university of michigan health system program and ...ioe481/ioe481_past_reports/f1201.pdfsteve kim,...

University of Michigan Health System Program and Operations Analysis

Analysis of the Number of EO Sterilizers and New Pricing Strategy Required by the Central Sterile Processing Department

FINAL REPORT

To: Karen Bett, Manager, Materiel Services, University Hospital Matthew Claysen, Operating Room Engineer, University Hospital Mark Van Oyen, Associate Professor, IOE Department, University of Michigan Alexandra Lai, Graduate Student Instructor, IOE Department, University of Michigan From: Gerrae Cotton, Student, Team 1, IOE Department, University of Michigan Steve Kim, Student, Team 1, IOE Department, University of Michigan Richard Olivero, Student, Team 1, IOE Department, University of Michigan Date: December 11, 2012

IOE481 Team 1 page 2

TABLE OF CONTENTS EXECUTIVE SUMMARY 3

Goals and Objectives 3 Methods 3

Findings 4 Conclusions 4 Recommendations 5 INTRODUCTION 6 BACKGROUND 6 Regulations 7 Key Issues 7 GOALS AND OBJECTIVES 8

Goals 8 Objectives 8

PROJECT SCOPE 8 METHODS 9 Data Collection 9 Data Analyses 10 Assessment and Illustration 12 FINDINGS 13 Data Collection 13 Data Analysis 15

Assessment and Illustration 17 CONCLUSIONS 19 RECOMMENDATIONS 19 EXPECTED IMPACT 20 RISK FACTORS AND NEXT STEPS 20 APPENDIX 21 Figures Figure 1 13 Figure 2 15 Figure 3 16 Figure 4 17 Figure 5 18 Figure 6 18 Figure 7 21 Figures 8, 9, 10 22 Figures 11, 12, 13 23 Figure 14 24 Figure 15 24 Tables Table 1 13 Table 2 13 Table 3 15 Table 4 17 Table 5 25


Table 6 26 Table 7 27

EXECUTIVE SUMMARY The Central Sterile Processing Department (CSPD) of the University Hospital offers ethylene-oxide (EO) sterilization service for medical equipment and surgical instruments that cannot withstand high levels of heat (< 132 °F). Due the flammability of EO, the hospital uses a mixture of EO and HCFC-124 (1-Chloro-1,2,2,2-tetrafluoroethane); however, HCFC-124 is an ozone-depleting gas, and, as part of the Montreal Protocol, the United States must completely stop the use of HCFC-124 by 2030. The Environmental Protection Agency (EPA) has required the University Hospital to stop using HCFC-124 by January 2015 as a part of the incremental phaseout of HCFC-124. Thus, the CSPD must purchase new machines that can process 100% EO that does not have any HCF-124. Currently, the CSPD is considering the purchase of two 5XL and four 8XL machines and six abators, all of which are manufactured by 3M. The machines must be attached to an abator that decomposes the EO into non-toxic gas. Therefore, the CSPD must also purchase new abators. Currently, the CSPD serves two main types of customers: onsite and off-site. Surgical departments within the University Health System (UHS) are onsite and all else are off-site. Onsite operating rooms are not charged while all other customers are charged for the sterilization service. All customers must deliver their items to the CSPD by or before 1PM or 4PM on a weekday for sterilization. Late deliveries are processed the next day. Goals The CSPD established the following goals:

- Meet future demand - Offset costs of operation - Understand who the customers are and how many items are being sterilized

Methods The Industrial and Operations Engineering (IOE) student team used the following methods to help attain the goals:

- Interviewed with the Materiel Services Manager, Senior Financial Manager, Maintenance Manager, and supplier of the new machines to obtain required information.

- Conducted search of publications and literature relevant to sterilizer replacement. - Obtained 5 months’ of data (150 data points) on the daily quantity of items processed

and stratified the data by the types of item processed: trays, wraps, and pouches. - Fit statistical distributions into the historical data and computed the 99.9th percentile

of the distributions to determine the worst-case quantity the CSPD must process for each item category.

- Conducted linear regression analysis between every two data type (trays, wraps, and pouches) to determine whether every pair of data types is uncorrelated and can be summed to determine the total worst-case quantity of items.

- Collected physical dimensions and determined the mean volume of each item type: 21 data points for trays, 49 for wraps, and 195 for pouches.


- Computed the worst-case total volume with the mean volumes and the 99.9th percentile quantities.

- Determined the number of new machines required by dividing the worst-case volume by the volumetric capacity and the reliability coefficient of the new machines.

- Updated the current CSPD financial model with the most recent materiel and services costs to compute the processing price per cubic inch of the capacity of the new machines.

- Constructed a histogram of the quantity of items processed per item type per customer per day over the past five months to illustrate who the customers are and what they are sterilizing.

- Compared the dimensions of the inner chamber of the new machines to the dimensions of the microscope to determine whether a microscope can fit in the new machines.

Findings Using the above methods, the team found the following:

- All other entities that offer EO sterilization are in Detroit, and therefore, the new pricing of the sterilization services would likely not affect the demand for the service considering that all customers are from the Ann Arbor area.

- Connecting two 8XL models to an abator increases the cycle time of one of the machine by 1 to 5 hours.

- Connecting two 5XL models to an abator or one 5XL model and one 8XL model to an abator increases the cycle time of just one of the 5XL’s or 8XL by about an hour.

- 99.9th percentiles of the daily processing quantities are: 13 trays, 30 wraps, and 329 pouches.

- None of the items types are significantly correlated with one another given α threshold of 0.05.

