Materials management - Inventory management

Materials Management

Dr. Rizwan S A, M.D.,

2CCM, AIIMSRizwan S A

Outline

• Introduction• Need for materials management• Components of materials management• Details of Inventory management• Managing equipment• Managing drugs


Outline



Introduction

• Objective of ‘Materials Management’– To establish and operate • an efficient and effective system • that ensures supply of required quantity and quality of

materials • when and where it is needed

• A neglected area in health field – esp. public services


Outline



Need for materials management - 1

• Financial benefit–Materials make upto 40% of total expense in

health centres – Effective management can release funds for other

purposes

• Better availability of materials– Adequate supply of right material at the right place

whenever required– Avoid out-of-stock situations


Need for materials management - 2• Complexity in health sector– Technical, non-technical, consumable and non-consumable

items peculiar to health sector

• Cold chain– Vaccines to be maintained in cold chain from the point of

manufacture to point of use

• Contraceptive supply– High priority, must be available at all times throughout the

country

• Scope for improvement– Cost-effectiveness mostly ignored in public sector


Outline



Components of Material Management in Health Services

• Identification of items

• Estimating demand

• Purchase and procurement

• Inspection and quality control

• Storage

• Inventory control

• Issue procedure

• Maintenance, repair, condemnation

• Information system







• Storage


• Issue procedure




Identification of items

• Large number of aggressively marketed drugs under proprietary names

• A hospital committee – to decide the list of drugs to be purchased (based on prevalent morbidities and funds)

• Prefer cheap & safe generic drugs to costly proprietary drugs







• Storage


• Issue procedure




Estimating demand - 1

• From previous trends – monthly, quarterly or annual requirements can be estimated

• Unusual occurrences (epidemics) sh. be taken into account

• Eg. Estimating vaccine requirement in PHC



• Estimating vaccine requirement– No. of beneficiaries, No. of doses of each vaccine, Wastage

factor, No. of sessions– E.g. Requirement of TT for pregnant women• A HSC with 5000 population and birth rate of 30/1000• 150 births with 10% pregnancy wastage = 165• Total TT doses 165 X 2 = 330 doses

– E.g. For children• Birth rate, IMR, no. of infants alive at one yr. of age• Wastage factor for DPT, OPV = 1.33, BCG, Measles = 1.33 for 5 dose

vial, 2 for 10 dose vial• No. of doses divided by no. of doses per vial will give the no. of

ampoules/vials required



• Estimating IFA requirement– No. of pregnant mothers = 165– No. of tablets required = 16500– 50% of women will be anaemic and require extra

100 tablets– So total required will be = 16500 + 8250

• Similarly requirement for IFA (paed), ORS, Septran can be calculated







• Storage


• Issue procedure




Purchase and procurement

• Objective – maximum value for rupee spent and have minimum of delay

• Centralised Ordering in bulk makes negotiating easy and reduces cost,

eliminate middleman, quality control Disadvantages – delay in supply, consumer dissatisfaction

• Decentralised Peripheral units buy their own supplies, avoids delay,

consumer satisfied, flexibility, Disadvantages – office work increases, lack of interest or

expertise


Procurement in PHC

• Indenting from District level/CMO• Action plan form (form 2) • Supplies are received quarterly, but earlier

replenishment can be requested







• Storage


• Issue procedure




Inspection and quality control

• ISI or ISO standards of the items should be looked for before purchasing

• Once the goods are received it must be checked for quality and quantity







• Storage


• Issue procedure




Storage

• Separate for medical and non-medical items• Adequate facilities – light, ventilation,

cupboards, shelves/racks, refrigerators• Narcotics and dangerous drugs in locked

cupboard• Storage free from vermin







• Storage


• Issue procedure




Inventory control

• Inventory – A complete list of items such as goods in stock,

drugs, equipment

• It is method of maintaining stock of items– At a level at which purchasing and stocking costs

are the lowest possible –Without interference with supply







• Storage


• Issue procedure




Issue procedure - 1

• A procedure that saves time, reduces paperwork and prevents duplication

• Written indent for issues to various depts., special rules for dangerous and costly drugs

• First In First Out principle– Keeping older stock in the front and newer stock at the back

• Push or allocation system– Decision making at the top level

• Pull or requisition system– Peripheral outlets draws stock from central stores

• Mixed system


Issue procedure - 2

• Maintain Stock Register

• The pharmacist or the user sh. be asked to maintain a separate register for entering daily usage of each item

