Material Managament in Hospital.pptx

A brief description of Material Management in Hospitals.

1. Brig Gen Dr Zulfiquer Ahmed Amin M Phil, MPH, PGD (Health Economics), MBBS North South University (NSU) Material Management in Hospital

2. Definition: Material Management is the coordinated function responsible to plan for, acquire, store, move and control materials to provide customer service in accordance with organizational goals.

3. Materials constitute a significant expenses in hospital activity. Hence, efficient buying and utilization to meet the need or demand of hospital is the function of material management.

4. Recurring expenditure of a hospital includes: 60%- On salary of employees 12-40%- On materials 5-7%- On non-material resources (Quiet places, beauty, security, garden and safety). Thus, an effective material management can contribute in cost containment of a hospital.

5. Aim of Material Management Right material, in right quantities, at right time, at right price, from right sources, at a least cost.

6. IMPORTANCE OF MATERIAL MANAGEMENT Optimum materials acquisition. Prospect of cost reduction . Reduction in inventories and storage space . Reduction in damage to materials . Smooth flow of production. Better utilization of resources . Effective issue and distribution. Elimination of losses and pilferage . Greater profit and better patient-care

7. Material Planning Material Planning is the scientific method of determining the requirements of consumables , raw materials, spare parts and other miscellaneous materials essential for the production plan implementation.

8. Demand Forecasting is the method of estimating demand, based on time-series analysis of past , while anticipating the future. Demands for materials could be certain or predictable, and uncertain or unpredictable. By keeping in the view of uncertainty and allowance, it is required to include two aspects in forecast output i.e. estimation of demand in the best way and error estimation to creep in the forecast.

9. Methods of Forecasting Demand Methods of forecasting demand: Last Period Demand Arithmetic Average Moving Average Last Period Demand - Naïve forecasting or Last Period Demand assumes that demand in the next time period will be the same as demand in the last time period. - For example, if a retailer sells 600 BP Machines in February , the naïve forecast would be for demand of 600 BP Machines in March . -This approach rules out all the types of fluctuation – like seasonal variation, pandemic situation etc.

10. Arithmetic Average Method • Arithmetic Average Method simply takes the average of all past demands for a certain period in arriving at forecast. • The arithmetic average works well in a stable situation where the level of demand does not change. It neglects seasonal fluctuations , pandemic etc. Moving Average Forecasting 3-Month Moving Average = (M1+M2+M3) / 3 A three month moving average, for instance, takes the average demand per month of the three preceding months and updates the calculation for each month.

11. Moving Average Method of Forecasting: Instead of using the most recent period to forecast demand for the next period, a moving average uses the average demand from a series of preceding periods to forecast the next period’s demand. The moving average mitigates the effects of random variations . Advantages of Moving Average Forecasting

12. Standardization of Demand Standardization is grouping together items of similar specification , use or application to enable hospital to chose one out of the many similar options. It ensures: Non-duplication of inventory Variety reduction Economical purchase cost Efficient use of materials

13. The price of goods. Price negatively influences demand of goods. The type of goods . Priority is given to commonly used and essential items . Competitors and product alternatives make selection of item complex . Technological advancement . New technology can render various products obsolete , making the demand forecasting extremely challenging. E conomic development . Positive and negative developments in the economies have the power to make demand forecasting also positive and negative. Factors Affecting Demand Forecast

14. Procurement Management Procurement management involves sourcing, generating requests, placing the order, an inspection of the supply and receiving the goods. The main aim of procurement management is to optimize the cost.

15. Methods of Purchasing 2 methods of purchasing: Centralized : All purchases are made centrally. De-centralized : User departments purchase according to their needs.

16. Purchasing Procedure Drawing up specification Inviting quotations Preparing comparative statement Shortlisting Issuing purchase order

17. Drawing Up Specification A specification is a requirements of a commodity , which is clearly stated, for example about the necessary features in the design of an MRI machine.