- The mean volumes are: 682.619 cubic inches for trays, 736.265 cubic inches for wraps, and 87.413 cubic inches for pouches.

- The worst-case total volume that must be processed is 59,720.825 cubic inches, which translates to two 5XL machines and four 8XL machines.

- Given that the 5XL and 8XL are run only once a day, connecting four to six machines reduce the overall processing capacity by only about 0.03%.

- Several costs, including labor, biological test, and sticker costs, have changed over time since 2008, when the first financial model was put together by the Senior Financial Manager, and required updates.

- From June to October of 2012, 11 different customers sterilized trays, 38 different customers sterilized wraps, and 67 different customers sterilized pouches.

- From June to October of 2012, 94.64% of the customers who sterilized trays were onsite customers; the corresponding numbers are 64.36% for wraps, and 58.28% for pouches; onsite customers are not charged for the service while off-site customers are.

- The microscope can fit only in the 8XL model. - The microscope has a volume of about 7,776 cubic inches (36 x 18 x 12).

Conclusions After analyzing the collected data, the team concluded the following:


- It would cost about $6.03 to process a tray, $6.51 to process a wrap, and $0.77 to process a pouch.

- The CSPD needs the capacity to sterilize 59,720.825 cubic inches of material in the worst case, and the most affordable way to cover the volume is to buy four 5XL machines, two 8XL machines, and four abators.

- The most affordable way to meet the worst-case demand is to buy two 5XL machines and four 8XL machines with four abators, which translates to maximum effective capacity of 61,331.97 cubic inches.

- Based on processing cost per cubic inch, it would cost about $60.71 to sterilize a microscope.

- Connecting one 5XL model to an abator or one 8XL model to the same abator and running the two machines at the same time increases the overall cycle time by about 45 minutes to an hour. If the machines start separately, the wait times can be avoided.


- From June to October of 2012, 94.01% of the trays were not charged for service; the corresponding numbers are 63.01% for wraps, and 44.56% for pouches. This shows that most of the costs of running the machines are internalized given that most of the volume comes from the onsite operating rooms.

- The microscope, the largest item, can only be processed by the 8XL model. - It costs $60.38 to process a microscope; 8XL model costs $0.0078 per cubic inch.

Recommendations Based on the conclusions, the team recommends the following:

- Purchase four 8XL models and two 5XL models as planned by the CSPD. - Purchase four abators. - Charge $8, $8, and $2 for a tray, a wrap, and a pouch per sterilizer cycle to offset

costs robustly. - Charge $70 for a microscope per sterilizer cycle to offset costs robustly. - Additionally, maintain the current item delivery schedule for the customers, but start

cycling the new machines as soon as enough items have been accumulated to fill up the machines. Always cycle the 8XL models that are attached to abators along with 5XL models to ensure that the 5XL models are available for the worst-case scenario.

- Digitize all recordkeeping information for easier analyses of data. - Update financial cost information annually to ensure that the CSPD offsets costs

effectively. - Conduct further study on the new machines’ reliability and the seasonality of the

demand to expand on the assumptions used in this project.


INTRODUCTION The University of Michigan Hospital offers EO (ethylene-oxide) sterilization for medical equipment and surgical instruments. Customers that use the EO sterilization are either onsite or off-site. For example, the Cancer Center is an onsite customer, as the Cancer Center is a part of the UHS; on the other hand, customers outside of the system are offsite. Onsite ORs (Operating rooms) are not charged for the service; however, all other customers are charged $5 per equipment or instrument sterilized. A major concern with the EO is its flammability. EO is diluted with HCFC-124 (1-Chloro-1,2,2,2-tetrafluoroethane) to reduce its flammability. The diluted mixture is known as Oxyfume 2000 as designated by the Department of Natural Resources and Environment. Due to the ozone depleting capacity of HCFC-124, the EPA (Environmental Protection Agency) is requiring hospitals in the United States to stop using Oxyfume 2000 by January 2015. To meet this requirement, the CSPD (Central Sterile Processing Department) plans to replace the current sterilizers with machines that can safely use pure EO before January 2014. Currently, the CSPD is considering the purchase of two 5XL and four 8XL machines and six abators, all of which are manufactured by 3M. The CSPD needs a plan for replacing the machines; therefore, the CSPD has asked an undergraduate student team from the Industrial and Operations Engineering (IOE) department of the University of Michigan to analyze the current state and develop a recommendation to purchase machines and meet future demand. The CSPD established the following goals for the project:


To meet the goals, the student team collected and analyzed data and generated recommendations for the CSPD. The purpose of this report is to discuss in-depth the statistical analyses employed by the team and the findings and conclusions obtained from the analyses. The report includes the recommendations the team derived from the findings of the data analyses. BACKGROUND The CSPD sterilizes medical equipment and surgical instruments. Two main types of sterilization processes are steam and EO sterilizations; of the two, steam costs less and has shorter cycle and turn-around times, but medical equipment, which cannot withstand high levels of temperature, is sterilized with EO. Because EO is flammable, it is diluted with HCFC-124 (1-Chloro-1,2,2,2-tetrafluoroethane) to reduce its flammability. The diluted mixture is known as Oxyfume 2000 as designated by the Department of Natural Resources and Environment. Currently, the sterilization process takes approximately 2 hours and 10 minutes and the disposal of the EO mixture takes about 12 hours according to the Materiel Services Manager.


