AHRMM-HFMA definition for supply expense and the categories of supply expense for all AHRMM Keys.

Disclaimer: To make comparative analysis available between hospitals and systems, the AHRMM Keys may undergo revision and the language used in the KPIs is subject to change.

 

We’d like your input! Please suggest metrics for the next phase of the AHRMM Keys here.

 

  • Health Care Supply Chain Key Performance Indicator (KPI): Supply Accounts Payable (AP) Days

    Purpose:

    Measures how effectively the health care organization is managing its payables.

    Value:

    May be utilized to ensure discounts are optimized, as well as provide greater insight into payment trends and cash flow fluctuations. An increase in accounts payable (AP) days over time may indicate a worsening financial condition.

    Equation:

    To calculate AP days, add the beginning AP dollars and ending AP dollars and divide the sum by two (2) to calculate the AP average. Next, divide the total supplier purchases by the AP average to calculate the AP turns. Next, divide 365 days by the AP turns to calculate the AP days.

     
    Beginning AP dollars + ending AP dollars ÷ 2 = AP average
    Total supplier purchases ÷ AP average = AP turns
    365 days ÷ AP turns = AP days
     

    Example:

    The system controller for Sergeant’s Health would like to determine the AP days for the last year. The beginning AP balance was $700,000 and the ending balance was $774,000. Total purchases for the past twelve months were $6,500,000. The AP days are calculated as:

     
    Beginning AP dollars $700,000 + Ending AP dollars $774,000 = $1,474,000 ÷ 2 = $737,000 AP average
    Total supplier purchases $6,500,000 ÷ $737,000 = 8.8 AP turns
    365 days ÷ 8.8 AP turns = 41 AP days
     

    Includes:

    • Supplies (see AHRMM/HFMA supply categories)

    Excludes:

    • Real estate
    • Physician payments
    • Capital
    • Utilities
    • Services

    Sources of Data for KPI Calculation:

    • Health care organization’s AP file

    Points of Clarification:

    • Measuring monthly trending over a 12-month period is recommended
    • An organization’s stance on making partial payments will influence this metric

     

     

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  • Health Care Supply Chain Key Performance Indicator (KPI): Supply Expense Per Case Mix Index (CMI) Adjusted Discharge

    Purpose:

    This KPI can be used to measure supply expense on a volume basis. Case mix index (CMI) adjusts to account for patient acuity.

    Value:

    Enables the organization to measure and trend supply expense that is adjusted for volume and patient acuity.

    Equation:

    To calculate the supply expense per adjusted discharge and case mix index (CMI) adjusted discharge, divide total supply expense by adjusted discharges or CMI adjusted discharges.

     
    Total supply expense
    ÷
    Adjusted discharges: Gross outpatient revenue/gross inpatient revenue × Inpatient discharges
    OR
    Total supply expense
    ÷
    CMI adjusted discharges: Adjusted discharges × Medicare inpatient CMI
     

    Example:

    Source data, a hospital that has:

    • Supply expense: $1,000,000
    • Gross inpatient revenue: $10,000,000
    • Gross outpatient revenue: $8,000,000
    • Inpatient discharges: 60,000
    • CMI: 2.0
     
    Numerator: $1,000,000
    ÷
    Denominator: $8,000,000 ÷ $10,000,000 = .80 x 60,000 = 48,000
    =
    Supply expense per adjusted discharge = $20.82
    OR
    Total Supply Expense
    ÷
    CMI adjusted discharges: Adjusted discharges × Medicare inpatient CMI
    Numerator: $1,000,000
    ÷
    Denominator: 48,000 × 2 = 96,000
    =
    Supply expense per CMI adjusted discharge = $10.42
     

    Includes:

    • Net inpatient revenue (see AHRMM/HFMA supply categories)
    • Outpatient revenue
    • Case mix index (CMI)
    • Net cost of all tangible items that are expensed
    • Freight
    • Standard distribution cost
    • Sales and use tax (minus rebates)

    Excludes:

    • Contractual allowances
    • Charity care
    • Bad debt
    • Labor-related expenses and services
    • Some tangible items that are frequently provided as part of service costs (e.g. toner that is part of a copier contract)
    • Purchased services

    Sources of Data for KPI Calculation:

    • Electronic health record (EHR)
    • Enterprise resource planning (ERP) system
    • Materials management information system (MMIS)

    Points of Clarification:

    • The adjusted equivalent discharge calculation takes into account net inpatient revenue (which is measured as gross patient service revenue minus contractual allowances, charity care and bad debt) and outpatient revenue. The result of this formula allows outpatient activity to be factored into the volume statistic.
    • CMI adjustment gives additional weight to the volume statistics for high acuity patients. CMI is a standardized formula that is driven by diagnostic related group (DRG) mix of inpatients.
    • CMI index is not always reflective of the supply utilization patterns for hospitals with a high volume of complex, technology heavy surgical or interventional cases. They would benefit by calculating supply cost per surgical case or procedure in addition to supply cost per adjusted equivalent discharge.

    References

     

     

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  • Health Care Supply Chain Key Performance Indicator (KPI): Number of Expired/Obsolete/Wasted Product(s) as a Percentage of Total Purchases

    Purpose:

    The longer a health system holds onto inventory, the more likely it will be damaged or become outdated. This KPI reveals the magnitude of expired or obsolete products in the health system, which may require write-offs.

    Value:

    Measuring this KPI can help a health system manage its inventory of clinical products and supplies to deliver patient care. Factors that contribute to expired, obsolete or wasted stock include: physician turnover resulting in unused physician preference items (PPI), overstocking leading to expiration and change in clinical practice that eliminates the need for certain supplies.

    By reducing expired products, the health system can reduce unnecessary inventory and holding costs. It can also reduce risk because use of expired products can negatively impact the quality of care.

    Equation:

    To calculate the number of expired/obsolete/wasted product(s) as a percentage of total purchases, divide the total value of expired/wasted/obsolete products by the health care organization’s total purchases.

     
    Total value of expired/wasted/obsolete products ÷ Total purchases
    = Number of expired/obsolete/wasted product(s) as a percentage of total purchases
     
     

    Example:

    • Hospital’s total purchases: $25,843,000
    • Total value of expired/obsolete/wasted product(s): $118,000.
    $118,000 ÷ $25,843,000 = 0.46%

    Includes:

    • Cost of all expired medical (clinical) and pharmaceutical supplies
    • Any supply that reaches a patient with a surpassed expiration date
    • Wasted or obsolete clinical or pharmaceutical supplies

    Excludes:

    • Office supplies
    • Services

    Sources of Data for KPI Calculation:

    • Materials management information system (MMIS)
    • Accounting system
    • General ledger (GL) review

    Points of Clarification:

    This KPI is an operational indicator and may be a standalone metric track, trend and report value to clinical and operational leaders. This KPI can be tracked monthly, quarterly or annually and can also be tracked by department.

    References

    • Inventory Cloud by WASP: The key performance indicators that are crucial to maximizing profits and efficiency in warehouse operations.

     

     

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  • Health Care Supply Chain Key Performance Indicator (KPI): Supply Expense as Percent of Net Patient Revenue

    Purpose:

    This KPI is a high-level metric that monitors the relationship between supply expense and net patient revenue.

    Value:

    Changes to this metric may indicate a shift in the relationship between supply costs and the associated net patient revenue. If the change is a trend (versus single point of variation), it should trigger an evaluation of the root cause and the development of an action plan. Causes can range from increased supply cost or increased supply utilization, to changes in the patient and/or payor mix that effect net revenue.

    Equation:

    To calculate supply expense as percent of net patient revenue, divide the cost of total supplies purchased in the period by the net patient revenue in the same period.

     
    Total supplies purchased ÷ Net patient revenue = Supply expense as a percent of net revenue
     

    Example:

    The period in this example is 12 months. The same formula applies with any reporting period if the net revenue and the total supplies purchased are reported from the same period.

    • Net patient revenue: $300,000,000.00
    • Total supplies purchased: $55,000,000.00
    55,000,000 ÷ 300,000,000 = 18.3% supply expense as a percent of net revenue

    Includes:

    • Net cost of all tangible items that are expensed
    • Freight
    • Standard distribution cost
    • Sales and use tax (minus rebates)

    Excludes:

    • Labor
    • Labor-related expenses and services
    • Some tangible items that are frequently provided as part of service costs (e.g. toner that is part of a print contract)
    • Purchased services

    Sources of Data for KPI Calculation:

    • Enterprise resource planning (ERP) system/Materials management information system (MMIS)

    Points of Clarification:

    • Changes to this metric may be caused by both supply cost and net revenue shifts. Therefore, a root cause analysis must be completed prior to developing action plans. For example, if revenue reporting is favorable, this KPI may cause the health system to underestimate the potential of supply expense savings opportunities. The opposite is also true, if revenue reporting is unfavorable, supply expense saving opportunities may be overestimated.
    • Should there be a fluctuation in supply expense as a percentage of net patient revenue, it may indicate a change in supply consumption or utilization behavior (e.g. adoption of new supplies, emerging or disrupting technologies, change in practice variation, pricing, etc.) with no corresponding increase in patient revenue.
    • If using this metric for benchmarking keep in mind it does not take into account regional and national differences in reimbursement rates.

     

     

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  • Health Care Supply Chain Key Performance Indicator (KPI): Spend Under Management (SUM)

    Purpose:

    To provide leadership with a measure of the amount of total spend that is being effectively managed by the organization’s supply chain team.

    Value:

    As the organization’s spend under management increases, the ability to optimize costs and forecast expenses increases. Effectively managed spend gives the organization greater control over the risk of using inappropriate products/services. It prevents the risk of having contracts in place that are in legal conflict with each other. SUM also identifies “maverick” spend in the organization.

    Equation:

    To calculate SUM, divide spend actively sourced/managed by supply chain by total spend (minus exclusions), then multiple the result of this first equation by 100.

     
    Spend actively sourced/managed by supply chain ÷ Total spend × 100 = SUM percentage
     

    Example:

    • Total spend actively sourced/managed by supply chain: $600,000,000
    • Total organizational spend on materials and services: $1,000,000,000
    $600,000,000 ÷ $1,000,000,000 = 0.60 × 100 = 60%

    Includes:

    • Direct materials and services
    • Indirect materials and services
    • Purchased services

    Excludes:

    • Taxes
    • Salaries and bonuses
    • Charitable contributions
    • Dividends, securities, interest payments
    • Stock repurchases
    • Organizational memberships

    Sources of Data for KPI Calculation:

    Data usually comes from multiple sources. It is extremely important to ensure that all sources are included. The main sources of data are the organization’s accounts payable (AP) system, which may be a module within an enterprise resource planning (ERP) system, and a purchasing card (p-card) system. If payments are made to third parties other than through the AP or p-card systems (e.g. voucher system, direct pay system, or travel and expense system), they should also be included.