18. Open tender (Inviting Quotations) Public bidding, resulting in low prices. Published in newspapers. Term - 4 weeks. Quotations must be sent in the specific forms, that are sold before the time and date mentioned in the tender form. For technical items , ‘two packets or two bins ’ system is followed. Offers are given in two separate packets. - Technical bid - Financial bid

19. First Technical B id is opened & short listed. After that, Financial B id of selected companies are opened & lowest price is selected . Delayed tenders and late tenders are not accepted. Quotations are opened in presence of indenting department, accounts and authorized persons of party . Validity of tenders : The period within which a bidder’s offer is considered legally binding ( Generally 90 days ). After this period, the bidder is at liberty to change their bid, if the contract has not been signed.

20. Earnest money 2.5 % of the tender amount or as decided has to be paid along with all quotations . It is withheld in case of default . Restricted or limited tender - From limited suppliers (about 10) - Lead-time is reduced - Better quality. Negotiated procurement - Buyer approaches selected potential suppliers and bargain directly. - Used in long time supply contracts. Direct procurement - Purchased from single supplier , at his quoted price - Prices may be high - Reserved for low priced, small quantity and emergency purchases . Tender Related Terminologies

21. Rate contract Firms are asked to supply stores at specified rates during the period covered by the contract. Spot Contract - In finance, a spot contract, is a contract of buying or selling a commodity, for immediate settlement (payment and delivery) on the spot date, which is normally two business days after the trade date. - It is done by a committee , which includes an officer from stores, accounts and purchasing departments. Risk purchase If supplier fails , the item is purchased from other agencies and the difference in cost is recovered from the first supplier .

22. Factors to consider before Purchase: Latest technology Availability of maintenance and repair facility with minimum down time Post warranty repair at reasonable cost Upgradeability Reputed manufacturer Availability of consumables Low operation cost Installation facilities

23. Receipt of Shipments Upon receipt of the goods at Central Receiving (CR), the unit will make a visual inspection where possible to determine any damages to the items. Where there is visual damage CR will notify first the Purchasing Department, then the Purchasing Department will notify both the Vendor and the requesting Department of the damages . At the direction of the Purchasing Department, the damage to the goods will not be accepted by CR. If there is no visible damage to the goods, CR will then match the packing slip with their copy of the purchase order, to determine whether the order is complete . Receipt and Inspection

24. Inspection All materials, equipment, supplies, and services are subject to inspection and test . Items or services that do not meet specifications may be rejected . Failure to reject upon receipt, however, does not relieve the vendor of liability for latent or hidden defects subsequently revealed when goods are put to use or tested. If latent defects are found, the vendor is responsible for replacing the defective goods within the delivery time originally stated in the solicitation and is liable for any resulting expenses the institution incurs.

25. What is 'Inventory' Inventory is the raw-materials, work-in-process products and finished goods that are considered to be the portion of a business's assets that are ready or will be ready for sale.

26. INVENTORY CONTROL Process of ensuring that appropriate amounts of stock are maintained by a business, so as to be able to meet customer demand without delay, while keeping the costs associated with holding stock to a minimum . Inventory control involves managing a company’s inventory (also known as stock) from the time it lands in the warehouse to the time it leaves . Warehouse

27. Functions of Inventory Control

28. Importance of Inventory Control It may be more economical to purchase an item on demand than to maintain an inventory. At the same time , a certain minimum amount of each item must be held to minimize the chances of total stock-out. Inventory control helps in maintaining an optimum level of the idle resource at a least possible cost . To provide maximum supply service , consistent with maximum efficiency and optimum investment. To provide cushion between forecasted and actual demand for a material.

29. Functions of Stores Manager 1 . That the required material is never out of stock; 2. That no material is available in much excess than required; 3. To purchase materials on the principle of Economic O rder Q uantity (EOQ), so that the associated costs can be minimized; and 4. To protect stores against damage, theft, etc.

30. Storage Method The Two Bin System : Stock of each item is physically separated into two bins – working bin and reserve bin . When working bin empty, the store keeper changes to the second bin and is alerted that new supplies are needed. Double Shelf System: Modification of two-bin system

31. Storage Conditions First-In, First-Out . ( FIFO) Location of medical store should be guided by the flow activities of the store . Physical facilities light, ventilation, cupboards, shelves should be of adequate size.