Currently, the CSPD uses two EO sterilizers. The machines have processed about 35 loads (each load goes into one machine) or 2397 pieces of medical equipment per month for the past 12 months. At most one machine is activated at 1:00 PM, and, depending on demand, an additional machine is run at 4:00 PM. Customers who use the sterilization service are divided into two categories: onsite and offsite. Onsite customers consist of the ORs, the Cancer Center, and other departments within the UHS. Offsite customers are those outside of the UHS such as St. Joseph Mercy Hospital at Ann Arbor. Customers who use the sterilizers must deliver their equipment to the CSPD at least 30 minutes prior to the activation of the machines. Any late arrivals are processed at the next cycle. Most customers bring and pick up their equipment, but some customers, such as the Cancer Center have their equipment picked up and delivered by the CSPD. The primary customers of the CSPD are the ORs; the CSPD is integrated into the OR network, so the ORs are not charged for the sterilization service. Other customers, onsite or offsite, such as the Cancer Center and off-site clinics, pay $5 per equipment sterilized regardless of the equipment’s physical size or weight. Every item is packaged into a tray, a wrap, or a pouch for protection. Regulations The Environmental Protection Agency (EPA) requires that the machines run at full loads to minimize the number of machine cycles and the emission of waste from the sterilization process. If the machines are not full, the CSPD notifies the customer that the machine cannot be activated until the next cycle. However, if the customer needs the equipment as soon as possible because of medical emergencies, the CSPD management can override the restriction to run partial loads in the machines. The EPA is enforcing another regulation on the sterilization process. As a party to the Montreal Protocol, the U.S. must incrementally decrease HCFC-124 (an ozone depleting gas) consumption and production until a complete HCFC-124 phaseout in 2030. To adhere to the protocol, the EPA is requiring that all hospitals in the U.S. stop using Oxyfume 2000 by January 2015. The CSPD plans to abide by this requirement by replacing current machines with sterilizers that can process pure EO by January 2014. The main concerns of the CSPD are meeting future demand with the new machines and covering the costs of running the new machines effectively. Key Issues The following key issues are driving the need for this project.

- New EPA regulation will prohibit the use of Oxyfume 2000. - Future demand for EO sterilization must be met. - The CSPD does not have standardized information of who its customers are and what

they are sterilizing. - Pricing must be revised to cover costs of purchasing, installing, and running the new

EO sterilizers.


GOALS AND OBJECTIVES To derive or determine the future demand, required processing capacity, schedule for machine operations, volumetric capacities of the new machines, categorization of customers, costs of operating the new machines, and a new pricing strategy, the team established the following goals and objectives. Goals The CSPD and the team established the following goals:


Objectives The team established the following objectives to attain each goal: To meet future demand:

- Determine the number of new machines required to meet future demand - Measure capacity of new machines - Determine if the largest item, a microscope, can be sterilized in the new machines - Develop a plan for running the new machines

To offset costs of purchasing and operating the new machines:

- Improve the current financial model to reflect the most recent costs and the costs of the new machines

- Develop new pricing strategy for items sterilized using EO To better understand who the customers are and how many equipment each customer is sterilizing on a daily basis:

- Develop a histogram of customers and the items sterilized - Analyze historical daily quantities of items sterilized by customers

PROJECT SCOPE The scope of this project includes meeting the requirements of the Montreal Protocol as enforced by the EPA and the needs of the CSPD. To meet the needs of the CSPD, the scope included the following:

- The number of new machines required to meet future demand - New pricing strategy to offset costs of purchasing and operating the new machines - The customers - what departments or clinics they come from and how many items

they sterilize - Inner dimensions required to sterilize a microscope, the largest equipment delivered


- All items sterilized in the CSPD using EO gas including those from onsite and offsite locations

- All costs of running the new machines The project only focuses on the requirements of the CSPD and the scope excluded the following:

- Any items not sterilized using EO gas - The impact of the project on entities other than the CSPD - Long-term recommendations such as technological improvements

The team has a short-term recommendation that can be implemented by January 2013. Due to the stochastic nature of future demand and the unpredictable nature of future government regulations and technological innovations, the team cannot provide recommendations that can be implemented beyond March 2014. Further, the team did not include large-scale, infrastructural overhauls, such as technological integration, to improve overall efficiency of the sterilization process. METHODS This section discusses the methods used by the team to attain the goals reiterated below:


No departments were directly or indirectly impacted by the implementation of the methods of the team, because the team dealt with only written and digital data rather than with personnel to collect ergonomic or industrial data. To meet the goals established for the team, the team used the following methods: Data Collection The team collected data required for the project as discussed below:

- Interviewed the Materiel Services Manager, Senior Financial Manager, Maintenance Manager, and supplier of the new machines to obtain the required information.

The team conducted face-to-face interview with the Senior Financial Manager, Materiel Service Manager, and the Maintenance Personnel; the team determined which departments are being charged, what costs in the financial model must be updated, and whether charging more for sterilization would impact demand. Each team member recorded all interviewee responses using a computer and compared the records to ensure that the team recorded the correct response.

The team conducted a conference call with the supplier of the new machines, 3M, to gather information on the inner dimensions of the new machines, the reliability estimates of the new machines, inner chamber utilization rate of the


new machines, and the costs of the new machines. Again, all answers were recorded using a computer and were compared to ensure accuracy. When the team had relatively simple questions, the team simply contacted the supplier via e-mail.

- Conducted search of publications and literature relevant to the subject matter.

The team visited the Program Operations Analysis Library to search for previous IOE481 projects that were relevant to the replacement of used sterilizers with new ones. However, the team could not find relevant projects. The team also asked the Materiel Services Manager for previous projects related to sterilizer replacement, but the team could not find much relevant information.