    If available, a health care organization may find the following systems useful in determining its overall, non-payroll, influenceable and managed spend because they include additional information about the organization’s financial transactions:

    • E-procurement systems: For many organizations, spend managed by an e-procurement system has gone through an approval process and/or through a catalog (whether hosted or punch-out) and is more likely to be managed spend than other methods of buying.
    • Contract management systems: These systems can provide information on which vendors and goods have a contract in place and are therefore likely to be influenceable or managed spend.
    • Vendor management systems: They contain additional information about the vendors to help determine which transactions are influenceable and which are not.

    Points of Clarification:

    • Total spend refers to the cost of direct and indirect materials and services purchased (e.g. disbursements) in the year. The intent is "sourceable" spend not just "sourced" spend by supply chain professionals. Expenditures on taxes, employee base salaries and bonuses, charitable contributions, organizational memberships, dividends, securities, interest payments and stock repurchases should be excluded from the spend amount.
    • Spend actively sourced/managed by procurement professionals refers to spend that the supply chain organization led and/or was involved in the process of supplier selection and pricing.
    • Spend under management is not equal to identified or realized savings.
    • Spend management of 100 percent is not necessarily attainable or desirable.

    Generally accepted accounting principles (GAAP) for health care providers calls for supplies and purchased services as separate expense lines on the income statement. While much of this expense may not be the spend sourced by procurement, it should be the goal of the professional to capture this spend and include it in the denominator of this KPI.

    References:

    Some content adapted from the following:

     

     

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  • Health Care Supply Chain Key Performance Indicator (KPI): Inventory Turns

    Purpose:

    Measures the hospital or health system’s ability to manage its inventory of products to support the delivery of care.

    Value:

    Allows hospital executives and supply chain leaders to understand the organization’s ability to order, store and deliver its products required for the delivery of care.

    In general, a higher metric suggests that the hospital is effectively managing its inventory by ordering and delivering the right amount of products to support patient care. Furthermore, a higher metric indicates that the hospital is ordering and turning over supplies at an optimal level, reducing unnecessary inventory and holding costs and improving overall profitability of the organization.

    However, hospital executives and supply chain leaders must also understand that maximizing inventory turns is not the desired outcome. Higher inventory turns must be balanced with the need to have enough products on hand to support patient care.

    Equation:

    To calculate average inventory for the most recent annual time period, first add the beginning and ending inventory balance for this period, then divide that total by two.

     
    Beginning inventory balance + Ending inventory balance = X
    X ÷ 2 = Average inventory
     

    To calculate annual inventory turns, divide the total annual spend of supplies by the average inventory for the most recent annual time period.

     
    Total annual spend of supplies
    ÷
    Average inventory for the most recent annual time period
    =
    Annual inventory turns
     

    Example:

    • Total annual spend of supplies = $5,000,000
    • Beginning inventory balance = $600,000
    • Ending inventory balance = $400,000
    $600,000 + $400,000 = $1,000,000
    $1,000,000 ÷ 2 = $500,000 Average inventory
    $5,000,000 ÷ $500,000 = 10 Annual inventory turns

    Includes:

    • All supply purchases stored in inventory

    Excludes:

    • None

    Sources of Data for KPI Calculation:

    • Materials management information system (MMIS): Inventory data, supply purchases (annual time period)

    Points of Clarification:

    • The metric can be utilized to understand trends and performance over time to determine if the hospital or health system’s strategies to increase or decrease turnover are yielding results.
    • Typically, health care organizations calculate inventory turns by category or procedural areas to further target and identify areas of improvement. (e.g. the operating room or cardiac cath lab).
    • Reporting by area provides a more advanced calculation of the hospital or health system’s ability to manage its inventory of products.
    • The audience should recognize that a lower metric may be justified in some instances; for example, lower turnover may be needed to ensure that sufficient clinical supplies and products are available to support delivery of patient care.
    • Labor costs to support inventory management should be factored when determining value delivered through higher inventory turns metrics. For example, a hospital that is relying on additional staff to increase inventory turns may not be as efficient as one that is leveraging technology and automation to increase efficiency levels.

     

     

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  • Health Care Supply Chain Key Performance Indicator (KPI): Supply Chain Labor Cost Per Case Mix Index (CMI) Adjusted Discharge

    Purpose:

    This KPI defines the labor cost per discharge for in-house supply chain functions. This unit cost informs the sustainability of supply chain’s cost structure within an organization.

    Value:

    Tracking this labor cost per discharge informs if changes in patient activity are impacting supply chain labor costs

    Equation:

    To calculate the supply chain labor cost per adjusted discharge and case mix index (CMI) adjusted discharge, divide total supply chain salary expense and benefits costs by adjusted discharges or CMI adjusted discharges.

     
    Total supply chain salary expense and benefits costs
    ÷
    Adjusted discharges: Gross outpatient revenue/gross inpatient revenue × Inpatient discharges
    OR
    Total supply chain salary expense and benefits costs
    ÷
    CMI adjusted discharges: Adjusted discharges × Medicare inpatient CMI
     

    Example:

    Source data, a hospital that has:

    • Supply chain salary and benefits cost: $500,000
    • Gross inpatient revenue: $10,000,000
    • Gross outpatient revenue: $8,000,000
    • Inpatient discharges: 60,000
    • CMI: 2.0
    Numerator: $500,000
    ÷
    Denominator: $8,000,000 ÷ $10,000,000 = .80 x 60,000 = 48,000
    =
    Supply chain labor cost per adjusted discharge = $10.42
     
    OR

    Total supply chain salary expense and benefits costs
    ÷
    CMI adjusted discharges: Adjusted discharges × Medicare inpatient CMI
    Numerator: $500,000
    ÷
    Denominator: 48,000 × 2 = 96,000
    =
    Supply chain labor cost per CMI adjusted discharge = $5.21

    Includes:

    • Total salary expense and benefits cost for all personnel in departments or cost centers that roll up or report to the supply chain function at a hospital or health care system
    • Gross outpatient revenue
    • Gross inpatient revenue
    • Inpatient discharges
    • Medicare inpatient case mix index (CMI)

    Excludes:

    • Nonlabor operational costs driven by supply chain management functions

    Sources of Data for KPI Calculation:

    • Hospital or healthcare system’s financial reports
    • Centers for Medicare & Medicaid Services (CMS)

    Points of Clarification:

    • If the health care organization’s supply chain organization utilizes full time equivalents (FTE) that perform supply chain related tasks and functions but report to other, non-supply chain cost centers, it should consider capturing and including the cost of these “shadow FTEs” in the numerator of this metric’s equation.

     

     

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  • Health Care Supply Chain Key Performance Indicator (KPI): Perfect Order

    Purpose:

    Perfect order is a composite metric that serves to measure the process by which a purchase order (PO) electronically - from order to payment – occurs without human intervention to ensure it is delivered to the correct location, on time, undamaged, at the correct price with the desired quantity, all on the first attempt.

    Value:

    Perfect order enables performance measurement to cut across functional silos, while also allowing a multi-level view of results; facilitates analysis of performance failures to provide insight into failure patterns and trends, which can then be targeted as part of continuous improvement efforts; and helps galvanize collaboration across the internal/external organizations collectively responsible for supply chain performance.

    Equation:

    To calculate the percentage of perfect orders, multiply the following sub-metrics: Percentage of delivered on-time orders (arrive at their final destination at the agreed upon time between the customer and the shipper) by the percentage of shipped complete orders (shipped with all lines and units) by the percentage of shipped damage free orders (shipped in good and usable condition), by the percentage of orders with correct documentation (for which the customer received an accurate invoice and other required documents).

     
    Percentage of delivered on-time orders × Percentage of shipped complete orders × Percentage of shipped damage free orders × Percentage of correct documentation orders
    = Percentage of perfect orders
     

    Example:

    It is difficult to achieve a very high perfect order value because the final formula is based on multiplying the sub-metrics together. So if the orders delivered in a time period averaged 95 percent on time, 95 percent complete, 95 percent damage free, and had 95 percent documentation (0.95 × 0.95 × 0.95 × 0.95), the final perfect order number for that period would be only 81 percent.

    And the lower the initial percentages in the formula, the lower the resulting perfect order percentage. So if only 80 percent of shipments were on time and 80 percent were shipped complete, even if the health care organization was perfect in the other areas, the total perfect order value would only be 64 percent!

    Includes:

    • Delivered on-time orders
    • Shipped complete orders
    • Shipped damage free orders
    • Correct documentation orders

    Excludes:

    See Points of Clarification below.

    Sources of Data for KPI Calculation:

    • Materials management information system (MMIS)

    Points of Clarification:

    Organizations that measure perfect order typically include additional metrics to build up a comprehensive picture of cross-functional performance. In some cases these extra metrics are added to the above formula, but in others they may make up a further level of detail, below the on-time, in-full, and correct invoice metrics. In making the decision to include additional metrics, it is important to remember that the more metrics used to make up the perfect order result, the harder it will be to achieve a high perfect order percentage. Taking a simple yet consistent approach is recommended.

     

     

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  • Health Care Supply Chain Key Performance Indicator (KPI): Total Suppliers Per $1M Non-Labor Spend

    Purpose:

    Measures the hospital or health system’s effectiveness in managing its total supplier base.

    Value:

    Allows both hospital executives and supply chain leaders to understand their organization’s ability to reduce fragmentation of its supplier base. A lower metric will typically indicate the organization’s ability to consolidate its supplier base, leading to more effective control of quality, and cost of products and services.

    For example, a health system may be utilizing multiple suppliers to deliver the exact same products and services with varying levels of quality and cost. If the health system can standardize to fewer suppliers, it can not only control the quality of products and services, but also leverage spend to negotiate more competitive agreements.

    Equation:

    To calculate total suppliers per $1M non-labor spend, first divide the total annual non-labor spend by $1M. Next, divide the total number of suppliers by the result of the first equation.

     
    Total annual non-labor spend ÷ $1M = X
    Total suppliers ÷ X = Total suppliers per $1M non-labor spend
     

    Example:

    A health system has $500M in total annual non-labor spend and utilizes 5,000 suppliers.

    $500M ÷ $1M = $500
    5,000 ÷ $500 = 10 suppliers per $1M non-labor spend

    Includes:

    • Total suppliers utilized by the organization (derived from annual AP data)
    • Total annual non-labor spend of the organization (derived from annual AP data)
    • Non-labor expense represents all non-personnel expenses with the exception of bad debt, interest, depreciation and taxes

    Excludes:

    • Expense reimbursements to individuals or contractors

    Sources of Data for KPI Calculation:

    • Enterprise resource planning (ERP) system / Materials management information system (MMIS)
    • Annual accounts payable (AP) data (1-year)
      • Ensure the same time period is used for supplier counts and spend

    Points of Clarification:

    • While differences may exist in each organization’s annual operational and capital expenses, the metric will normalize the differences between organizations.
    • If possible, organizations should clean and standardize supplier names when deriving supplier counts. For example, there may be instances when the same supplier shows up multiple times with different identification numbers in the materials management information system (MMIS). Cleaning and standardizing supplier data will ensure that a more accurate count is derived.
    • Output should clearly indicate key components of the equation, including annual supplier count and total non-labor spend.
    • The audience should not seek a “target” when viewing this metric, as each organization may have differing needs. Instead, this metric should be used directionally to determine how the organization compares with its peers. Furthermore, this metric can be more effective when leaders track progress and improvements made over time.
    • The audience should also recognize that a higher metric may be justified in some instances; for example, multiple suppliers may be needed to fulfill demand or inject healthy competition to achieve the best value within a category.
    • Organizations should include both operational and capital expenses when deriving total annual non-labor spend. Supply chain expends significant resources managing suppliers that deliver capital goods and services.

