Warehouse Consolidation Project

WAREHOUSE PROJECT AT
MANIPAL HOSPITAL
BANGALORE (A)
A Classroom discussion on Case Study by :

Anshuman Tripathy, Ramnath Pai,
And Vaibhav Jain,
BACKGROUND OF THE CASE
 Time:
 August 2016
 Setup:
 Bangalore, Karnataka
 Person in Case:
 Mr. Sunil Kumar,
AGM – Procurement; Manipal Hospitals Bangalore (MHB),
INTRODUCTION
 Consolidation of consumables at a central location for all
the four hospitals in Bangalore.
 Implementation of state-of-art IT systems for Inventory

Management
 Outsourcing of routine activities to a BPO
 Other operational improvement initiatives to improve

the service levels and reduce the costs involved in the
fulfillment of consumables.
THE PROBLEM
 Despite improvements in processing and automation,
the service level fell to 23% from existing 60%.
 Service level in Supply Chain means –
 Expected probability of not hitting a stock-out during the next

replenishment cycle,
 It is also the probability of not losing sales.
AGENDA OF THE MEETING
 Finding a solution to get the service levels up to at least
80%.
 Effective consolidation if achieved; will be a model for

centralization for other common activities such as
sterilization of medical equipment.
INDIAN HEALTHCARE DELIVERY
INDUSTRY
30%
 Expected to show a 25%

22.87% CAGR from 2015
20%
through 2020, hitting to
level of Rs. 18,000 Billions 15%
10%
5%
0%
Size
INDUSTRY
25%
 India witnessed 3.2

20%
million medical tourists in
2015, expected to grow at 15%
CAGR of 20% from INR
195 billion in 2015 to USD 10%
515 billion in 2020
5%
0%
CAGR
INDUSTRY
18
16
 Number of RTA increased
14
due to increase in 2
12
wheeler ownership -
10
(16-Times) and 4 wheeler
ownership (7 Times) 8
between 1981 and 2002, 6
as the Per Capita income 4
increased 2
0
2 Wheeler 4 Wheeler
INDUSTRY
30%
 Sedentary lifestyles and 25%
increasing life expectancy
caused increase in non- 20%
communicable lifestyle
diseases. 15%
 25% of the people
contracted diabetes, 10%
cardiovascular ailments, and
5%
cancer.
0%
Life Style Diseases
MANIPAL HOSPITALS
 Network of 15 multispecialty care hospitals across six
Indian states.
 5000 Total Beds catering to about 2 million domestic and

overseas patients a year.
 Among the top three healthcare service providers in

India (Along with Apollo and Fortis)
MANIPAL HOSPITALS
 Group’s first and flagship hospital – 600 Bedded Manipal
Hospital Bangalore, was launched in 1991 as a
quaternary care facility.
 Patient centricity is evident in the level of hospitality

that greets each patient at all hospitals
 Manipal Hospitals’ credo, consisting of core values of

‘‘Clinical Excellence, Patient Centricity and Ethical
Practices’’, has guided its operations and helps them
deliver the best healthcare service to its customers
MANIPAL HOSPITALS
 Raised INR 11.6 billion from India Value Fund Advisors
 In 2015, raised an additional INR 9.4 billion from TPG

Capital and received access to the best-in-class
operational know- how and international experience.
MANIPAL HOSPITAL BANGALORE
 Located amongst Prime Real Estates on Old Airport road,

Bangalore
 In 2017, only one among 219 hospitals in India to be

awarded NAHB accreditation
 Among the top 10 multidisciplinary hospitals in India,

with NABH accreditation
 One of the most recognized and preferred locations for

drug trials by pharmaceutical companies.
 A hotspot for medical tourism.