- Collected 5 months of historical data (150 data points) on the daily quantity of items

processed and stratify the data by the types of item processed: trays, wraps, and pouches.

The team accessed the historical archive at the CSPD detailing the daily quantity of trays, wraps, and pouches processed by the CSPD and the customers who delivered the items. The team collected five months’ worth of data ranging from June to August of 2012 (150 data points). Because the data was recorded on paper, the team digitized the data by entering the data manually into Microsoft Excel. Each entry was checked by two teammates to ensure accuracy.

- Collected physical dimensions and determined the mean volume of each item type: 21

data points for trays, 49 for wraps, and 195 for pouches.

The team used a tape measure to measure the height, depth, and width of 21 trays, 49 wraps, and 195 for pouches to the nearest half inch. Then the team calculated the volume of each item by multiplying the dimensions of each item. Finally, the team averaged the volumes for each item type to find the mean volume of each item type. All calculations were performed using Excel.

Data Analyses The team conducted several statistical and financial analyses to obtain the numerical details requested by the client as discussed below:

- Fit statistical distributions into the historical data and compute the 99.9th percentile of the distributions to determine the worst-case quantity the CSPD must process for each item category.

The team stratified the daily processing quantities by item type (trays, wraps, and pouches) in Excel, and copied the data into Minitab. The team added one to all daily processing data, because some daily processing quantity was equal to zero, and Minitab required all entries to be non-zero to fit distributions. Note that each item type had 150 data points. Then the team used the Individual Distribution Identification functionality of Minitab to fit several probability distributions into the data.The team considered the p-value as well


as the Anderson-Darling statistic for picking the best-fit distribution. The team placed heavier emphasis on the p-value and picked the distribution with the p-value that was below the α threshold of 0.05. If multiple p-values were below 0.05, the team broke the ties by choosing the one with the lower Anderson-Darling Statistic. Then the team used the Probability Distribution functionality of Minitab to calculate the 99.9th percentile of the distribution. The team assumed that the 99.9th percentile is the worst case that the CSPD would have to process for statistical robustness. The team did not use the 100th percentile, as it would be infinity in a continuous probability distribution.

- Conducted linear regression analysis between every two data type (trays, wraps, and

pouches) to determine whether every pair of data types is uncorrelated and can be summed to determine the total worst-case quantity of items.

The team used the Regression functionality of Minitab to calculate the correlation and the correlation’s significance between every two data types. Again, 150 data points for each data type were compared with one another. The team used α threshold of 0.05; that is, the team assumed that a significant linear relationship between two data types existed only if the p-value is less than 0.05. If all data for each item type were not correlated with other data, the team decided that the data were uncorrelated. Further, if data were uncorrelated, the team decided to sum the 99.9th percentiles of the data to calculate the total worst-case quantity of all item types. The summation is justified, because the data for each item type are not dependent on data of other item types.

- Computed the worst-case total volume with the mean volumes and the 99.9th

percentile quantities.

The team multiplied the mean volume of each item type by the 99.9th percentile of the distribution of each item type and summed the products to calculate the worst-case total volume that must be processed by the CSPD. All calculations were performed using Excel. Again, the summation was justified, because the data were uncorrelated.

- Determined the number of new machines required by dividing the worst-case volume

by the volumetric capacity and the reliability coefficient of the new machines.

The team first calculated the inner chamber volume of the new machines (5XL and 8XL) by multiplying the chamber dimensions. The supplier provided that each model can hold items in about 87.5% of the entire inner chamber volume, because the inner chamber has fixed components that take up space. Thus, the team multiplied the inner chamber volume by 0.875 to calculate the holding capacity of each machine model.

Then the team calculated the reliability coefficient of the machines. According to the supplier, the machines should have two preventive maintenance sessions per year and that the machines and abators receive about 2.5 calls per year for service requests. The team assumed that a breakdown or a preventive maintenance would put the machine out of service for an entire day. Based on


this assumption, the team decided that a machine would be out of service for 4.5 days a year. The team then subtracted 4.5 from the total number of active days of the current machines at the CSPD and divided the result by the total number of active days of the current machines to calculate the reliability coefficient.

Last, the team divided the holding capacities by the reliability coefficient to calculate the effective holding capacities of each model. Because 5XL and 8XL have different capacities, the team tried several combinations of the 5XL and 8XL to reach a total effective capacity that can process the total worst-case volume. The team determined the number of machines that would minimize cost. The details are discussed in Findings.

Assessment and Illustration The team further assessed the data and constructed graphs to meet the client’s needs as discussed below:

- Updated the current CSPD financial model with the most recent materiel and services costs to compute the processing price per cubic inch of the capacity of the new machines.

The team used the current Excel financial model as the base model and asked the Materiel Services Manager and the Financial Manager to provide any costs that have changed over time including labor costs, sticker label costs, biological testing costs, and other miscellaneous costs. The team integrated the new costs into financial model by entering them into Excel.

The team also accounted for the new machine, preventive maintenance, and EO costs by entering the new cost data into the financial model. Also, with the help of a financial consultant who works for the hospital, the team found that the machines are depreciated to zero dollars over a 15 year period. The team accounted for depreciation in the total costs.

The team divided annual costs by the number of loads processed by a single machine over the previous year to estimate the cost per machine cycle. Then the team divided the obtained result by the cubic inch effective holding volume of the machine to calculate the per cubic inch cost of operating the new machines. Because the costs of operating the 5XL and 8XL are different, the team computed the weighted average of the per cubic inch cost of the two machines. Then the team multiplied the per cubic inch cost by the average volume of each item type to compute the price that should be charged for trays, wraps, pouches, and the microscope. All computations were performed using Excel.