     

     

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  • Health Care Supply Chain Key Performance Indicator (KPI): Efficiency in Clinical Supply Spend

    Purpose:

    To ensure clinical supply purchases are aligned with consumption demand for direct patient care.

    Value:

    Ideally what a health care organization purchases and what it uses should be in near total alignment. If purchases substantially outpace the consumption, it is a clear indication of greater risk and almost certain waste (e.g. expiration, obsolescence, loss). The value generation that results from reducing wasted product is relevant to the organization’s supply chain operations, as well as to finance and clinical line leadership whose budgets are directly impacted. Showing this data by clinical service line, as well as by item category, will pinpoint the areas of opportunity for cross-functional operational improvements and/or process and policy/governance changes. This metric is particularly applicable to organizations with substantial procedural and surgical volumes, where the majority of supply-related spend is not perpetually managed.

    Equation:

    To calculate efficiency in clinical supply spend, subtract the dollar value of total consumption over a 12-month period from the dollar value of total purchases during that same period.

     
    $ Value of total purchases - $ Value of total consumption over a 12-month period
    = Efficiency in clinical supply spend
     

    Example:

    Ideally, this information should be tracked on a regular basis, such as monthly or quarterly, to monitor whether the overall trend is going in the right direction (e.g. purchases are aligned with consumption needs). It should also be broken down by service line or cost center to show which areas need improvement.

    For example, a cardiovascular department has purchased $5M worth of supplies in the last 12 months, while its consumption values amounted to $4M. This data shows that $1M worth of purchased supplies was not used in the course of clinical care during the same period. These excess items are likely to result in waste due to expiration or obsolescence.

    To examine this data more closely for the underlying cause(s) of this discrepancy, the organization should ask the following questions:

    1. Have all items consumed been correctly documented as such?
    2. Have the excess items been used at all during this period?
    3. Have they been purchased in greater than needed quantities?

    Answering each of these questions will enable the organization to focus on the appropriate interventions to avoid unnecessary spending and the resulting waste. For example, if the items have not been properly documented as used, the intervention should focus first and foremost on improving the accuracy of documented consumption and associated patient records. If excess purchased items have not been used in the same time period, or been purchased in greater than needed quantities, then the focus should be to pinpoint purchasing practices and policies that result in potential waste.

    Includes:

    • Consumable items only

    Excludes:

    • Rebates
    • Rebates (deducted from supply cost)
    • Manufacturer rebates
    • Distributor rebates
    • Non-disposable surgical instruments
    • Non-clinical items and associated costs (see below)
    • Linens, patient apparel, and hospital-acquired scrubs and uniforms
    • Dietary products
    • Patient and cafeteria food
    • Nutritional supplements
    • Dish and flatware, disposable and non-disposable
    • Housekeeping/cleaning supplies
    • Cleaning products, floor finishes
    • Paper goods, toilet tissue, paper towels etc.
    • Office type supplies including computer supplies
    • Computer software (unless capital)
    • Copy/printer paper
    • Inks and toners
    • Forms (internally or externally produced)
    • Storage costs for supplier warehoused forms
    • Freight associated with any supply item
    • Standard distribution fees, not including additional costs for stockless or other value-added services
    • Supply portion of outsourced contracts, including dietary
    • Environmental services
    • Supply portion of any equipment rental or lease
    • Sales tax
    • Dividends from purchasing groups

    Sources of Data for KPI Calculation:

    • Enterprise resource planning (ERP) system / Materials management information system (MMIS)
    • Clinical documentation system and/or point of use system(s)

    Points of Clarification:

    • Consumption dollars should be calculated based on actual items used for direct patient care
    • Purchase data should come from the organization’s MMIS/ERP system
    • Consumption data should come from the clinical documentation system and/or point of use system(s) as long as it can be attributed to direct patient care

     

     

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  • Health Care Supply Chain Key Performance Indicator (KPI): Percent of Purchase Order (PO) Lines with Expedited Shipping Costs

    Purpose:

    Monitor use and identify the source of expedited shipping orders.

    Value:

    Identify opportunities for improved inventory management and operational cost reduction, and avoid disruption in the buying process.

    Equation:

    To calculate the percent of PO lines with expedited shipping costs, first query your Enterprise Resource Planning (ERP) or Materials Management Information System (MMIS) to determine the total number of PO lines issued and the number of PO lines with expedited shipping for the time period being measured. Next, divide the total PO lines by the number of PO lines with expedited items.

     
    Total PO lines ÷ Number of PO lines with expedited items
    = Percentage of POs with expedited shipping costs
     

    Example:

    According to Healthy Hospital’s ERP system, they issued a total of 500 PO lines during the month of January. The system also indicated 10 POs had one line item that was expedited and incurred expedited shipping charges. The calculation would be:

    • 500 Total PO lines
    • 10 Expedited shipping PO lines
    • 10 ÷ 500 = 2% of PO lines had expedited shipping costs

    Includes:

    • POs for tangible goods
    • Expedited shipping costs

    Excludes:

    • Capital equipment
    • Expedited shipping costs

    Sources of Data for KPI Calculation:

    • Enterprise resource planning (ERP) system/Materials management information system (MMIS)

    Points of Clarification:

    • In order to perform this calculation, a facility must include expedited shipping costs as a separate line item in the PO.
    • The basic analysis excludes capital equipment. However, a separate analysis of the percent of capital equipment purchase orders with expedited shipping may reveal additional savings opportunities.

     

     

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  • Health Care Supply Chain Key Performance Indicator (KPI): Supply Chain FTEs Per $1M in Total Non-Labor Supply Spend

    Purpose:

    Assess how many full time equivalents (FTE) are needed to cover supply chain purchasing and contracting operations. FTE represents the number of working hours that one full-time employee completes during a fixed time period, such as one month or one year.

    Value:

    FTE converts workload hours into the number of people required to complete that work, which helps simplify scheduling. More importantly, it helps budget analysts and project managers estimate the cost of labor. Managers may also benefit from looking at FTE to determine if overtime costs are making it worthwhile to open up a new full-time or part-time position (Newman, par. 1).

    Additionally, this KPI is helpful in budgeting FTEs and assessing supply chain labor costs related to non-labor spend. This, coupled with other supply chain KPIs, can help supply chain executives understand the efficiency of their purchasing and contract operations in relation to other hospital supply chain groups. It can also help executives broaden their perspective on the impact and influence of supply chain; by pegging FTEs to total non-labor spend, it enables executives to understand that supply chain has a role beyond traditional areas.

    Equation:

    To calculate supply chain FTEs per $1M in total non-labor supply spend, first divide the total annual non-labor supply spend by $1M, then divide the total supply chain FTEs by the sum of the first equation.

     
    Total annual non-labor supply spend ÷ $1M = X
    Total supply chain FTEs ÷ X = Supply chain FTEs per $1M in total non-labor supply spend
     

    Example:

    Source data, a hospital that has:

    • Total annual non-labor supply spend: $250,000,000
    • Total supply chain FTEs: 273
    Numerator: $250,000,000 ÷ $1,000,000 = 250
    ÷
    Denominator: 273
    =
    Supply Chain FTE per $1M in non-labor supply spend = 0.92

    Includes:

    Hours worked by full-time and part-time employees

    Excludes:

    • Insurance
    • Bad debt
    • Depreciation

    Sources of Data for KPI Calculation:

    • Finance or Business Intelligence department
    • Enterprise resource planning (ERP) system
    • Human resource information system (HRIS)

    Points of Clarification:

    • Regarding calculating non-labor supply costs: Hospital finance departments have their total non-labor supply expense number readily available. These costs typically exclude insurance, bad debt and depreciation. Pharmaceuticals may or may not be included.
    • Holiday hours and other paid leave (sick leave, maternity/paternity leave, etc.) are already accounted for as part of the hours worked, so special calculations for these hours are required.

     

     

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  • Health Care Supply Chain Key Performance Indicator (KPI): Expired Products as a Percentage of Total Number of On-Hand Products in Inventory

    Purpose:

    Establish improvement targets or measure target achievement of the percentage of expired products within a health care organization’s inventory.

    Value:

    Minimize the loss of product through expiration date monitoring, which Supply Chain can control, and avoid using product that is no longer appropriate for patient use, thereby improving patient safety.1

    Equation:

    To calculate expired products as a percentage of total on-hand inventory, divide the total number of expired product(s) by the total number of products on-hand.

     
    Total number of expired product(s)
    ÷
    Total number of products on-hand
    =
    Percentage of expired products
     

    Example:

    • A hospital has 500 expired products for a specific month.
    • The hospital’s total number of products on-hand for that specific month is 50,000.
     
    500 ÷ 50,000 = 0.01 x 100 = 1% (for that specific month)
     

    Includes:

    • Cost of all expired medical/surgical and clinical supplies
    • Any medical/surgical and clinical products within Supply Chain control with an expiration date

    Excludes:

    • Products with no expiration date indicated:
    • Pharmaceuticals
    • Office supplies
    • Services

    Sources of Data for KPI Calculation:

    • Actual expired product recorded during periodic Supply Chain review of inventory
    • Health Care Supply Chain Key Performance Indicator (KPI): Number of Expired/Obsolete/Wasted Product(s) as a Percentage of Total Purchases2
    • Inventory Management, Managing Outdates, Policies & Procedures Manual for the Health Care Supply Chain, 2nd Edition3

    Points of Clarification:

    • Does not include obsolete and wasted products. However, organizations may want to group expired/obsolete/wasted together as an overall loss.4
    • Appropriate removal of a product based on its expiration date may vary by department based on historical usage.
    • Expiration dates that appear as month and year (e.g. 11/20) are considered safe to use through the last day of the month.5
    • “Total on-hand inventory” is the price determined by the organization.
    • It is helpful to report the location or category of expired products to monitor for any trending.
    • This KPI should be tracked monthly and by department.
    • Products for patient care are labeled with an expiration date after which the product is no longer considered appropriate for use. The loss through expiration can be avoided by keeping the next expired product in position to be used with the first expired first out (FEFO) and first in first out (FIFO) methods.
    • Monitoring the historical usage rate of the product should be considered when determining the appropriate time to remove the product. Items that are not used daily should be organized and monitored to be redeployed within 90 days of expiration so the likelihood that they will be used next is greater.
    • Supply Chain should remove items that are set to expire within 30 days of expiration and attempt to return them to the supplier for exchange or partial credit before accepting total loss.
    • Consignment agreements should be used, when applicable.