 Patient Pathway
 Registration
 Allocation of Unique Number (UHID)
 Nominal fees collected against Registration and

information facility.
 Consultation with Concerned Doctor, sample

collection for Lab diagnostics
 Advising and Delivering Timely Lab Reports

 Patient Pathway
 Financial counseling and TPA/ Insurance Counseling
 Bed allocation and Ward Transfer
 Appointments were booked manually at the General

OT Complex.
 Facility to Prebook Appointments upto 1 month in

advance using the TrakCare Healthcare Information
System tool only in the ENT deprtment.
 Stores and Warehouse
 Materials procurement at MHB could be broadly

classified into two categories:
• Pharmaceuticals,
• Consumables
 Stores and Warehouse > Pharmaceuticals
 Pharmaceutical materials consisted of medicines,
vaccines, and other equipment such as stents which
were used daily at the ward OT, or pharmacy level,
 These had high demand variability owing to the

diverse types of cases that came to the hospitals,
 Stocked at MHB and at each of the group hospitals in

Bangalore.
 Pharmaceuticals are delivered to the bulk store.
 The procurement for the bulk stores was done every

15 days on the Fixed Order Interval model
 Replenishment was outsourced to two firms:

 Hospitalis Supply Solutions,
 Alaric Healthcare
 Movement of Supply
 Bulk Store > Inpatient & Out patient Pharmacy
> Wards, ICUs, etc. based on indents raised.
 Bulk Store had inventory worth Rs. 10 Million (4500

SKUs).
 104 Such Locations received supplies once a week in

MHB and held inventories for 1 week.
 Ad hoc or emergency requests were fulfilled by the
in-patient pharmacy.
 Unavailable drugs - procured on priority basis from

nearby private pharmacies or other hospitals in
Bangalore.
 Stores and Warehouse > Consumables
 Consumables were typically materials such as
stationery, housekeeping equipment, and long-shelf
life medical equipment such as gauze dressings that
had stable demand and reasonably large shelf life.
 These were for the day-to-day operations of the

hospital but did not directly and/or critically impact
service delivery to the patients.
 Before March 2015, each hospital procured supplies
individually
 Later, the procurement done at the Bangalore cluster

level includeding four hospitals in the city.
 Stored in a central warehouse at Mahadevapura in

Bangalore
 Procurement at central warehouse – Every month
 Warehouse to individual hospitals – Every day based

on indents raised.
WAREHOUSE CONSOLIDATION PROJECT
 Due to increased ‘‘medical tourism’’, NABH
accreditation, and new in-flow of cash, Manipal Hopitals
was looking to increase capacity and service quality
 It was planned to add new hospitals to Bangalore

network by 2017
 In January 2015, Kumar analyzed the hospital value

chain and identified stores as an area for potential
improvement.
 The prime location of the hospital sites meant high real
estate costs being amortized over storage space rather
than other revenue generating wards and beds
 MHB occupied 5,500 square feet area, sufficient to

house 30~35 beds each generating revenue of INR 11
million per annum
 Multiple ad hoc vendors delivered pharmaceuticals and
consumables to each hospital separately.
 There were about 70-80 delivery vans at the entrance

every morning, blocking the path of incoming patients
 This lead to delay in service delivery and customer

satisfaction
 PURCHASE PROCESS: manual. Approval for purchases
from department heads was based on paper-indents.
 STOCK MAINTENANCE: In Excel Sheets.
 INTERNAL USERS – nurses/staff could raise an indent for

any item needed
 If the item was not in inventory, the purchasing team

would find suppliers, request quotations, raise purchase
orders, and procure the material.
 Problems:
 If the exact name requested in the indent was not

available, a new item code would be created
 Lack of naming conventions for indents meant that the

same commodity, through various suppliers, had distinct
names/item codes in the Excel tracker.
 This model suffered from regular stock-outs which led to

nurses ordering extra “safety” stock at their ward level
and exacerbated the tracking of inventory
 3 pronged approach to Solve the Problems:
 Digitization and outsourcing of procurement

processes,
 Warehouse consolidation for consumables,
 Inventory rationalization.
 Digitization and outsourcing of procurement processes
 The Sourcing Department was split across

 projects,
 consumables
 Biomedical Engineering
 Sourcing group was restructured into central purchasing

unit (CPU) with task-based functions such as:
 Strategic sourcing,
 Execution, and
 Governance
 Functions of Strategic sourcing group