- Compared the dimensions of the inner chamber of the new machines to the

dimensions of the microscope to determine whether a microscope can fit in the new machines.


The team compared the dimensions of the microscope as told by the Materiel Services Manager to the inner dimensions of the 5XL and 8XL models as provided by the supplier. The heights, widths, and depths were compared individually to ensure that the microscope can fit in at least one of the models.

- Constructed a histogram of the quantity of items processed per item type per customer

per day over the past five months to illustrate who the customers are and what they are sterilizing.

The team analyzed the historical demand data and constructed histograms by accounting for the different customers in the horizontal axes of the graph and the total quantity of items processed in the vertical axes of the graph. Because the horizontal axes became too cluttered due to the sheer number of customers, the team accounted for only the top 11 customers who sterilized the most items for each item category. All constructions were performed using Excel.

FINDINGS Using the methods discussed in Data Collection, Data Analyses, and Assessment and Illustration sections, the team found the following: Data Collection From the data collected, the team found the following:

- The interview with the Maintenance Manager revealed that all other entities that offer EO sterilization are in Detroit. Also, all customers of the CSPD are from the Ann Arbor area, and therefore, the new pricing of the sterilization services would not affect the demand for the service considering that all customers are from the Ann Arbor area.

- After communicating with the supplier, the team found that connecting two 8XL models to an abator and starting the two machines at the same time increases the cycle time of one of the machines by 1 to 5 hours. Also, connecting two 5XL models to an abator or one 5XL model and one 8XL model to an abator increases the cycle time of just one of the 5XL’s or 8XL by about 45 minutes to an hour. Given that the machines start separately, the wait times can be avoided.

- 99.9th percentiles of the daily processing quantities are: 13 trays, 30 wraps, and 329 pouches. The Minitab output for the trays, in particular, is shown below. The percentiles for other items were determined in the same fashion using Mintiab


Figure 1: Probability Plots of the Trays

In Figure 1, the Weibull distribution fits the data best with the p-value below 0.05 and the lowest Anderson-Darling statistic. Then the team entered the parameters of the Weibull distribution (shape = 1.56062 and scale = 3.84634) to calculate the 99.9th percentile of the distribution, which translates to 13.27 trays. Taking the floor function, the team found that the 99.9th percentile translates to 13 trays. Note that the team took the floor function because one was added to every entry as mentioned in the Methods section. In addition, the descriptive statistics of each item’s daily processing quantity is shown in Table 1.

Table 1: Descriptive Statistics of Daily Processing Quantity

Daily Quantity Item N Mean StDev Minimum Q1 Median Q3 Maximum Trays 150 2.438 2.323 0 0 2 4 11 Wraps 150 9.108 6.336 0 5 8 12 55 Pouches 150 72.73 58.96 0 26.75 64 101.75 343

- The mean volumes are: 682.619 cubic inches for trays, 736.265 cubic inches for

wraps, and 87.413 cubic inches for pouches. The complete descriptive statistics of the item volumes are provided below in Table 2.

Table 2: Descriptive Statistics of Item Volumes

Physical Volume (Cubic Inches) Item N Mean StDev Minimum Q1 Median Q3 Maximum Trays 21 682.6 327 180 473.8 720 800.3 1320 Wraps 49 736.3 520.4 85 161.5 828 1195 1584 Pouches 195 87.41 71.3 28 52.5 52.5 97.5 480


As shown in Table 2, the mean volumes are 682.619, 736.265, and 87.413 cubic inches for trays, wraps, and pouches. Data Analyses Through data analyses, the team found the following:

- The linear regression test shows that the daily number of trays processed and the daily number of wraps processed are uncorrelated with a p-value of 0.401. Likewise, the p-values for pouches and wraps and pouches and trays are 0.485 and 0.307, way above the significance threshold of 0.05. Therefore, all data seem to be uncorrelated.

Regression Analysis: Total Wraps versus Total Trays Total Wraps = 9.41 + 0.202 Total Trays Predictor Coef SE Coef T P Constant 9.4118 0.9965 9.45 0.000 Total Trays 0.2024 0.2404 0.84 0.401 S = 6.34305 R-Sq = 0.6% R-Sq(adj) = 0.0% Figure 2: Linear Regression Analysis of Total Wraps vs. Total Trays

Figure 3 shows that the R-Sq value is close to 0%, suggesting the lack of relationship between wraps and trays. The lack of regression relationship allows the team to estimate the worst-case quantity by adding the 99.9th percentile quantities of each item.

- Several costs, including labor, biological test, and sticker costs, have changed over time since 2008, when the first financial model was put together by the Senior Financial Manager, and required updates. The details are shown in Table 3.

Table 3: Cost Breakdown Current Future Manufacturer Steris 3M Capacity (Cubic Inches) 40,896 7,151 11,804 Model 3058 5XL 8XL Labor $17.86 $19.05 $19.05 Biological Test & Control $5.79 $5.68 $5.68 Integrator $10.07 $1.51 $1.51 Stickers/labels/misc. $1.75 $0.09 $0.15 Chem Daq $14.93 $22.22 $22.22 Ethylene Oxide $294.90 $14.13 $14.13 Maintenance $4.63 $16.30 $16.39 Depreciation $0.12 $9.34 $12.53 Total Cost Per Load $359.79 $88.31 $91.65 Cost Per Cubic Inch $0.0088 $0.0124 $0.0078

As shown in Table 3, the 3M models have a much smaller processing capacity compared to the current machine. However, the overall cost of running each machine


on a cubic inch basis is almost comparable while the 5XL model is noticeably more expensive.