    Note: The term “supply expense” used throughout all of the AHRMM Health Care Supply Chain Key Performance Indicators (KPI) is based on the AHRMM/HFMA definition of this term: “The net cost of all tangible items that are expensed including freight, standard distribution cost, and sales and use tax minus rebates. This would exclude labor, labor related expenses and service, as well as some tangible items that are frequently provided as part of service costs.” Specific items to be included or excluded in the supply expense calculation are contained within the AHRMM-HFMA Supply Expense Definition document, which is available for download from the AHRMM website.


    1. Inventory Management, Managing Outdates. Policies & Procedures Manual for the Health Care Supply Chain, 2nd Edition
    2. Health Care Supply Chain Key Performance Indicator (KPI): Number of Expired/Obsolete/Wasted Product(s) as a Percentage of Total Purchases.
    3. Inventory Management, Managing Outdates. Policies & Procedures Manual for the Health Care Supply Chain, 2nd Edition
    4. Health Care Supply Chain Key Performance Indicator (KPI): Number of Expired/Obsolete/Wasted Product(s) as a Percentage of Total Purchases.
    5. Inventory Management, Managing Outdates. Policies & Procedures Manual for the Health Care Supply Chain, 2nd Edition

     

     

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  • Health Care Supply Chain Key Performance Indicator (KPI): Recall Management – Closed Volume Percentage Rate

    Purpose:

    Measure the rate (as a percentage) at which a hospital/system has closed recalls received from the manufacturer and the U.S. Food and Drug Administration (FDA).

    Value:

    Allows hospitals/systems to assess their effectiveness in acknowledging and responding to recall product notifications. The implementation of such effective processes affects patient safety and care, and liability (both financial and risk) to the health care organization.

    Equation:

    To calculate the closed volume percentage rate, divide the number of closed alerts by the number of alerts sent out.

     
    Closed alerts
    ÷
    Alerts sent out
    =
    closed volume rate
     

    Example:

    • A hospital’s number of closed alerts is 9.
    • The hospital’s number of alerts sent out is 10.
     
    9 ÷ 10 = 0.9 x 100 = 90%
     

    Example response rates:

    Percent of closed volume: Target 75 percent for Class III recalls, 90 percent for Class II recalls, 100 percent for Class I recalls.

    Dashboard example:

    Closed Volume Dashboard (80 closed alerts/100 alerts)

    Points of Clarification:

    • Notified volume either by a third-party recall management system or mailed in notifications to the facility
    • Includes volume that is notified and closed immediately because the item was not purchased. If consignment or vendor “trunk stock” the product must be tracked through facility tracking processes
    • Only includes the volume of the product found within the facility
    • Includes implants that will have a record on the patient chart
    • Delayed recalls include days since notification +7 to determine if a response is delayed
    • FDA recalls and field notices from the manufacturer

    Excludes:

    • Excludes commodity products that may have been utilized before notification due to a lack of usage tracking

    Sources of Data for KPI Calculation:

    • Third part recall management sources
    • FDA class ranking
    • MedWatch reporting site
    • Internal hospital data sources, including but not limited to, materials management information system (MMIS), electronic medical record (EMR), point of use (POU) systems, and others that would serve as references against recall notifications

    Points of Clarification:

    • This KPI assumes that an automated alert system and/or a centralized process exists within the health care organization. If your organization does not have either you should first establish a third-party alert/internal organizational process for recall management.
    • This KPI uses the FDA classification rankings for recall management (as follows); however, there are no federal mandates for recalls. AHRMM proposes these recommendations as guidelines for practice.
    • Class I recall: A situation in which there is a reasonable probability that the use of or exposure to a violative product will cause serious adverse health consequences or death.
      • Example: A situation in which a catheter may kink or rupture during use leaving remnants behind in the patient that will cause serious injuries or death.
    • Class II recall: A situation in which use of or exposure to a violative product may cause temporary or medically reversible adverse health consequences or where the probability of serious adverse health consequences is remote.
      • Example: A package defect in which sterility has been compromised and could lead to contamination of the medical device and result in patient complications.
    • Class III recall: A situation in which use of or exposure to a violative product is not likely to cause adverse health consequences.
      • Example: Labeling defect where the expiration date does not appear on the product label. A mislabeled package that contains one size of a particular medical device but is labeled as another size.
    • By tracking the compliance rate, health care organizations can determine the effectiveness of their recall management processes and how to set best practices/notable practices towards better management.
     

    Note: The term “supply expense” used throughout all of the AHRMM Health Care Supply Chain Key Performance Indicators (KPI) is based on the AHRMM/HFMA definition of this term: “The net cost of all tangible items that are expensed including freight, standard distribution cost, and sales and use tax minus rebates. This would exclude labor, labor related expenses and service, as well as some tangible items that are frequently provided as part of service costs.” Specific items to be included or excluded in the supply expense calculation are contained within the AHRMM-HFMA Supply Expense Definition document, which is available for download from the AHRMM website.

     

     

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  • Health Care Supply Chain Key Performance Indicator (KPI): Recall Management – Delayed Recalls Percentage Rate

    Purpose:

    Measure the percentage rate of open recalls received from the manufacturer and the U.S. Food and Drug Administration (FDA) that are at least 7 days past the notice date.

    Value:

    Allows hospitals/systems to assess their effectiveness in acknowledging and responding to recall product notifications. The implementation of such effective processes affects patient safety and care, and liability (both financial and risk) to the health care organization.

    Equation:

    To calculate the delayed recalls percentage rate, divide the total number of open recalls that are 7 days past the notice date by the total number of open recalls.

     
    Total number of open recalls 7 days past the notice date
    ÷
    Total number of open recalls
    =
    Delayed recalls percentage rate
     

    Example:

    • The hospital’s number of open recalls 7 days past the notice date is 5.
    • A hospital’s total number of open recalls is 10.
     
    5 ÷ 10 = 0.5 x 100 = 50%
     

    Example response rates:

    Delayed recalls: Closure of Class III recalls within 21 days, Class II recalls within 14 days, Class I recalls within 7 days.

    Dashboard example:

    Delayed Recalls (20 closed alerts/26 alerts)

    Includes:

    • Notified volume either by a third-party recall management system or mailed in notifications to the facility
    • Includes volume that is notified and closed immediately because the item was not purchased. If consignment or vendor “trunk stock” the product must be tracked through facility tracking processes
    • Only includes the volume of the product found within the facility
    • Includes implants that will have a record on the patient chart
    • Delayed recalls include days since notification +7 to determine if a response is delayed
    • FDA recalls and field notices from the manufacturer

    Excludes:

    • Excludes commodity products that may have been utilized before notification due to a lack of usage tracking

    Points of Clarification:

    • This KPI assumes that an automated alert system and/or a centralized process exists within the health care organization. If your organization does not have either you should first establish a third-party alert/internal organizational process for recall management.
    • This KPI uses the FDA classification rankings for recall management (as follows); however, there are no federal mandates for recalls. AHRMM proposes these recommendations as guidelines for practice.
    • Class I recall: A situation in which there is a reasonable probability that the use of or exposure to a violative product will cause serious adverse health consequences or death.
      • Example: A situation in which a catheter may kink or rupture during use leaving remnants behind in the patient that will cause serious injuries or death.
    • Class II recall: A situation in which use of or exposure to a violative product may cause temporary or medically reversible adverse health consequences or where the probability of serious adverse health consequences is remote.
    • Example: A package defect in which sterility has been compromised and could lead to contamination of the medical device and result in patient complications.
    • Class III recall: A situation in which use of or exposure to a violative product is not likely to cause adverse health consequences.
      • Example: Labeling defect where the expiration date does not appear on the product label. A mislabeled package that contains one size of a particular medical device but is labeled as another size.
    • By tracking the delayed recall rate, health care organizations can determine the effectiveness of their recall management processes and how to set best practices/notable practices towards better management.
     

    Note: The term “supply expense” used throughout all of the AHRMM Health Care Supply Chain Key Performance Indicators (KPI) is based on the AHRMM/HFMA definition of this term: “The net cost of all tangible items that are expensed including freight, standard distribution cost, and sales and use tax minus rebates. This would exclude labor, labor related expenses and service, as well as some tangible items that are frequently provided as part of service costs.” Specific items to be included or excluded in the supply expense calculation are contained within the AHRMM-HFMA Supply Expense Definition document, which is available for download from the AHRMM website.

     

     

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  • Health Care Supply Chain Key Performance Indicator (KPI): Contract Versus Non-Contract Versus Off-Contract Spend

    Purpose:

    Measures the extent to which the hospital/system is maximizing its contract participation.

    Value:

    Identifies opportunities to improve contract participation and reduce renegade spend.

    Equations and Examples:

    1. On-contract spend: To calculate the percentage of on-contract spend, divide total supply spend utilizing contracts by total supply spend.

     
    Total supply spend utilizing contracts
    ÷
    Total supply spend
    =
    On-contract spend
     

    Example:

    • A hospital’s total supply spend utilizing contracts is $70M.
    • The hospital’s total supply spend is $100M.
     
    $70M ÷ $100M = 0.70 × 100 = 70%
     

    2. Off-contract spend: To calculate the percentage of off-contract spend, divide the total product/category spend not utilizing the facilities’ current contracted supplier by its total product/category spend.

     
    Total product/category spend not utilizing the facilities’ current contracted supplier
    ÷
    Total product/category spend
    =
    Off-contract spend
     

    Example:

    • A hospital’s total product/category spend not utilizing its current contracted supplier is $20M.
    • The hospital’s total product/category spend is $100M.
     
    $20M ÷ $100M = 0.20 × 100 = 20%
     

    3. Non-contract spend: To calculate the percentage of non-contract spend, divide the total supply spend in categories where a contract is not available by total supply spend.

     
    Total supply spend in categories where a contract is not available
    ÷
    Total supply spend
    =
    Non-contract spend
     

    Example:

    • A hospital’s total supply spend in categories where a contract is not available is $10M.
    • The hospital’s total supply spend is $100M.
     
    $10M ÷ $100M = 0.10 × 100 = 10%
     

    Includes:

    The following is typically included for On-contract spend:

    • Supply spend purchased through a national group purchasing organization (GPO) or regional GPO; either of which might aggregate the spend of several geographically connected health care organization members.
    • Supply spend using custom local agreements where the national agreement serves as the basis of the contractual relationship between the health care organization and the supplier, and the custom local agreement includes additional market-share or volume commitments between the health care organization member and supplier.
    • Any supply spend using locally negotiated agreements made between the health care organization and a supplier, regardless of GPO contract or affiliation.

    Excludes:

    The following spend is typically excluded from the total supply spend:

    • Routine maintenance items
    • Non-supply components of outsourced services
    • Supply portion of outsourced third-party contracts, such as biomedical, environmental services (EVS), etc.
    • Capital equipment or the capital portion of any supply agreements
    • Construction/renovation projects
    • Service and maintenance agreements
    • Repair parts, including medical equipment/non-medical equipment
    • Other purchased services

    Sources of Data for KPI Calculation:

    • Total on-contract spend is typically provided by the GPO on a quarterly or semi-annual basis.
    • Total supply spend is typically compiled via an extract from the enterprise resource planning (ERP) system, materials management information system (MMIS) or other financial reporting system(s).
    • Depending on the level of data integration with the GPO, off-contract spend can be provided by the GPO as requested.