 Supplier identification and evaluation,
 E-sourcing of materials
 Supplier performance management,
 Functions of Execution group
 Day-to-day procurement,
 Logistics,
 Warehousing
 Functions of Governance group
 Timely execution of the various policies and procedures of
the sourcing department
 Logistics Group was outsourced to third party logistics

provider and BPO – both reporting to the CPU, thereby
decoupling the stores and purchase departments.
 Vendor qualification and negotiations was done by in

house team
 BPO took care of lower level procurement decision

makings (getting quotes and raising purchase orders)
 Implementation of an online tool to streamline approval

process and consolidate the process;
 Tool also provided

 Quick access to the availability of commodities
 Sense of accountability and traceability of inventory
 SAP ARIBA® was implemented for better control over

inventory and vendor management
 Warehouse Consolidation for Consumables
 At Mahadevapura – the real estate cost was really low;
 This gave MHB:

 the leverage bargaining power over suppliers;
 Amortize the relatively lower Central cost of real estate over
large material volumes.
 Only 2-3 days’ worth of inventory of consumables was

maintained at the site level with daily replenishment of
the depleted inventory.
 Warehouse Consolidation for Consumables
 The indents received at the warehouse were supplied in

one or two truckloads which operated like a milk-run
between different hospitals.
 Materials were delivered to special Take Away Counters

(TCAs) at each hospital which further delivered material
to nurses in the wards.
 Inventory Rationalization
 The store had 16000 SKUs initially.
 Kumar’s team identified 1200 items which had high

transactional value and decided to maintain stock for 1
month at central warehouse. Replenished on a Re-order
point basis.
 Remaining 14800 items were ordered on a need basis

with a lead time of 20 days.
 Inventory Rationalization
 The store had 16000 SKUs initially.
 Kumar’s team identified 1200 items which had high

transactional value and decided to maintain stock for 1
month at central warehouse. Replenished on a Re-order
point basis.
 Remaining 14800 items were ordered on a need basis

with a lead time of 20 days.
 Challenges
 On-boarding all employees with this vision of improving

productivity was the main challenge.
 Distant location of the warehouse could be a hindrance

to the smooth operation of the hospital.
 Loss of autonomy, especially in creating indents and

approvals at will.
 Measures to overcome the problems
 Training programs across the sourcing organization.

 Best practices in raising indents,
 Use of new tools for materials ordering and inventory
management,
 New approval process where approvers could look at the
availability of similar inventory
 Sensitizing users not to order materials when the

inventory was in transit.
 Performance Monitoring Post-Consolidation
 IT tools enabled the use of data analytics for

performance measurement (number of transactions and
fulfilment level ).
 Regular reviews of the

 warehouse,
 efficiency at site level,
 BPO performance
 Performance Monitoring Post-Consolidation
 Despite all initiatives, service level decreased from 60%

to all time low of 23%.
 Kumar related the cause primarily due to the new way

of working.
 Process Improvement – the Missing link
 Kumar undertook a holistic review of the process.
 An internal customer model was created, in-depth

interviews were conducted with various stakeholders to
understand their concerns about their orders not being
delivered on time.
 Issues with Nurses and Laboratoies:

 Difficulty in adopting the process,
 Unavailability of requested material at the TCA on time.
 The nurses started at 8 AM in morning but the TCA opened at 9 AM
 Huge queue for delivery by the time TCA started operations in morning
 Multiple follow ups to receive full order
 Material delivery was delayed upto 2 PM also which delayed service
delivery and reduced patient satisfaction levels
 Such issues reduced trust in the stores leading to:

 Ordering material in excess of the required quantity
 Indenting material indent as urgent basis.
 Take away counters (TCAs):

 Faced issue from both Nursing and the Warehouse
 Huge queues to manage even before starting the day’s
operations
 To manage and reduce queues, the available material was
delivered while waiting for the days supply to arrive.
 Unscheduled and non-timely delivery of material by the
delivery truck. (Somewhere between 11am to 2pm)
 Delivery boys waited for patient lifts during the peak hours
 Escalations in indent delivery and mismatch in transfer
posting due to unavailability of material
 Warehouse:
 Stores opened at 9 AM and packed the orders by 10:30 AM,
thereby delaying the delivery process.
 Delivery was done twice a day, thereby increasing the
workload.
 Stores operation team played a pivotal role of intermediating
between the purchase team and the internal customers
(nurses and laboratories).
 Warehouse - Issues from internal customers’ side.