- The worst-case total volume that must be processed is 59,720.825 cubic inches. Note that 59,720.825 = 682.619 * 13 + 736.265 * 30 + 87.413 * 329, or the sum of the products of each item’s mean volume with its worst-case quantity. Note that the team decided to use average volume for the following two reasons:

o The worst case scenario is already accounted for the 99.9th percentile of the daily quantity. Considering the worst case for the volume may severely overestimate the number of required machines.

o The volume data is skewed right. Taking into account the fact that most of the data is at the lower values of the distribution, the average better represents the data. For example, the pouch histogram shown in Figure 2 is skewed severely right. Other histograms are shown in the Appendix.

300240180120600

30

25

20

15

10

5

0

Quantity of Pouches

Dai

ly Q

uant

ity

Histogram of Daily Quantities of Pouches (J une - October, 2012)

Figure 3: Histogram of Daily Quantities of Pouches (June – October, 2012)

As shown in Figure 2, data is clearly skewed right with most of the mass at the left side of the distribution.

- Purchasing two 5XL machines and four 8XL machines with four abators is the most affordable way to purchase into an effective capacity of 61,331.97 cubic inches; refer to table 3 for individual capacities.

- The net cost of purchasing two 5XL and four 8XL and four abators is an initial purchase cost of $298,206.60 (derived from the quotes given to the Materiel Service Manager) with an annual maintenance cost of $2,955 per unit of 8XL, $2,926 per unit of 5XL, and $2,354 per unit of abator after the first year of purchase.

- Given the data in Table 3, the overall cost of processing a cubic inch is $0.0088. This value was obtained by summing the products of the volumetric percentages of the two 5XL and four 8XL machines of the entire capacity and the respective per cubic inch cost of each model type: 23.25% * $0.0124 + 76.75% * $0.0078 = $0.0088.

- Multiplying the above cost per cubic inch by the average volume of each item, the team estimated the cost of processing each item as shown in Table 4:


Table 4: The Cost of Processing Each Item Tray Wrap Pouch Mean Volume (Cubic Inches) 682.619 736.265 87.4128 Cost $6.03 $6.50 $0.77

- Given that the 5XL and 8XL are run only once a day, connecting four abators to six

machines reduce the overall processing capacity by only about 0.03%. This reduction is entirely due to reliability. That is, if two machines are connected to one abator, each of those machines would be available for 2.5 less days due to the failure of the abator.

Assessment and Illustration From further assessing and illustrating data, the team obtained the following:


- From June to October of 2012, 94.01% of the trays were not charged for service; the corresponding numbers are 63.01% for wraps, and 44.56% for pouches; again, onsite operating rooms are not charged. Bar graphs of the average daily quantities of items and the corresponding customers are shown below. For illustrative purposes, the bar graphs below show only the top 11 customers who sterilized the highest quantities.

Figure 4: Bar Graph of Daily Quantity of Trays

As shown above, the top three customers are Kellogg OR, Main OR, and Mott OR. None of them are charged for the service, and their trays account for 93.06% of the average daily volume from June to October, 2012.


Figure 5: Bar Graph of Daily Quantity of Wraps

The top three customers are Main OR, Cardiovascular Center (CVC) OR, and Mott OR. None of them are charged for the service, and their wraps account for 56.59% of the average daily volume from June to October, 2012.

Figure 6: Bar Graph of Daily Quantity of Pouches

The top three customers are Central Sterile Supply (CSS), Oral Surgery, and CVC OR. Only Oral Surgery is charged for the service, and the top three customers’ pouches account for 36.02% of the average daily volume from June to October, 2012. 66 different customers sterilized pouches.

- The microscope, the largest item, has a volume of about 7,776 cubic inches (36 x 18 x 12) according to the Materiel Services Manager.


- It costs 7,776 * $0.0078 = $60.38 to process a microscope; 8XL model costs $0.0078 per cubic inch.

- The microscope can fit only in the 8XL model. CONCLUSION Based on the findings, the team concluded the following:

- Purchasing two 5XL machines and four 8XL machines with four abators is the most affordable way to purchase into an effective capacity of 61,331.97 cubic inches; the net cost would be an initial purchase cost of $298,206.60 (derived from the quotes given to the Materiel Service Manager) with an annual maintenance cost of $2,955 per unit of 8XL, $2,926 per unit of 5XL, and $2,354 per unit of abator after the first year of purchase.

- Connecting one 5XL model to an abator or one 8XL model to the same abator and running the two machines at the same time increases the overall cycle time by about 45 minutes to an hour. If the machines start separately, the wait times can be avoided.

- It would cost about $6.03 to process a tray, $6.51 to process a wrap, and $0.77 to process a pouch.


- From June to October of 2012, 94.01% of the trays were not charged for service; the corresponding numbers are 63.01% for wraps, and 44.56% for pouches. This shows that most of the costs of running the machines are internalized given that most of the volume comes from the onsite operating rooms.

- The microscope, the largest item, can only be processed by the 8XL model. - It costs $60.38 to process a microscope; 8XL model costs $0.0078 per cubic inch.

RECOMMENDATIONS Based on the conclusions, the team recommends the following:

- Purchase two 5XL and four 8XL machines along with four abators - Charge $8 per tray, $8 per wrap, and $2 per pouch

o The prices are calculated by rounding up the per item cost to the nearest dollar and adding a dollar premium.

o The dollar premium was added as a buffer against the variations in item sizes. Note that the standard deviations for trays, wraps, and pouches are 327, 520.4, and 71.3 cubic inches respectively. These standard deviations translate to $2.89, $4.60, and $0.63 respectively.

