The proposed presentation and research paper will provide very clear and objective application of proven lean tools and how public sector organizations, specifically healthcare can benefit from these methodologies to provide better healthcare with higher quality of care, enhance value of resources and shorten recovery times. It will be shown that enhancing the operational efficiency of public sector dramatically improve quality of life ordinary people of a societies and additional services can be made available at affordable costs.

The research is based on a successfully concluded project for the implementation of 2-Bin Kanban inventory management system in a major US public sector hospital system. Hospitals in the system frequently faced stock out situations for Critical-to-Care medical supplies while carrying disproportionate amounts of non-essential inventories. It was discovered in the diagnostic phase that on the average the hospital purchased 30% of all items on premium prices and another 25% of items expired before being used for treating patients. Purchases were made based on contractual obligations with prime vendors, long term agreements and bulk discounts for suppliers’ surplus stocks. There had been negligible aggregate planning in procurement of medical consumables at medical facility level; departments and clinics purchased their supplies based on their individual demands resulting in less than economic order quantities with excessive procurement and stocking costs. It was also observed that there was no correlation between demand and consumption to procurement and stock levels in hospital warehouses. Purchases were made considering transactional advantages including bulk quantity discounts, minimum number of purchases, bundled product families etc. These purchase practices led to over stocked warehouses with unwanted products while facing chronic shortages of critical-to-care items. The project started by collecting pertinent data about hospital operations for past five years. It included the number departments and clinics operated by the hospitals; number of patients treated by each department; major presenting conditions using ICD10 coding. The data was used to establish real demand patterns for medical consumables also taking into account seasonal and demographic variations. Real demand and consumption rates were established followed by determining appropriate PAR levels; frequencies of replenishment and ordering.  Order quantities were set to match optimal pricing and logistic costs. A corresponding model was created for expensive, low use specialty items like orthopedic and cardiac implants. Finally, aggregate 2-Bin Kanban inventory management model was validated through several simulations.

Results showed that the system never resulted in stock out situations in spite of a 55% reduction in inventory levels in dollar amount value; it freed up about 42% of warehouse space eliminating many offsite rented locations; reduced time spent in placing orders by 70% due to the fact that comprehensive inventory taking was no more required. Items with 1st empty bins were ordered. Freed up clinicians’ time was used for treating patients which in turn led to higher medical productivity. Another direct benefit of implementing 2-Bin Kanban system was complete elimination of expired stock. Since items are not purchased in bulk quantities anymore, every item is used before expiry. A comparison of before and after 2-Bin Kanban system showed that buying