 Incorrect indents leading to incorrect deliveries
 No scheduling for indents.
 Incorrect indent priorities (Most of the indents marked as
urgent) – Overall service delivery time was hampered.
 Nurses did not acknowledge the receipt
 Unpredictable order levels – leading to improper monitoring
 To improve service levels, the delivery boxes needed to be
packed on the evening before – for this indents need to be
punched by the previous afternoon.
 Delivery truck return time was uncertain, making personal
wait - lost productivity
 Warehouse – Team issues.

 New team was unaware of all the products and their utility
 There were 16000 SKUs, any “new” indent order would increase
the SKU number further as the substitute could not be traced – this
was because there was no check on the indents.
 80- 20 rule could not alone help, rationalizing the codes,
classification according to demand and movement was required to
improve delivery levels.
 Clarity in demand forecast - could improve procurement and
supply.
 Stock MIS sent daily, but no one reads them and system doesn’t
provides accurate view of the inventory available to end user.
 Decision to improve
 Kumar realized that the voice of the customer needs to
be heard for process improvement.
 Change management problems needs to be addressed
in a better way.
 Assimilation of new information and working closely
with all stakeholders to navigate the intricacies involved
in implementing improved processes.

Warehouse Consolidation Project

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WAREHOUSE PROJECT AT

A Classroom discussion on Case Study by :

 Implementation of state-of-art IT systems for Inventory

 Outsourcing of routine activities to a BPO

 Other operational improvement initiatives to improve

 Service level in Supply Chain means –

 Expected probability of not hitting a stock-out during the next

 Effective consolidation if achieved; will be a model for

 Expected to show a 25%

 India witnessed 3.2

between 1981 and 2002, 6

as the Per Capita income 4

 5000 Total Beds catering to about 2 million domestic and

 Among the top three healthcare service providers in

 Patient centricity is evident in the level of hospitality

 Manipal Hospitals’ credo, consisting of core values of

 Raised INR 11.6 billion from India Value Fund Advisors

 In 2015, raised an additional INR 9.4 billion from TPG

 Located amongst Prime Real Estates on Old Airport road,

 In 2017, only one among 219 hospitals in India to be

 Among the top 10 multidisciplinary hospitals in India,

 One of the most recognized and preferred locations for

 A hotspot for medical tourism.

 Allocation of Unique Number (UHID)

 Nominal fees collected against Registration and

 Consultation with Concerned Doctor, sample

 Advising and Delivering Timely Lab Reports

 Financial counseling and TPA/ Insurance Counseling

 Bed allocation and Ward Transfer

 Appointments were booked manually at the General

 Facility to Prebook Appointments upto 1 month in

 Materials procurement at MHB could be broadly

 These had high demand variability owing to the

 Stocked at MHB and at each of the group hospitals in

 The procurement for the bulk stores was done every

 Replenishment was outsourced to two firms:

> Wards, ICUs, etc. based on indents raised.

 Bulk Store had inventory worth Rs. 10 Million (4500

 104 Such Locations received supplies once a week in

 Unavailable drugs - procured on priority basis from

 These were for the day-to-day operations of the

 Later, the procurement done at the Bangalore cluster

 Stored in a central warehouse at Mahadevapura in

 Warehouse to individual hospitals – Every day based

 It was planned to add new hospitals to Bangalore

 In January 2015, Kumar analyzed the hospital value

 MHB occupied 5,500 square feet area, sufficient to

 There were about 70-80 delivery vans at the entrance

 This lead to delay in service delivery and customer

 STOCK MAINTENANCE: In Excel Sheets.

 INTERNAL USERS – nurses/staff could raise an indent for

 If the item was not in inventory, the purchasing team

 If the exact name requested in the indent was not

 Lack of naming conventions for indents meant that the

 This model suffered from regular stock-outs which led to

 Digitization and outsourcing of procurement

 Warehouse consolidation for consumables,

 The Sourcing Department was split across

 Sourcing group was restructured into central purchasing

 Functions of Strategic sourcing group

 Logistics Group was outsourced to third party logistics

 Vendor qualification and negotiations was done by in

 BPO took care of lower level procurement decision

 Implementation of an online tool to streamline approval