- Charge $62 per microscope o The dollar premium here accounts for the fact that the team never measured

the actual dimensions of the microscope. The dimensions were numbers estimated by the Materiel Services Manager.

- When operating the machines, always start the first two 8XL machines that are connected to abators that also have 5XL machines attached to them. The specific directions are provided in a flow chart shown in Appendix.


o Connecting one 5XL model to an abator or one 8XL model to the same abator and running the two machines at the same time increases the overall cycle time by about 45 minutes to an hour. If the machines start separately, the wait times can be avoided. Therefore, to prepare for the worst case, it would be prudent to start the 8XL machines that are connected to abators along with 5XL models to minimize cycle times and ensure maximum capacity for worst case scenario.

EXPECTED IMPACT The team expects the project to impact the CSPD in the following way:

- The team expects that the new pricing would help the CSPD offset costs effectively and robustly by taking into account the variability of dimensions in the different products.

- The team expects that the CSPD would be able to meet demand effectively using the new operation plan by cycling the machines as soon as possible and accounting for the worst-case scenario.

- As mentioned in Introduction, the CSPD is considering the purchase of two 5XL and four 8XL machines and six abators, all of which are manufactured by 3M. The team recommends purchasing four abators rather than six. This would save $38,404.60 in equipment cost and $18,601 in maintenance costs per machine according to the discounted cash flow analysis shown in Table 5. Discount rate of 3%, or the yield rate of the University Hospital’s bond, and the mid-year convention were used to estimate the net present value of the savings. Overall, the team expects the University Hospital to save $75,607.39.

Table 5: Net (NPV) Savings of Maintenance Costs Present Value Abator Maintenance

Year 1 2 3 4 5 6 7 8 9

Outflow $2,354.00 $2,354.00 $2,354.00 $2,354.00 $2,354.00 $2,354.00 $2,354.00 $2,354.00 $2,354.00

PV $2,319.47 $2,251.91 $2,186.32 $2,122.64 $2,060.81 $2,000.79 $1,942.52 $1,885.94 $1,831.01

NPV $18,601.40 RISK FACTORS AND NEXT STEPS While the team has conducted the project using thorough statistical analysis, several risks exist in the project. For one, the team used rough estimates of the reliability coefficients of the new sterilizers, because the supplier, 3M, lacked detailed information on reliability. Further, the team was not able to take into account seasonality and fluctuations in demand throughout the year due to limited time the team had for data collection. Therefore, the team strongly recommends that the CSPD proceed with further study on reliability and seasonality variations. Further, the team recommends that the CSPD digitize all of its paper records of previous demand history to ease the recordkeeping, access, and analyses of the data. Last, the team recommends that the CSPD update its financial cost model annually to account for the change in costs, as costs have changed dramatically over the past few years.


APPENDIX

Figure 7: Flow Chart


Regression Analysis: Total Wraps versus Total Trays The regression equation is Total Wraps = 9.41 + 0.202 Total Trays Predictor Coef SE Coef T P Constant 9.4118 0.9965 9.45 0.000 Total Trays 0.2024 0.2404 0.84 0.401 S = 6.34305 R-Sq = 0.6% R-Sq(adj) = 0.0% Figure 8: Regression Analysis: Total Wraps versus Total Trays Regression Analysis: Total Pouches versus Total Wraps The regression equation is Total Pouches = 67.9 + 0.575 Total Wraps Predictor Coef SE Coef T P Constant 67.915 9.783 6.94 0.000 Total Wrapped 0.5754 0.8209 0.70 0.485 S = 59.0762 R-Sq = 0.4% R-Sq(adj) = 0.0% Figure 9: Regression Analysis: Regression Analysis: Total Pouches versus Total Wraps Regression Analysis: Total Pouches versus Total Trays The regression equation is Total Pouches = 65.8 + 2.29 Total Trays Predictor Coef SE Coef T P Constant 65.844 9.260 7.11 0.000 Total Trays 2.294 2.234 1.03 0.307 S = 58.9473 R-Sq = 0.8% R-Sq(adj) = 0.0% Figure 10: Regression Analysis: Total Pouches versus Total Trays


Inverse Cumulative Distribution Function Weibull with shape = 1.56062 and scale = 3.84634 P( X <= x ) x 0.999 13.2700 Figure 11: Inverse Cumulative Distribution Function: Weibull Inverse Cumulative Distribution Function Logistic with location = 9.61968 and scale = 3.0005 P( X <= x ) x 0.999 30.3434 Figure 12: Inverse Cumulative Distribution Function: Logistic Inverse Cumulative Distribution Function Largest Extreme Value with location = 48.5612 and scale = 40.6775 P( X <= x ) x 0.999 329.531 Figure 13: Inverse Cumulative Distribution Largest Extreme Value


140012001000800600400200

12

10

8

6

4

2

0

Tray Volume (Cubic Inches)

Freq

uenc

yHistogram of Tray Volume (21 Trays)

Figure 14: Histogram of Tray Volume

160012008004000

12

10

8

6

4

2

0

Wrap Volume (Cubic Inches)

Freq

uenc

y

Histogram of Wrap Volume (49 Wraps)