• At the end of each month the balance sh. be checked physically







• Storage


• Issue procedure




Maintenance, repair & condemnation

• Vehicles – keeping maximum proportion of vehicles roadworthy

• Expensive equipment require proper maintenance, convince staff for proper cleaning inspection and reporting about equipment

• Condemnation committee formed for worn out objects







• Storage


• Issue procedure




Information system

• Meticulous record keeping is absolutely essential to justify actions

• A BIN CARD – it is a record of receipt, issue and stock in hand – maintained for each item separately

• Stock verification regularly to ascertain physical quantity


Outline



Inventory management - 1• It is method of maintaining stock of items– At a level at which purchasing and stocking costs are the

lowest possible – Without interference with supply

• There should be a balance in stocking– If large quantities of drugs are purchased there will be no problem of

supply and out-of-stock situation– But maintaining large amount of items is like storing money which

could have been used for other useful purpose– A large stock will require space and staff to manage it– Pilferage, loss, expiry, better and newer cheaper alternatives– The yearly carrying cost of inventory is about 25%


Inventory management - 2• Managing inventory in a systematic way avoiding over or

under stocking is a scientific process• General principal

– Fast moving items which have large consumption must be ordered frequently while maintaining a safety buffer stock

– Items which have small consumption must be ordered frequently with a large buffer stock

• Some techniques– ABC analysis – VED analysis– SDE analysis– FSN analysis


ABC Analysis - 1

• Divides inventory into three classes based on annual cost Class A - high annual cost Class B - medium annual cost Class C - low annual cost

• Category A drugs should get high priority because they account for bulk of expenditure, their consumption, purchase must be critically watched


Item Stock

Number

Percent of Number of

Items

Annual Volume (units) x

Unit Cost =

Annual cost

Percent of Annual

cost Class

Item1 20% 1,000 $ 90.00 $ 90,000 38.8% A

Item2 500 154.00 77,000 33.2% A

Item3 1,550 17.00 26,350 11.3% B

Item4 30% 350 42.86 15,001 6.4% B

Item5 1,000 12.50 12,500 5.4% B

Item6 600 $ 14.17 $ 8,502 3.7% C

Item7 2,000 .60 1,200 .5% C

Item8 50% 100 8.50 850 .4% C

Item9 1,200 .42 504 .2% C

Item10 250 .60 150 .1% C

72%

23%

5%

ABC Analysis - 2


A Items

B ItemsC Items

Perc

ent o

f ann

ual c

ost 80 –

70 –60 –50 –40 –30 –20 –10 –

0 – | | | | | | | | | |

10 20 30 40 50 60 70 80 90 100

Percent of inventory items

ABC Analysis - 3


Criteria other than annual cost may also be used Delivery problems Quality problems High unit cost

ABC Analysis - 4


VED analysis

• Vital (10%) - life saving drugs, no alternatives, can’t afford to have out-of-stock

• Essential (40%) - absence can be tolerated for short stretches and alternatives are available

• Desirable (50%) – absence can be tolerated for longer periods


Combined ABC and VED

• Cat I – continuously monitored, keep minimum safety stock to reduce carrying cost

• Cat II – mid level managers, low priority, moderate control• Cat III – low level managers, high buffer stocks, lower priority

V E D

A AV AE AD Category I – 15%

B BV BE BD Category II – 40%

C CV CE CD Category III – 45%


SDE analysis• Scarce – imported, frequently in short supply• Difficult – difficult to obtain in quantity or quality• Easy – easily available

FSN analysis• Fast moving – large consumption• Slow moving – small consumption

• Non-moving – obsolete drugs, lockup space and funds and

usually condemned due to expiry


Methods of ordering

• Two bin system• Cyclic system• Economic order level


Two bin system

• New order is placed when stocks reach a predetermined level for which following information is required

Lead time – the interval between placing order and receiving supply, may vary from item to item

Buffer stock – stock maintained as insurance against variations in consumption

In RCH, for very crucial items recommended buffer is 10% and 5% for rest of the items

Reorder level – the level at which new order is placed, equals the amount that will be consumed in the lead time plus buffer stock


Cyclic system

• Various items are checked with certain periodicity called review period– Find out consumption, balance in hand– The period between orders is fixed

