INVENTORY MANAGEMENT IN GENERAL STORES OF A TERTIARY

INVENTORY INVENTORY MANAGEMENT IN MANAGEMENT IN GENERAL STORES OF A GENERAL STORES OF A TERTIARY CARE TERTIARY CARE TEACHING HOSPITALTEACHING HOSPITAL

Abstract:Abstract:The study is carried out in general stores at

a tertiary care teaching hospital with emphasis on inventory management.

The study was carried out in two phases.• Selective Inventory Control- ABC Inventory

classification was applied and analyzed in the first phase.

• An over all analysis of inventory was done in the second phase.

• We’ll discuss about Inventory management first.

INTRODUCTIONINTRODUCTION

The dictionary meaning of the word INVENTORY is “stock of goods”.

The classical definition of inventory is that it is an idle resource of any kind having an economic value.

WEBSTER has defined inventory as “the quality of goods and

materials in hand”.

Horsley has defined true inventory as

the sum total and cost of all supplies official and unofficial wherever they may be stored, that have not yet been used.

Hospital inventory consists of the material that a hospital carries into storage area. This represents a sizeable portion of a hospital asset.

NATURE OF INVENTORIESNATURE OF INVENTORIES

INVENTORIES can be classified in terms of its different uses. Inventory can be Segregated according to the usage and point of entry in the operations as:

Raw material Consumables Bought out components

Machinery spare parts Scrap Packing material Work-in progress Finished goods.

TYPES OF INVENTORYTYPES OF INVENTORY

OFFICIAL INVENTORY - is that which is brought into a storage space or unit, counted and controlled unit list is dispensed to a using department. Example:

medical and surgical store inventory

pharmaceuticals items dietary items like cereals, pulse etc engineering item

linen item any other items

UNOFFICIAL INVENTORY - it is those supplies that have been expensed and dispensed from the central stores to the various departments and unit where they are stored until stored such as wards, OT, ICU, dialysis, OPD etc.

INVENTORY CONTROLINVENTORY CONTROL

INVENTORY CONTROL - is basically a managerial function to keep the inventory at minimum Quality so that at a particular point of time there is minimum dead stock and minimum money in blocked. This minimum quantity should be sufficient to run the supply.

According to Stafford, the inventory control system in

hospital is “ valuable management tools for monitoring large supplies of materials, for ensuring a smooth out” orderly flow of materials and containing costs and generating greater efficiently.

According to Timmappaya, the inventory control is basically

a scientific system which indicates as to what to order, how much to order and how much to stock so that the purchasing and storage cost are kept as low as possible. It is a tool of management used to maintain an economic minimum investment in materials for obtaining financial return.

INVENTORY CONTROLINVENTORY CONTROL

Inventory control is the function , which attempts to maintain stock at their level.

it has four main PURPOSES To ensure that stock does not rise so

high that all the company’s capital is out of circulation.

To maintain the balance of the stock. To maintain the accuracy of the

accounts. To guard against theft, depreciation

and obsolescence.

The function , which measures the stock at regular interval, compares it with planned levels and feed backs warning of variances.

The AIM of inventory control are:

To conserve the capital To maintain balance To maintain the accuracy of the

accounts

With stock control by steps of order release inventory control and production control are fully integrated

With all other system, they are closely related but separate.

In inventory control, we are mainly concerned with the quantity and value of stock, checking the balance, loss, depreciation and obsolescence and reconciliation between the actual accounting stock.

The term inventory control is often used to cover the control of all other assets as well as stock.

OBJECTIVES OF INVENTORY CONTROLOBJECTIVES OF INVENTORY CONTROL

To reduce the financial investment in inventories.

To minimize idle time by avoiding stock outs and shortage

To avoid losses from inventory obsolescence

To improve quality care

AIM & METHODOLOGY

AIMAIM

To study the inventory management techniques followed in general stores of a tertiary care teaching hospital.

METHODOLOGYMETHODOLOGYThe study was carried out in the

general stores at a tertiary care teaching hospital in two phases as follows:

Phase 1 A prospective study was conducted

between 1st APRIL 2006 TO 31st 2007. Selective inventory control-ABC inventory classification was applied and analyzed.