Figure 15: Histogram of Wrap Volume


Table 5: Daily Volume of Wraps Wraps

Dept. Daily Vol. 5 Month Vol. Percentage

# Depts.

Not Charged

MAIN OR 2.73 410 34.63% 37 63.01% CVC OR 1.01 152 12.84%

MOTT OR 0.72 108 9.12% 4B 0.65 98 8.28% ST. JOSEPH 0.62 93 7.85% KELLOGG OR 0.51 76 6.42% CARDIO. MOTT 0.30 45 3.80% ECMO LAB 0.25 38 3.21% ULAM GERM 0.21 31 2.62% MOLE. PHYS. 0.13 19 1.60% OTO 0.10 15 1.27% Germ Free 0.09 14 1.18% MAIN REP. 0.06 9 0.76% NEUROSURG. 0.06 9 0.76% Guatemala project 0.05 8 0.68% INTERNAL MED 0.04 6 0.51% 4DN 0.03 5 0.42% CGC 0.03 5 0.42% GEN. SURG. 0.03 5 0.42% PAIN CLINIC 0.03 5 0.42% ECMO 0.03 4 0.34% RESP CARE 0.03 4 0.34% SLEEP LAB 0.03 4 0.34% DENTAL SCHOOL 0.02 3 0.25% Angio X-Ray 0.01 2 0.17% DERM. SURGERY 0.01 2 0.17% IR 0.01 2 0.17% MRALLS 0.01 2 0.17% PHARMAC. 0.01 2 0.17% Adult Otolaryngology 0.01 1 0.08% MILLER 0.01 1 0.08% MYECKLAB BIOMED 0.01 1 0.08% O&P 0.01 1 0.08% RAD. ONC. 0.01 1 0.08% REHAB ENGINEERING 0.01 1 0.08% REP 0.01 1 0.08% Scott Green EE 0.01 1 0.08%


Table 6: Daily Volume of Trays Trays

Dept. Daily Vol.

5 Month Vol. Percentage

# Depts.

Not Charged

KELLOGG OR 1.68 252 79.50% 11 94.01% MAIN OR 0.18 27 8.52%

MOTT OR 0.11 16 5.05% ST. JOSEPH 0.07 10 3.15% CVC OR 0.02 3 0.95% IR 0.02 3 0.95% NEUROSURG. 0.01 2 0.63% 4B 0.01 1 0.32% ECMO LAB 0.01 1 0.32% PHARMAC. 0.01 1 0.32% RAD. ONC. 0.01 1 0.32%


Table 7: Daily Volume of Pouches Pouches

Dept. Daily Vol. 5 Month Vol. Percentage

# Depts. Not Charged

CSS 7.69 1154 12.21% 66 44.56% ORAL SURG. 7.55 1132 11.97%

CVC OR 7.47 1120 11.85% KELLOGG OR 6.26 939 9.93% MAIN OR 5.03 755 7.99% CCSS 3.34 501 5.30% CARDIO. MOTT 2.95 442 4.67% ST. JOSEPH 2.79 418 4.42% CVC EP LAB 2.43 364 3.85% PHARMAC. 2.35 353 3.73% MOTT OR 1.57 235 2.49% CVC OR EP 1.33 200 2.12% DERM. SURGERY 0.97 145 1.53% PED/CARDIO 0.81 121 1.28% EP LAB MAIN 0.72 108 1.14% PROCED. RM 30 0.67 100 1.06% 4B 0.65 98 1.04% PM&R 0.65 97 1.03% ACP 0.56 84 0.89% INTERNAL MED 0.54 81 0.86% EP LAB MOTT 0.47 70 0.74% CARDIO. MAIN 0.43 65 0.69% MOTT CATH LAB 0.43 65 0.69% RAD. ONC. 0.41 61 0.65% MAIN REP. 0.35 53 0.56% MOTT DP 0.34 51 0.54% URBAN CHEK 0.33 50 0.53% ULAM GERM 0.33 49 0.52% PACU 0.31 47 0.50% SPH 0.28 42 0.44% IR 0.27 41 0.43% ENT Rm 2-3 0.24 36 0.38% BIOMED 0.21 32 0.34% ANGIO X-RAY 0.18 27 0.29% REP 0.17 26 0.27% ECMO 0.17 25 0.26% ADULT EP LAB 0.15 23 0.24% Briarwood 0.15 23 0.24%


DERM. CLINIC 0.15 23 0.24% UROLOGY 0.15 22 0.23% ECMO LAB 0.13 20 0.21% Team 3 CC 0.10 15 0.16% SLEEP LAB 0.07 11 0.12% ASOR 0.07 10 0.11% DERM. RESEARCH 0.07 10 0.11% COSMETIC DERM 0.06 9 0.10% GERM FREE 0.06 9 0.10% REHAB ENGINEERING 0.06 9 0.10% Plastic Surgery 0.06 9 0.10% NEUROSURG. 0.05 8 0.08% DENTAL SCHOOL 0.05 7 0.07% East AA 0.05 7 0.07% O&P 0.05 7 0.07% WINGER 0.05 7 0.07% 4DN 0.04 6 0.06% TEAM 3 URO 0.03 5 0.05% CGS Derm & Laser 0.03 4 0.04% EMB 0.03 4 0.04% PCTU (POD A) 0.03 4 0.04% PED/EPILEPSY 0.03 4 0.04% CDLC - TAUB. 0.02 3 0.03% GEN. SURG. 0.02 3 0.03% ART LAB 0.01 2 0.02% EOB 0.01 2 0.02% DR. DENIO 0.01 1 0.01% RESP CARE 0.01 1 0.01%

university of michigan health system program and ...ioe481/ioe481_past_reports/f1201.pdfsteve kim,...

Documents