• The quantity ordered depends upon lead time– It the lead time is less than the review period, the

amount ordered will be the difference between maximum stock and stock in hand


Reorder Points

The reorder point (ROP) tells when to order

ROP = Lead time for a new order in days

Demand per day

= d x L

d = DNumber of working days in a year


Reorder Point Curve

Q*

ROP (units)

Inve

ntor

y le

vel (

units

)

Time (days)Lead time = L

Slope = units/day = d


Reorder Point Example

Demand = 8,000 tablets per year250 working day yearLead time for orders is 3 working days

ROP = d x L

d = D

Number of working days in a year

= 8,000/250 = 32 tablets

= 32 tablets per day x 3 days = 96 tablets


Fixed period systemO

n-ha

nd in

vent

ory

Time

Q1

Q2

Target quantity (T)

P

Q3

Q4

P

P


Variable demand with reorder point

Reorderpoint, R

Q

LT

Time

LT

Inve

nto

ry le

vel

0


Reorder point with safety stock


Economic order quantity

• It is the order quantity that minimizes total inventory holding costs and ordering costs

• EOQ is fixed for each item taking into account– Annual requirement– Cost of carrying inventory– Cost ordering

• We want to determine – the optimal number of units to order – so that we minimize the total cost associated with the

purchase, delivery and storage of the product


Economic order quantity

• Variables needed to calculate EOQ = optimal order quantity Q = order quantity D = annual demand quantity S = fixed cost per order (typically cost of ordering and shipping and

handling. This is not the cost of goods) H = annual holding cost per unit (carrying cost) (warehouse space,

refrigeration, insurance, etc. usually not related to the unit cost)



EOQ Model - advantages

• The EOQ model is robust

• It works even if all parameters and assumptions are not met


Outline



Managing equipment

• Four main proceduresOrdering -(obtaining from stores)Storing -(recording, labelling, holding)Issuing -(giving out, recording the issue and

balancing the stock, signed voucher)

Controlling/maintaining


Ordering equipment

• Making list– A list of all required items, the exact quantity

• Balancing needs and resources– Making a cost estimate

• Using a catalogue• Completing order/requisition form


Storing equipment

• Equipment is stored in 2 places– A main store where stocks are kept– The place of use

• Receiving new items– Noting in the stock register, the date, reference

number, invoice number, and quantity of items

• Keeping ledger balance after issue


Issuing equipment

• Ledger record– The issue of items is noted and the balance is

entered– Issue voucher is an official form with date,

quantity, department of use, recipient, and sign


Controlling/maintaining

• Convincing staff that equipment must be cleaned, inspected and kept in good order, defects must be reported immeddiately

• Inspection checklist and inspection schedule• Detecting discrepancies and taking action• Keeping accurate equipment records


Outline



Managing drugs - 1

• The objective of managing drugs is to use drugs wisely and avoid wasting them

• Educate staff about use of drugs– Notes on common drugs– Correct doses– Discuss wastage in staff meetings– Lecture/discussion on common drugs

• Educate patients


Managing drugs - 2

• Preparing a standard drug list– Selected from a list of essential drugs– Depending upon common diseases in the hospital– New drugs availability– Budget

• Estimating requirement; ordering and stocking


Managing drugs - 3

• Stock-card system– Sometimes used instead of a ledger


Managing drugs - 4

• A/B or Double-shelf system– when shelf A is used up order is

placed for new stock– Part B will be used up by the

time the new order arrives

• Issuing and controlling use of drugs• It helps in identifying when stocks need reordering,

checking usage against treatment, detecting discrepancies, check usage in different depts.


Managing drugs - 5

• Controlling life saving drugs–Make a list of such drugs– Place them together in one shelf– Check frequently, Order new supply when

depleted to half

• Prepacking drugs for outpatient


Eg. TNMSC Model

• TNMSC, the state government's drug procurement agency, is considered among the best centralized and efficient public sector drug procurement mechanism in the country

• Primary objective - ensure ready availability of all essential drugs and medicines

• These improvements have helped bring down the average cost of drugs for inpatients in Tamil Nadu’s public hospitals to Rs. 102, (3,268 Haryana, 2,166 Himachal Pradesh, 3,187 Rajasthan)


Exercises

• You are the MOIC of PHC Chhainsa1. Calculate the number of ORS packets required

for this year

2. Calculate the requirement of BCG and Measles doses required for this quarter

3. Calculate the requirement of Paediatric Septran tablets for this year

Thank you

Health & Medicine

Materials management - Inventory management