Phase IIPhase II

A prospective study was

conducted for a period of one month from 1st August 2007 to 31st August 2007 to do an ‘overall analysis’ of the inventory. The analysis was done in two parts:

Analysis 1Analysis 1

1. The trend in the inventory was studied by perusing the records for last five years. The average annual inventory was calculated as follows:

(a) The opening and closing stock was considered for each month of a year.

(b) Average inventory for a month was calculated as follows:

CONT..CONT..Average inventory =Opening Stock +

Closing stock (c) The average inventory for a year was

calculated by taking the mean of monthly inventories.

(d) This was extended for last five years.

CONT..CONT..2. The trend in annual inventory turnover was

studied by perusing the records for last five years.

The annual inventory turnover was studied by perusing the records for last five years. The annual inventory turnover was calculated as follow:

(a) The total sales/issues from the stores in each year were considered.

(b) This was divided by the average inventory for that year.

(c) This was extended for last five years.

Analysis 2Analysis 2The concept ‘vendor-based’ inventory as

applicable to the stores was analyzed as follows:

(1) A detailed discussion was done with the finance Manager of the hospital.

(2) The fraction of inventory , on the last day of each month , and inventory within 30 days of the procurement date, was calculated. this fraction represented the ‘vendor based’ inventory. Relevant software, available in the general stores, was used for this calculation.

CONT..CONT.. (3) Data, for final calculation, was taken from

successive months to nullify the skewing effect.

(4) The last 16 successive months were taken,

for the final calculation, starting from august 2007.

(5) The calculation of sample size of 16 was done at a significance level of 5% and with a permissible error of 3% ‘Epi-info’ software was used.

ABC ANALYSISABC ANALYSIS

This is known as Always Better Control.

This is also known as pareto’s law.(vilfredo pareto)

In this analysis the items are classified in three categories A,B,C.

‘A’ grade items accounting for 70% of total inventory value.

‘B’ grade items accounting for 20% of total inventory value.

‘C’ grade items accounting for 10% of total inventory value.

The capital locked up in the A category items are should be low as possible

Total number of minor items in stores is 2273. ABC category

Item category Annual consumption Numbeof items number of cost(in%), items (in

%)

A 70% 217 9.55% B 20% 513 22.57%

C 10% 1543 67.88%

The A category items are most valuable items and bear the maximum cost.

The B category items are valuable items but they are least valuable item as compare to A.

The C category items are large in quantity but the price of these items are low as compare to A & B.

The methodology for idntifying various category of items is as follows : steps are;

The cost of each items of the inventory is multiplied by the total quantity used during the given time,usually annual usage of the items.

The items are arranged in descending order of the

numerical value.

The cumulative valye of the items written aganinst each in the next column.

The cut off points are drawn at various level

ABC ANALYSIS- BENEFITS

ACTIVITYACTIVITY GP AGP A GP BGP B GP CGP C

FrequencyFrequency MoreMore LessLess LeastLeast

Turnover/Turnover/ConsumptionConsumption

HighHigh MediumMedium LowLow

Level of ControlLevel of Control StrictStrict ModerateModerate RoutineRoutine

Estimates for Estimates for PurchasePurchase

Very RigidVery Rigid RigidRigid ConservConservativeative

Safety StockSafety Stock LowLow ModerateModerate HighHigh

Level of CostLevel of Cost TopTop MiddleMiddle LowerLower

MonitoringMonitoring Very StrictVery Strict StrictStrict ModeratModeratee

Inventory AnalysisInventory Analysis

Inventory analysis is a systematic analysis of all items in stores for achieving the objectives of effective inventory control

The three levels of analysis are ;overall analysisCategory analysisIndividual item analysis

Overall analysis◦Inventory carrying index◦Compare-Purchase & consumption

with receipt & issue◦Takes a bird’s eye view of total

inventory over a period of time to find out existence Individual item analysis

Category analysis

◦ Second level of analysis wherein stocks of ech category of similar items is analysed

◦ like antibiotics,analgesic,expectorant etc.

◦ In order to achieve optimum stock levels and effective controls, the management should fix levels for each category of items acording to nature of items, lead time etc.

Individual item analysis◦It is desirable to classify/group the

items, and subject each class/group to control, commensurating with its importance. This item may be classified/grouped according to their value, utility, consumption, lead time etc.