    Points of Clarification:

    • Total supply spend is the net cost of all tangible items that are expensed, including freight, standard distribution cost, sales and use tax minus rebates. This would exclude labor, labor-related expense and services, as well as some tangible items that are frequently provided as part of service costs.
    • It is important to note that this metric only considers spend that is covered under a contract category. If a facility chooses to purchase goods or services where the supplier is unwilling to negotiate a contract, then the facility may choose to purchase the product or service without a contract. This spend would be considered non-contract and should be closely monitored by the supply chain executive.
    • An enormous amount of rigorous research and due diligence takes place before product selection occurs and contracts are written. Once a contract is in place, it is vital that supply chain leaders reinforce commitments to support the clinical and financial decisions that drove the contracting and review process by monitoring contract compliance and spend.
    • A myriad of reasons substantiate the benefits of contracting, but perhaps the most important is that the contracted products have been reviewed, suppliers vetted and commitments in place, thereby greatly reducing the likelihood of supply disruption.
     

    Note: The term “supply expense” used throughout all of the AHRMM Health Care Supply Chain Key Performance Indicators (KPI) is based on the AHRMM/HFMA definition of this term: “The net cost of all tangible items that are expensed including freight, standard distribution cost, and sales and use tax minus rebates. This would exclude labor, labor related expenses and service, as well as some tangible items that are frequently provided as part of service costs.” Specific items to be included or excluded in the supply expense calculation are contained within the AHRMM-HFMA Supply Expense Definition document, which is available for download from the AHRMM website.

     

     

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  • Health Care Supply Chain Key Performance Indicator (KPI): Internal Requisition and Order Fill Percentage Rate

    Purpose

    Measures the warehouse performance of order lines filled.

    Value

    Enables a health care organization to monitor order fulfillment and identify opportunities to improve Inventory Management and build trust between the Supply Chain department and end users/clinical staff.

    Equation

    To calculate internal requisition and order fill percentage rate, divide the order lines filled in full by the total order lines.

     
    Order lines filled in full
    ÷
    Total order lines
    =
    Inventory fill rate
     

    Example

    • A hospital warehouse received a total of 2,000 order lines from all departments during the month.
    • The warehouse was able to fill in full 1,850 of these order lines.
     
    1,850 ÷ 2,000 = 0.925 x 100 = 92.5%
     

    Includes:

    • All orders placed by a department via different methods to the warehouse (e.g. ParEx, Pyxis)

    Excludes:

    • All orders placed by a department which are sent directly to the supplier
    • Lines that are partially filled

    Sources of Data for KPI Calculation:

    • Inventory replenishment from department to warehouse: Report from enterprise resource planning (ERP) system
    • Inventory fill kill: Report from ERP system or a calculation of total order lines orders divided by total lines filled

    Points of Clarification:

    • Internal requisition and order fill percentage rate has a significant impact on Supply Chain’s relationship with end users/clinical staff.
    • This calculation is intended as a measure to monitor internal back order rates: Supply Chain’s ability to fill internal requisitions/orders. In order to successfully calculate internal requisition and order fill percentage rate, the formula requires the number of orders that departments have placed and the number of orders that the warehouse could fill at first attempt. If the number of orders filled is not available, use the total order lines minus the total orders not filled.
    • Supply Chain should aim for a fill rate between 93-98 percent. For order lines not filled three days in a row on a three-day inventory on-hand PAR, stockout will be inevitable.

    Note: The term “supply expense” used throughout all of the AHRMM Health Care Supply Chain Key Performance Indicators (KPI) is based on the AHRMM/HFMA definition of this term: “The net cost of all tangible items that are expensed including freight, standard distribution cost, and sales and use tax minus rebates. This would exclude labor, labor related expenses and service, as well as some tangible items that are frequently provided as part of service costs.” Specific items to be included or excluded in the supply expense calculation are contained within the AHRMM-HFMA Supply Expense Definition document, which is available for download from the AHRMM website.

     

     

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  • Health Care Supply Chain Key Performance Indicator (KPI): Supplier Backorder Percentage Rate

    Purpose:

    Measure the percentage rate of backorders by an individual supplier.

    Value:

    Enables supply chain to have collaborative and meaningful discussions with suppliers to aid in collaborative goal setting and potential diversification of suppliers and products.

    Equation:

    To calculate the supplier’s backorder percentage rate, divide the number of back-ordered PO lines by the total number of PO lines.

     
    Number of back-ordered PO lines for Supplier X
    ÷
    Total number of PO lines for Supplier X
    =
    Percentage of backorders
     

    Example:

    • A hospital’s total PO lines for supplier X is 1,000.
    • Of those lines, the number of backorder is 100.
     
    100 ÷ 1000 = 0.1 × 100 = 10%
     

    Includes:

    • Total PO lines on backorder
      • PO lines not shipped at all
      • PO lines not arriving at expected arrive date
      • PO lines not shipped in full
    • Total PO lines placed
    • Expected receipt date

    Excludes:

    • PO lines received in full
    • PO lines received at or prior to estimated arrival date

    Sources of Data for KPI Calculation:

    • Materials management information system (MMIS)/enterprise resource planning (ERP) system
    • Supplier reports

    Points of Clarification:

    • Any order that does not ship in full should be considered a backorder.
    • This calculation is not intended as a measure for Supply Chain to monitor internal backorder rates (i.e., their ability to fill internal requisitions).
    • This calculation includes all suppliers.
    • The calculation can be used at the individual stock-keeping unit (SKU) level, category level or individual supplier level.
    • Backorder rate should be reviewed with individual suppliers.
    • Equation includes all back-ordered lines and does not specifically call out exceptions, such as wrong item ordered, rejection or deleted or allocation changes. In order to reduce backorder rates by these items, remove these lines under the “back-ordered line category.”
    • PO lines ordered is inclusive of inventory and non-stock items.
    • The percentage of purchase order (PO) lines that cannot be delivered at the scheduled time but will be delivered at a later date.

    References:

     

    Note: The term “supply expense” used throughout all of the AHRMM Health Care Supply Chain Key Performance Indicators (KPI) is based on the AHRMM/HFMA definition of this term: “The net cost of all tangible items that are expensed including freight, standard distribution cost, and sales and use tax minus rebates. This would exclude labor, labor related expenses and service, as well as some tangible items that are frequently provided as part of service costs.” Specific items to be included or excluded in the supply expense calculation are contained within the AHRMM-HFMA Supply Expense Definition document, which is available for download from the AHRMM website.

     

     

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  • Health Care Supply Chain Key Performance Indicator (KPI): Percentage of Items with Identified Substitutes

    Purpose:

    Measure the number of items that have readily identified substitutes.

    Value:

    Enables the supply chain team to quickly and effectively identify what percentage of the organization’s critical supply can be substituted with items that have already been vetted by stakeholders as clinically equivalent and meeting safety measures.

    Equation:

    To calculate the percentage of items with identified substitutes, divide the number of items in general stores with identified substitutes by the total number of active items in general stores.

     
    Number of items in general stores with identified substitutes
    ÷
    Total number of active items in general stores
    =
    Percentage of items with identified substitutes
     

    Example:

    • A hospital’s total number of active items in general stores is 7,500.
    • The hospital’s items in general stores with an identified substitute is 100.
     
    100 ÷ 7,500 = 0.0133× 100 = 1.3%
     

    Includes:

    • Total active items in the general stores
    • Total items with (already) identified substitutes in the item master

    Excludes:

    • Inactive items in item master
    • Proprietary items with no known substitutes

    Sources of Data for KPI Calculation:

    • Item master
    • Vendor/data files
    • Contract files

    Points of Clarification:

    • Readily identified substitutes must meet the clinical efficacy and quality levels of an original or preferred product.
    • The data may be difficult to obtain depending on the health care organization’s enterprise resource planning (ERP) system or materials management information system (MMIS), but it can be tailored to the capabilities or available data to meet the organization’s needs.
    • This equation is developed around items stored in general stores or the warehouse but can also be used for fast moving or items with a high focus, including such categories as personal protective equipment (PPE).
    • The substitute product can be identical, slightly different but similar in use, or even an item that uses different methodologies at implementation. The identified substitute is defined as an item that meets the same intended purpose and goal as the original product.
      • Example: Custom kit. The identified substitute will most likely not be the identical kit as the original item but has been clinically approved to use if the original item cannot be obtained; or individual components that can meet the clinical need.
    • Supplies can become backordered, discontinued or recalled at any time for a number of reasons: Low inventory levels, natural disasters, damage or an unprecedented increase in demand due to a pandemic. The true resiliency of a supply chain can be demonstrated by the ability of its team to plan, react and recover when these events occur.
    • Understanding the items in the item master that have readily identified substitutes will enable that supply chain team to quickly and effectively procure items that have already been vetted by all stakeholders as clinically equivalent, meet the set safety measures and contractually build them in the system without further delays around committee/team approval, clinical trials and provider reviews.
     

    Note: The term “supply expense” used throughout all of the AHRMM Health Care Supply Chain Key Performance Indicators (KPI) is based on the AHRMM/HFMA definition of this term: “The net cost of all tangible items that are expensed including freight, standard distribution cost, and sales and use tax minus rebates. This would exclude labor, labor related expenses and service, as well as some tangible items that are frequently provided as part of service costs.” Specific items to be included or excluded in the supply expense calculation are contained within the AHRMM-HFMA Supply Expense Definition document, which is available for download from the AHRMM website.

     

     

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  • Health Care Supply Chain Key Performance Indicator (KPI): Supplier Fill Rate

    Purpose:

    Measure supplier fill rate, represented as a percentage of packages or stock-keeping units (SKU) successfully shipped on the first attempt.

    Value:

    Enables a health care organization to identity the effectiveness of order fulfillment by supplier and set targets/goals with suppliers.

    Equation:

    To calculate supplier fill rate, divide the number of purchase order (PO) lines the supplier filled on first attempt by the total number of PO lines sent to that supplier.

     
    PO lines filled on first attempt
    ÷
    Total number of PO lines
    =
    Supplier fill rate
     

    Example:

    • The hospital’s total number of PO lines sent to the supplier during the month is 10,000.
    • The number of PO lines the supplier is able to fill during that month is 9,500.
     
    9,500 ÷ 10,000 = 0.95 x 100 = 95%
     

    Includes:

    • All vendors which send electronic data interchange (EDI) confirmations on all orders.

    Excludes:

    • POs to all suppliers which are not EDI capable.

