Live blogging from HME Business Summit: Your path to continuous improvement and profits

Speakers: Janice Ahlstrom of Wipfli and John Teevan of Home Care Medical.

Ahlstrom and Teevan are talking about Home Care Medical's three-year journey implementing lean principles.

Why do providers need to look at improving their efficiency with tools like lean principles? Ahlstrom is the third speaker today to cite this statistic: Health care is 17.5% of our GDP. (The repeated message is that too much is spent on health care.)

Here's the path of the journey that Home Care Medical has been on: The company's "first improvement event" included optimizing inventory and routing, and improving warehouse layout. It has plans for second and third improvement events. It has developed the "Home Care Medical way."

Ahlstrom says the hard part of the journey is continuos improvement. It's a multi-faceted approach. It's not just the lean principles or improvement events. That "engineered science" is 25% of the journey. The rest is the social science or understanding the readiness of the people at your company to change. How many times has a program been a flavor of the day and fallen? Is there a readiness to change? If not, what do we have to do to get people ready to change?

Lean principles in review: value, value stream (getting the different members in the organization to see things in a value stream, from the time that the order comes in the door until cash is posted to the payer, that's the value stream), flow, pull and perfection.

Ahlstrom says she encourages people to implement lean principles first to get rid of waste then to apply Six Sigma tools to get rid of variability in processes. Home Care Medical applied a blend of the two.

Teevan's describing Home Care Medical's first improvement event. He knew had some serious process improvements to make in inventory (how to control the inventory, who can access the inventory, etc.), routing (how to get it out of the warehouse and into the hands of customers) and warehouse layout. He also added KPIs or benchmarks; he started off with four and now has 25.

Home Care Medical carries 6,500 SKUs, 2,200 in the warehouse, with the rest handled by drop-ship accounts. There was a big gap between book and shelf value. Inventory accuracy was more than 92% from a dollar perspective. Unit accuracy was about 65%.

Much of the journey culminated in a new warehouse layout, with products classified by usage and cost (before, they were classified by vendor) and by cycle count (different classifications of products are counted a different number of times).

Some of the results of the journey: Sale inventory levels were $857,000 in 2006 compared to a goal of $700,000 in 2010; inventory turnover was nine in 2006 compared to a goal of 10 in 2010; and gross revenue was a total of $35 million in 2006 (sales and rentals) compared to a projected total of $46 million for 2010 (sales and rentals). Other results: Backorder rates were 97% in 2006 vs. 99% in 2010 (year to date); and redelivery rates were 8.14% in 2006 vs. 6.15% in 2010 (YTD).

Home Care Medical has also analyzed its process for providing CPAP devices. They thought their biggest problem was with scheduling, but really, it was with documentation. As a result of a trial, it determined that it could reduce the number of forms from 11 to five, which resulted in the whole process going from 71 days to 63 days (and, eventually, after another trial, down to 49 days).

Next steps include: Reviewing other product lines to ensure faster turnaround times and continuing to focus on the back end.