    Sources of Data for KPI Calculation:

    • PO history: Report from enterprise resource planning (ERP) system
    • Partial filled line should be included and treated similar to non-filled lines
    • Supplier confirmation (backorders/deletes/rejects): Report from ERP or e-commerce solution provider
    • Back order: Orders that the supplier is unable to fill within the contracted timeframe and will ship to facility on a later date
    • Deleted (killed orders): Mainly used by distributors for order lines that cannot be filled and product will not ship on a later date
    • Rejected: Used on supplier confirmations when incorrect item was ordered or supplier is not able to recognize the product ordered

    Points of Clarification:

    • Supplier fill rate is the total PO lines placed divided by the PO lines which the supplier is able to fill on first attempt within the contracted timeframe.
    • In order to successfully calculate the supplier fill rate the formula requires the number of PO lines the supplier is not able to fill.

    Note: The term “supply expense” used throughout all of the AHRMM Health Care Supply Chain Key Performance Indicators (KPI) is based on the AHRMM/HFMA definition of this term: “The net cost of all tangible items that are expensed including freight, standard distribution cost, and sales and use tax minus rebates. This would exclude labor, labor related expenses and service, as well as some tangible items that are frequently provided as part of service costs.” Specific items to be included or excluded in the supply expense calculation are contained within the AHRMM-HFMA Supply Expense Definition document, which is available for download from the AHRMM website.

     

     

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  • Health Care Supply Chain Key Performance Indicator (KPI): Total Non-Labor Spend Per Case Mix Index (CMI) Adjusted Patient Days (APD)

    Purpose:

    Measure a hospital/system’s total non-labor spend including supplies, pharma, freight management and purchased services, per case mix index (CMI) adjusted patient days (APD).

    Value:

    Enables supply chain teams and user departments to measure trends and identify opportunities for quality improvement and cost reduction at the organization or department level.

    Equation:

    To calculate total non-labor spend per CMI APD, add the total spend from all non-labor categories (total supply expense + total pharma expense + total freight expense + total purchased services expense, etc.) and divide that sum by CMI APD.

     
    Total non-labor spend
    ÷
    CMI APD
    =
    Total non-labor spend per CMI ADP
     

    Example:

    • A hospital’s total supply expense is $15,000,000.
    • The hospital’s total pharma expense is $20,000,000.
    • Its total purchased services expense is $30,000,000.
    • Its CMI APD is 150,000.
     
    (15,000,000 + 20,000,000 + 30,000,000) ÷ 150,000 = $433.33
     

    Includes:

    • All supply chain managed expenses (supplies, pharma and purchased services)
    • Case mix index (CMI) per adjusted patient days (APD)
    • Routine maintenance items
    • Non-supply part of outsourced services
    • Supply portion of outsourced contracts
    • Service and maintenance agreements
    • Repair parts, including medical equipment/non-medical equipment
    • Other purchased services

    Excludes:

    Labor and other labor related expenses (insurance, benefits, etc.)

    Sources of Data for KPI Calculation:

    • Materials management information system (MMIS) and enterprise resource planning (ERP) system

    Points of Clarification:

    • This indicator includes the net cost of all tangible items that are expensed, including freight, standard distribution cost, and sales and use tax, minus rebates
    • The CMI APD can be obtained from your Finance department
    • In comparing with previous calculations or with others, ensure total spend is included and not just supply expense
    • The total non-labor spend can be shown per: CMI APD, CMI adjusted discharge and as a percent of net patient revenue
    • You can calculate monthly, quarterly or any other timeframe you designate, just use the same timeframe for all numbers included in the formula
    • Comparing supply expense per CMI and APD allows for a more accurate measure of specific service lines, surgical case spend and differences in patient volumes

    References:

    • Hospitals Could Save $23 Billion Annually by Streamlining Supply Chain Operations Product Use. Navigant Analysis – Business Wire. September 13, 2017.
     

    Note: The term “supply expense” used throughout all of the AHRMM Health Care Supply Chain Key Performance Indicators (KPI) is based on the AHRMM/HFMA definition of this term: “The net cost of all tangible items that are expensed including freight, standard distribution cost, and sales and use tax minus rebates. This would exclude labor, labor related expenses and service, as well as some tangible items that are frequently provided as part of service costs.” Specific items to be included or excluded in the supply expense calculation are contained within the AHRMM-HFMA Supply Expense Definition document, which is available for download from the AHRMM website.

     

     

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  • Health Care Supply Chain Key Performance Indicator (KPI): Percentage of Invoice Lines Transacted with a Global Trade Identification Number (GTIN)

    Purpose:

    Measure the percentage of invoice transactions received from suppliers via an enterprise resource planning (ERP) system or e-commerce solution provider that contain a GTIN.

    Value:

    Enables the measurement of performance against preset GTIN adoption goals.

    Equation:

    To calculate the percentage of supplier invoice lines transacted with a GTIN, divide the number of supplier invoice lines received via an ERP system or e-commerce solution provider containing a GTIN by the total number of invoice lines received via an ERP or e-commerce solution provider.

     
    Supplier invoice lines received via an ERP/e-commerce solution provider with a GTIN
    ÷
    Total number of invoice lines received via an ERP/e-commerce solution provider
    =
    Percentage of supplier invoice lines transacted with a GTIN
     

    Example:

    • A hospital’s invoice lines received via an ERP system or e-commerce solution provider with a GTIN is 600,000.
    • The hospital’s total invoice lines received via an ERP or e-commerce solution provider is 1,000,000.
     
    600,000 ÷ 1,000,000 = 0.60 × 100 = 60%
     

    Includes:

    • All invoice lines transacted via the ERP system or e-commerce solution provider
    • Transacted supplier invoice lines that reference or use a supplier’s proprietary item number to identify line items ordered by the hospital or health system
    • Transacted supplier invoice lines that reference or use a GTIN to identify line items ordered by the hospital or health system
    • Invoice lines processed using optical character recognition (OCR) technology or invoice scanning solution

    Excludes:

    • Invoice lines processed outside of the ERP system or e-commerce portal or received from suppliers manually, unless an organization utilizes OCR technology
    • Class I items, which do not require a unique device identifier (UDI) until 9/24/2022

    Sources of Data for KPI Calculation:

    • The hospital or health system’s ERP system or e-commerce solution provider can provide the supplier invoice line item transaction volume data required for this calculation.

    Points of Clarification:

    • This metric can be utilized to understand trends and performance over time to determine if the hospital or health system’s objectives to increase the use of GTINs are being realized.
    • The adoption of data standards provides a method to codify in valid, meaningful, comprehensive and actionable ways, information captured in the course of doing business with all stakeholders within the health care supply chain.
    • The GTIN is a globally unique GS1 identification number used to identify trade items, which includes both products and services that are sold, delivered and invoiced at any point in the supply chain. The elimination of customized or proprietary item identifiers can enhance the precision and velocity of supply chain transactions and recalls.
     

    Note: The term “supply expense” used throughout all of the AHRMM Health Care Supply Chain Key Performance Indicators (KPI) is based on the AHRMM/HFMA definition of this term: “The net cost of all tangible items that are expensed including freight, standard distribution cost, and sales and use tax minus rebates. This would exclude labor, labor related expenses and service, as well as some tangible items that are frequently provided as part of service costs.” Specific items to be included or excluded in the supply expense calculation are contained within the AHRMM-HFMA Supply Expense Definition document, which is available for download from the AHRMM website.

     

     

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  • Health Care Supply Chain Key Performance Indicator (KPI): Percentage of Invoice Lines Transacted with a Global Location Number (GLN)

    Purpose:

    Measure the percentage of invoice transactions received from suppliers via an enterprise resource planning (ERP) system or e-commerce solution provider that contain a GLN.

    Value:

    Enables the measurement of performance against preset GLN adoption goals.

    Equation:

    To calculate the percentage of supplier invoice lines transacted with a GLN, divide the number of supplier invoice lines received via an ERP system or e-commerce solution provider containing a GLN by the total number of invoice lines received via an ERP or e-commerce solution provider.

     
    Supplier invoice lines received via an ERP/e-commerce solution provider with a GLN
    ÷
    Total number of invoice lines received via an ERP/e-commerce solution provider
    =
    Percentage of supplier invoice lines transacted with a GLN
     

    Example:

    • A hospital’s invoice lines received via an ERP system or e-commerce solution provider with a GLN is 6,000.
    • The hospital’s total invoice lines received via an ERP or e-commerce solution provider is 10,000.
     
    6,000 ÷ 10,000 = 0.60 × 100 = 60%
     

    Includes:

    • All invoice lines transacted via the ERP system or e-commerce solution provider
    • Transacted supplier invoice lines that reference or use a supplier’s proprietary account number to identify the hospital or health system
    • Transacted supplier invoice lines that reference or use a GLN to identify the hospital or health system
    • Invoice lines processed using optical character recognition (OCR) technology or invoice scanning solution

    Excludes:

    • Invoice lines processed outside of the ERP system or e-commerce portal or received from suppliers manually, unless an organization utilizes OCR technology

    Sources of Data for KPI Calculation:

    • The hospital or health system’s ERP system or e-commerce solution provider can provide the supplier invoice line item transaction volume data required for this calculation.

    Points of Clarification:

    • The metric can be utilized to understand trends and performance over time to determine if the hospital or health system’s objectives to increase the use of GLNs are being realized.
    • The adoption of data standards provides a method to codify in valid, meaningful, comprehensive and actionable ways, information captured in the course of doing business with all stakeholders within the health care supply chain.
    • The GLN is a field-wide, standardized location identifier that replaces custom account and location numbers. The GLN provides the opportunity for increased visibility into on-hand inventory levels (e.g. bulk, each) by location, potentially increasing efficiency in pulling expired and recalled products.
    • One root cause of pricing inaccuracy and short paid rebates in multi-hospital systems is location inaccuracy. The elimination of customized location identifiers can enhance the accuracy of item price and rebate administration.

    Note: The term “supply expense” used throughout all of the AHRMM Health Care Supply Chain Key Performance Indicators (KPI) is based on the AHRMM/HFMA definition of this term: “The net cost of all tangible items that are expensed including freight, standard distribution cost, and sales and use tax minus rebates. This would exclude labor, labor related expenses and service, as well as some tangible items that are frequently provided as part of service costs.” Specific items to be included or excluded in the supply expense calculation are contained within the AHRMM-HFMA Supply Expense Definition document, which is available for download from the AHRMM website.

     

     

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  • Health Care Supply Chain Key Performance Indicator (KPI): Percentage of Items Stored in the Item Master Populated with Global Trade Identification Numbers (GTINs)

    Purpose:

    Measure a hospital or health system’s level of adoption in populating active item master records with a Global Trade Identification Number (GTIN) identifier for use in supply chain transactions.

    Value:

    Enables the measurement of performance against preset GTIN adoption goals.

    Equation:

    To calculate the percentage of item records populated with a GTIN, divide the number of item master records populated with a GTIN by the total number of item master records.

     
    Item master records populated with a GTIN
    ÷
    All item master records
    =
    Percentage of item master records populated with a GTIN
     

    Example:

    • A hospital’s number of item master records populated with a GTIN is 10,000.
    • The hospital’s total number of item master records is 100,000.
     
    10,000 ÷ 100,000 = 0.10 × 100 = 10%
     

    Includes:

    • All items/records in the hospital item master
    • All items/records in the hospital item master that have been populated with a GTIN

    Excludes:

    • Inactive records contained within the item master; use your hospital or health system’s definition of inactive records/items in your item master

    Sources of Data for KPI Calculation:

    • The hospital or health system’s materials management information system (MMIS) or the inventory management component of an enterprise resource planning (ERP) system that contains the item master data required for this calculation.

    Points of Clarification:

    • This metric can be utilized to understand trends and performance over time to determine if the hospital or health system’s objectives to increase the use of GTINs are being realized.
    • The adoption of data standards provides a method to codify in valid, meaningful, comprehensive and actionable ways, information captured in the course of doing business with all stakeholders within the health care supply chain.
    • The GTIN is a globally unique GS1 identification number used to identify trade items, which includes both products and services that are sold, delivered and invoiced at any point in the supply chain. The elimination of customized or proprietary item identifiers can enhance the precision and velocity of supply chain transactions and recalls.

    Note: The term “supply expense” used throughout all of the AHRMM Health Care Supply Chain Key Performance Indicators (KPI) is based on the AHRMM/HFMA definition of this term: “The net cost of all tangible items that are expensed including freight, standard distribution cost, and sales and use tax minus rebates. This would exclude labor, labor related expenses and service, as well as some tangible items that are frequently provided as part of service costs.” Specific items to be included or excluded in the supply expense calculation are contained within the AHRMM-HFMA Supply Expense Definition document, which is available for download from the AHRMM website.

     

     

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  • Health Care Supply Chain Key Performance Indicator (KPI): Percentage of Purchase Order Lines Transacted with a Global Trade Identification Number (GTIN)

    Purpose:

    Measure a hospital or health system’s level of GTIN adoption in purchase order (PO) transactions placed through an enterprise resource planning (ERP) system or e-commerce solution provider.

    Value:

    Enables the measurement of performance against preset GTIN adoption goals.

    Equation:

    To calculate the percentage of PO lines transacted with a GTIN, divide the number of ERP or e-commerce PO lines transacted using a GTIN by all ERP or e-commerce PO lines transacted.

     
    ERP or e-commerce PO lines transacted using a GTIN
    ÷
    All ERP or e-commerce PO lines transacted
    =
    Percentage of ERP or e-commerce PO lines transacted with a GTIN
     

    Example:

    • A hospital’s number of all ERP or e-commerce PO lines transacted using a GTIN is 600,000.
    • The hospital’s total number of ERP or e-commerce PO lines transacted is 1,000,000.
     
    600,000 ÷ 1,000,000 = 0.60 × 100 = 60%
     

    Includes:

    • All PO lines transacted via an ERP system or e-commerce solution provider
    • Transacted PO lines that reference or use a supplier’s proprietary item numbers to identify line items ordered by the hospital or health system
    • Transacted PO lines that reference or use a GTIN to identify line items ordered by the hospital or health system
    • PO lines processed using optical character recognition (OCR) technology or invoice scanning solutions

    Excludes:

    • PO lines processed outside of the ERP system or e-commerce portal or placed with suppliers manually, unless an organization utilizes OCR technology or invoice scanning solutions

    Sources of Data for KPI Calculation:

    • The hospital or health system’s ERP system or e-commerce solution provider can provide the PO line item transaction volume data required for this calculation.

    Points of Clarification:

    • This metric can be utilized to understand trends and performance over time to determine if the hospital or health system’s objectives to increase the use of GTINs are being realized.
    • The adoption of data standards provides a method to codify in valid, meaningful, comprehensive and actionable ways, information captured in the course of doing business with all stakeholders within the health care supply chain.
    • The GTIN is a globally unique GS1 identification number used to identify trade items, which includes both products and services that are sold, delivered and invoiced at any point in the supply chain. The elimination of customized or proprietary item identifiers can enhance the precision and velocity of supply chain transactions and recalls.
     

    Note: The term “supply expense” used throughout all of the AHRMM Health Care Supply Chain Key Performance Indicators (KPI) is based on the AHRMM/HFMA definition of this term: “The net cost of all tangible items that are expensed including freight, standard distribution cost, and sales and use tax minus rebates. This would exclude labor, labor related expenses and service, as well as some tangible items that are frequently provided as part of service costs.” Specific items to be included or excluded in the supply expense calculation are contained within the AHRMM-HFMA Supply Expense Definition document, which is available for download from the AHRMM website.

     

     

    Member Benefit:

    Download this Key (pdf) (Member Login Required) 

  • Health Care Supply Chain Key Performance Indicator (KPI): Percentage of Purchase Order Lines Transacted with a Global Location Number (GLN)

    Purpose:

    Measure a hospital or health system’s level of GLN adoption in purchase order (PO) transactions placed through an enterprise resource planning (ERP) system or e-commerce solution provider.

    Value:

    Enables the measurement of performance against preset GLN adoption goals.

    Equation:

    To calculate the percentage of PO lines transacted with a GLN, divide the number of ERP or e-commerce PO lines transacted using a GLN by all ERP or e-commerce PO lines transacted.

     
    ERP or e-commerce PO lines transacted using a GLN
    ÷
    All ERP or e-commerce PO lines transacted
    =
    Percentage of ERP or e-commerce PO lines transacted with a GLN
     

    Example:

    • A hospital’s number of all ERP or e-commerce PO lines transacted using a GLN is 6,000.
    • The hospital’s total number of ERP or e-commerce PO lines transacted is 10,000.
     
    6,000 ÷ 10,000 = 0.60 × 100 = 60%
     

    Includes:

    • All PO lines transacted via an ERP system or e-commerce solution provider
    • Transacted PO lines that reference or use a supplier’s proprietary account number to identify the hospital or health system
    • Transacted PO lines that reference or use a GLN to identify the hospital or health system
    • PO lines processed using optical character recognition (OCR) technology or invoice scanning solutions

    Excludes:

    • PO lines processed outside of the ERP system or e-commerce portal or placed with suppliers manually, unless an organization utilizes OCR technology or invoice scanning solutions.

    Sources of Data for KPI Calculation:

    • The hospital or health system’s ERP system or e-commerce solution provider can provide the PO line item transaction volume data required for this calculation.

    Points of Clarification:

    • This metric can be utilized to understand trends and performance over time to determine if the hospital or health system’s objectives to increase the use of GLNs are being realized.
    • The adoption of data standards provides a method to codify in valid, meaningful, comprehensive and actionable ways, information captured in the course of doing business with all stakeholders within the health care supply chain.
    • The GLN is a field-wide, standardized location identifier that replaces custom account and location numbers. The GLN provides the opportunity for increased visibility into on-hand inventory levels (bulk, each) by location, potentially increasing efficiency in pulling expired and recalled products.
    • One root cause of pricing inaccuracy and short paid rebates in multi-hospital systems is location inaccuracy. The elimination of customized location identifiers can enhance the accuracy of item price and rebate administration.
     

    Note: The term “supply expense” used throughout all of the AHRMM Health Care Supply Chain Key Performance Indicators (KPI) is based on the AHRMM/HFMA definition of this term: “The net cost of all tangible items that are expensed including freight, standard distribution cost, and sales and use tax minus rebates. This would exclude labor, labor related expenses and service, as well as some tangible items that are frequently provided as part of service costs.” Specific items to be included or excluded in the supply expense calculation are contained within the AHRMM-HFMA Supply Expense Definition document, which is available for download from the AHRMM website.

     

     

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  • Health Care Supply Chain Key Performance Indicator (KPI): Percentage of Office Supply Spend Comprised of Environmentally Preferable Purchasing (EPP) Products

    Purpose:

    Measures the level of EPP Office Supply spend.

    Value:

    Identify opportunities to increase EPP Office Supply spend.

    Equation:

    To calculate the percentage of office supply spend comprised of EPP products, divide the total EPP office supply spend by the total office supply spend.

     
    EPP office supply spend
    ÷
    Total office supply spend
    =
    Percentage of EPP office supply spend
     

    Example:

    • A hospital’s total office supply spend is $100M.
    • The hospital’s total EPP office supply spend is $20M.
     
    $20M ÷ $100M = 0.20 × 100 = 20%
     

    Includes:

    • Total office supply spend with all office supply vendor(s)
    • All purchased office supplies the vendor(s) have designated as “EPP”

    Excludes:

    • Any office equipment or furniture that is purchased with capital dollars

    Sources of Data for KPI Calculation:

    • Total spend on office supply purchases that are designated EPP should come from the health care organization’s office supply vendor’s/vendors’ monthly or quarterly spend report(s).
    • The total office supply spend should come from the health care organization’s general ledger (GL). Typically, office supplies have their own sub-account on the GL and are often consolidated in a sub-account under a single departmental cost center, such as supply chain. However, it is possible that each department will have its own sub-account for office supplies. Alternatively, this spend data can be found in the health care organization’s purchase order (PO) history.

    Note: The vendor will need to specify which office supplies are designated as EPP and which are not.

    Points of Clarification:

    • In many cases the cost of EPP office products is competitive with or even lower than non-EPP products. An indirect cost benefit of some EPP products is the reduced total cost of ownership related to excessive packaging that must be handled, removed, recycled or disposed.
    • Environmentally preferable means these products contain recycled materials, are recyclable, have less packaging, use non- or less- toxic chemicals, reduce waste or have other environmental and public health benefits.
     

    Note: The term “supply expense” used throughout all of the AHRMM Health Care Supply Chain Key Performance Indicators (KPI) is based on the AHRMM/HFMA definition of this term: “The net cost of all tangible items that are expensed including freight, standard distribution cost, and sales and use tax minus rebates. This would exclude labor, labor related expenses and service, as well as some tangible items that are frequently provided as part of service costs.” Specific items to be included or excluded in the supply expense calculation are contained within the AHRMM-HFMA Supply Expense Definition document, which is available for download from the AHRMM website.

     

     

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  • Health Care Supply Chain Key Performance Indicator (KPI): Virgin Paper Reduction and Sustainable Printing

    Purpose:

    Measure a health care organization’s percentage of spend on recycled printing and copier paper (RCP).

    Value:

    Identity opportunities to increase organization’s RCP spend.

    Equation:

    To calculate the percentage of spend on RCP, divide the total spend on RCP by the total spend for all printing and copier paper.

     
    Total spend on RCP
    ÷
    Total spend for all printing and copier paper
    =
    Percentage of spend on RCP
     

    Example:

    • A hospital’s total spend on printing and copier paper is $500,000.
    • The hospital’s spend on RCP is $25,000.
     
    $25,000 ÷ $500,000 = 0.05 x 100 = 5%
     

    Includes:

    • Paper purchases only
    • Total printing and copier paper spend with all vendor(s)
    • All printing and copier paper spend the vendor(s) have designated as RCP

    Excludes:

    • Other office supplies, print management fees, etc.

    Sources of Data for KPI Calculation:

    • All spend data (RCP and all paper) for this KPI should be available from the supplier or print management vendor on its monthly or quarterly spend report. The spend for printing and copier paper may not be broken out into its own sub-account on the hospital general ledger (GL). While it is certainly possible to isolate the paper spend via an ad hoc report, the spend data from the supplier or print management company will be reliable for the purposes of this KPI.

    Points of Clarification:

    • The vendor will need to specify which paper is designed as RCP and which is not.
     

    Note: The term “supply expense” used throughout all of the AHRMM Health Care Supply Chain Key Performance Indicators (KPI) is based on the AHRMM/HFMA definition of this term: “The net cost of all tangible items that are expensed including freight, standard distribution cost, and sales and use tax minus rebates. This would exclude labor, labor related expenses and service, as well as some tangible items that are frequently provided as part of service costs.” Specific items to be included or excluded in the supply expense calculation are contained within the AHRMM-HFMA Supply Expense Definition document, which is available for download from the AHRMM website.

     

     

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  • Health Care Supply Chain Key Performance Indicator (KPI): Percentage of Medical Supplies That Are Reprocessed

    Purpose:

    Measure percent of reprocessed medical supplies and devices.

    Value:

    Establish improvement targets of the percentage of reprocessed single use medical supplies and devices.

    Equation:

    To calculate the percentage of medical supplies and devices that are reprocessed, divide the total spend on reprocessed devices by the total spend on clinical department medical supplies (Surgery, Cath Lab, EP Lab, Interventional Radiology, Interventional GI).

     
    Total spend on reprocessed medical devices
    ÷
    Total spend for clinical department medical supplies
    =
    Percentage of medical supplies and devices that are reprocessed
     

    Example:

    • A hospital’s total spend on clinical department medical supplies (Surgery, Cath Lab, EP Lab, Interventional Radiology, Interventional GI) is $100M.
    • The hospital’s total spend for reprocessed devices is $20M.
     
    $20M ÷ $100M = 0.20 x 100 = 20%
     

    Includes:

    • Total spend for reprocessed devices from vendor(s)
    • Total medical supply spend for Surgery, Cath Lab, EP Lab, Interventional Radiology and Interventional GI departments

    Excludes:

    • Total hospital medical supply spend: Include only medical supply spend for Surgery, Cath Lab, EP Lab, Interventional Radiology and Interventional GI departments

    Sources of Data for KPI Calculation:

    • Reprocessing spend should come from the hospital’s reprocessing vendor(s) or enterprise resource planning (ERP) system monthly or quarterly spend report.
    • Surgery, Cath Lab, EP Lab, Interventional Radiology and Interventional GI department medical supply spend should come from the hospital’s general ledger (GL). Typically, these departments will be their own departmental cost center on the GL. Under these cost centers, there will be a series of sub-accounts tracking the expenses of the departments. The Finance department of the hospital will define which sub-account(s) track medical supply expenses.

    Points of Clarification:

    • Health care organizations increasingly recognize that third party reprocessing of medical devices labeled “single use device” or “SUD” is a safe and effective process that can help redirect valuable financial resources back into patient care.
    • Most original equipment manufacturer (OEM)-designated single use devices are disposed of as bio-hazardous waste, which further increases the cost of disposal and uses more resources for the environmental processing of this medical waste.
     

    Note: The term “supply expense” used throughout all of the AHRMM Health Care Supply Chain Key Performance Indicators (KPI) is based on the AHRMM/HFMA definition of this term: “The net cost of all tangible items that are expensed including freight, standard distribution cost, and sales and use tax minus rebates. This would exclude labor, labor related expenses and service, as well as some tangible items that are frequently provided as part of service costs.” Specific items to be included or excluded in the supply expense calculation are contained within the AHRMM-HFMA Supply Expense Definition document, which is available for download from the AHRMM website.

     

     

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  • Health Care Supply Chain Key Performance Indicator (KPI): Linen Pounds Per Adjusted Patient Day (APD)

    Purpose:

    Measure the quantity of linen cleaned and processed for the health care organization.

    Value:

    Identify opportunities to reduce linen pounds processed to lower operational costs and improve profitability for the hospital/system.

    Equation:

    To calculate total linen pounds per APD for the most recent annual time period, divide the total annual linen pounds processed by the total annual adjusted patient days:

     
    Total annual linen pounds processed
    ÷
    Total annual adjusted patient days
    =
    Linen pounds per adjusted patient day
     

    Example:

    • A hospital’s total annual linen pounds processed is 1,000,000 lbs.
    • The hospital’s total annual adjusted patient days is 60,000.
     
    1,000,000 lbs ÷ 60,000 adjusted patient days = 16.7 lbs per adjusted patient days
     

    Includes:

    • All hospital purchased or rented linen pounds used and processed by the Environmental Services department and/or outsourced supplier
    • Total annual, or other timeframe, adjusted patient days of the hospital

    Excludes:

    • None

    Sources of Data for KPI Calculation:

    • Decision support/cost accounting software
    • Environmental Services department management report (if processed internally)
    • Outsourced linen provider (if processed externally)

    Points of Clarification:

    • While differences may exist in each health care organization’s total linen pounds processed, the metric will normalize the differences between organizations through adjusted patient days.
    • The audience can set annual metric targets to understand the organization’s achievement towards reduced environmental impact and operational costs.
    • This metric can be especially useful in terms of influencing behavior and practices of environmental services, nursing and clinician staff to reduce overall linen used and processed.
    • The metric should be used directionally to determine how the organization is performing relative to peers.
    • Supply Chain can calculate monthly, quarterly or any other timeframe it designates, just use the same timeframe for all numbers included in the formula.
    • By managing and reducing the quantity of linen cleaned, processed and delivered, the hospital achieves sustainability goals through conserving water and electricity and reducing greenhouse gases.
    • In general, a lower metric suggests that the hospital is effectively managing and reducing total linen pounds used and processed internally or by its external partner. The total adjusted patient day metric ensures that the metric is normalized across institutions, as it serves as a key driver for linen volumes.

    Note: The term “supply expense” used throughout all of the AHRMM Health Care Supply Chain Key Performance Indicators (KPI) is based on the AHRMM/HFMA definition of this term: “The net cost of all tangible items that are expensed including freight, standard distribution cost, and sales and use tax minus rebates. This would exclude labor, labor related expenses and service, as well as some tangible items that are frequently provided as part of service costs.” Specific items to be included or excluded in the supply expense calculation are contained within the AHRMM-HFMA Supply Expense Definition document, which is available for download from the AHRMM website.

     

     

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  • Health Care Supply Chain Key Performance Indicator (KPI): Total Annual Copy/Print Page Volumes Per Employee

    Purpose:

    Measure the hospital/system’s annual copy/print volume per full time employee.

    Value:

    Enables the hospital/system to identify opportunities to reduce total copy and print volume, use of paper, ink and other consumables.

    Equation:

    To calculate total annual print page volumes per employee for the most recent annual time period*, divide the health care organization’s total print and copy volume by the organization’s total full-time employee equivalents:

     
    Total annual copy and print volume
    ÷
    Total full-time equivalents (FTE)
    =
    Annual copy/print pages per employee
     

    *Note: You can calculate monthly, quarterly or any other timeframe you designate, just use the same timeframe for all numbers included in the formula.

    Example:

    • A hospital’s total annual copy and print volume is 10,000,000 pages.
    • The hospital’s total employees or full-time equivalents is 1,000.
     
    10,000,000 pages ÷ 1,000 FTEs = 10,000 pages per FTE
     

    Includes:

    • Annual, or other timeframe, copy and print volumes generated through single, multi-functional printers
    • Total full-time equivalents (FTE) during the same time period

    Excludes:

    • Specialty print jobs with limited information on page volumes

    Sources of Data for KPI Calculation:

    • Information technology output management tool
    • Managed print services supplier
    • Human resources information system (HRIS)
    • Enterprise resource planning (ERP) system

    Points of Clarification:

    • While differences may exist in each organization’s total copy and print page volume, the metric will normalize the differences between organizations through FTEs.
    • The metric can be used to influence behavior to leverage digital platforms and implement print policies (e.g. duplex printing) to reduce print volumes.
    • Reducing paper and print volume and related consumables can have a significant impact on lowering the hospital/system’s environmental footprint.
     

    Note: The term “supply expense” used throughout all of the AHRMM Health Care Supply Chain Key Performance Indicators (KPI) is based on the AHRMM/HFMA definition of this term: “The net cost of all tangible items that are expensed including freight, standard distribution cost, and sales and use tax minus rebates. This would exclude labor, labor related expenses and service, as well as some tangible items that are frequently provided as part of service costs.” Specific items to be included or excluded in the supply expense calculation are contained within the AHRMM-HFMA Supply Expense Definition document, which is available for download from the AHRMM website.

     

     

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  • Health Care Supply Chain Key Performance Indicator (KPI): Total Annual Waste Pounds Per Adjusted Patient Day (APD)

    Purpose:

    Measures the hospital/system’s waste generation per APD.

    Value:

    Identifies opportunities to reduce waste generation to lower operational costs and improve profitability for the hospital/system.

    Equation:

    To calculate waste per APD for the most recent annual time period, divide the total waste processed by the health care organization by the total annual APD for the organization:

     
    Total annual waste pounds processed
    ÷
    Total annual APD
    =
    Total annual waste pounds per APD
     

    Example:

    • A hospital’s total annual waste processed is 1,000,000 lbs.
    • Its total annual APD is 60,000.
     
    1,000,000 lbs ÷ 60,000 APD = 16.7 lbs of waste per APD
     

    Includes:

    • Solid waste, regulated medical waste (RMW), recycling, hazardous waste, pharmaceutical waste and food waste

    Excludes:

    • None

    Sources of Data for KPI Calculation:

    • Environmental Services departmental management reports
    • Waste stream management supplier reports and invoices
    • Finance and decision support system
    • Enterprise resource planning (ERP) system

    Points of Clarification:

    • While differences may exist in each organization’s total waste produced, the metric will normalize the differences between organizations through adjusted patient days.
    • The audience can set annual metric targets to understand the organization’s achievement towards reducing environmental impact and operational costs.
    • This metric can be especially helpful to engage and influence the behaviors of key operational stakeholders, such as Environmental Services, Nursing and Supply Chain staff.
    • The metric can also be used to determine how the organization is performing relative to peers.
    • You can calculate monthly, quarterly or any other timeframe you designate, just use the same timeframe for all numbers included in the formula.

    Note: The term “supply expense” used throughout all of the AHRMM Health Care Supply Chain Key Performance Indicators (KPI) is based on the AHRMM/HFMA definition of this term: “The net cost of all tangible items that are expensed including freight, standard distribution cost, and sales and use tax minus rebates. This would exclude labor, labor related expenses and service, as well as some tangible items that are frequently provided as part of service costs.” Specific items to be included or excluded in the supply expense calculation are contained within the AHRMM-HFMA Supply Expense Definition document, which is available for download from the AHRMM website.

     

     

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AHRMM Member Benefit

AHRMM members can download individual AHRMM Keys in PDF format located at the bottom of each Key. Additionally, AHRMM members can download the full AHRMM Keys PDF below. (Member login is required.)

Download the full AHRMM Keys set (pdf) 

 

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