32. Items received later from the suppliers should be stored behind similar items and the principle of ‘ First-In First-Out ’ (FIFO) should be adopted. Refrigerators of cold rooms are necessary. Combustible and non-combustible should be kept separate. Poisonous drugs and narcotics should be stored in locked cupboards. Place should be rodent free .

33. Inventory Control ABC Analysis VED Analysis SDE Analysis HML Analysis FSN Analysis Economic Order Quantity (EOQ) Inventory control, also called stock control, is the process of ensuring the right amount of supply is available in an organization. The goal of inventory control is to maximize profits with minimum inventory investment , without impacting quality of services. Types of Inventory Control:

34. ABC (Always Better Control) Analysis Inventory Control based on cost criteria , i.e. A, B, and C in descending value. It helps to exercise selective control when confronted with large number of items "A items" with very tight control and accurate records , "B items" with moderately controlled and good records, and "C items" with the simplest controls possible and minimal records.

35. Example of ABC Analysis

36. 'Just In Time - JIT' Just-in-time (JIT) is an inventory strategy to increase efficiency and decrease waste by receiving goods only as they are needed , thereby reducing inventory costs . This method requires producers to forecast demand accurately . This inventory supply system represents a shift away from the older ‘Just-in-Case’ strategy , in which producers carried large inventories in case higher demand had to be met.

37. Lean Stock (Inventory) Management The core principle of lean is to reduce and eliminate non-value adding activities and waste . The ideal goal for a company should be to have an inventory as close to zero as possible.

38. VED analysis Inventory Control based on critical value of an item. Vital :- Those items , the absence or shortage of which, even for a short period can seriously hamper the patient-care. Essential :- Those items , the absence or shortage of which cannot be tolerated for more than a day or so. Desirable :- Those items , which are definitely needed, but the work can continue even without them for a substantial period of time.

39. ABC and VED Classification M atrix Category -1: Needs intense monitoring and control . Category -2: Needs moderate control . Category -3: Needs superficial control . The coupling matrix model to accommodate both criticality and cost .

40. FSN Analysis Inventory Control based on speed of utilization (Turn-Over) of items. Fast Moving: Rotates ˃ 4 times in a year Slow Moving: Rotates more than 1 time, but ˂ 4 times in a year. Non- Moving: Does not rotate in a year. Non-Moving items must be periodically reviewed to prevent expiry and obsolescence .

41. SDE Analysis Inventory Control based on availability of items in the market.

42. HML Analysis HML Analysis is similar to ABC Analysis inventory control, except the difference that instead of ‘Annual Inventory Turnover’, cost per unit criterion is used. It is classified as: (Bisiliximab-20 mg) Zupitavir

43. Differentiation among Types of Inventory Control Inventory Analysis Key Features ABC Analysis Value of annual consumption of an item HML Analysis Unit price of an item VED Analysis Criticality of an item FSN Analysis Speed of consumption pattern SDE Analysis Lead time for procurement of an item EOQ Economic Order Quantity

44. Lead Time : Lead time in inventory management is the amount of time between , when a purchase order is placed to replenish products and when the order is received in the warehouse . Ideally, it is 2-6 weeks . Internal lead Time : Internal Lead time is the time taken between raising the materials requisition request and placing the order . External lead Time : External Lead time is the time taken between placement of an order to actual receipt of the item . Terminologies in Inventory Control

45. Working Stock : Working Stock is the amount available to meet the demand between deliveries. Reorder Level : A reorder level is the point at which inventory needs to be replenished in order to continue doing business effectively . It is equal to average consumption each day, multiplied by lead time , plus Safety Stock .

46. Buffer (Safety) Stock Safety stock is an extra quantity of a product which is stored in the warehouse to prevent an out-of-stock situation . It serves as insurance in case of an emergency , supply chain failure, transportation delays, or an unexpected surge in demand.

47. Inventory Control Systems An inventory control system controls the level of inventory by determining how much to order and when to order . There are two basic types of inventory systems: Continuous (or Fixed-Order-Quantity ) system Periodic (or Fixed-Time-Period ) system.

48. Fixed-Order-Quantity System In a continuous inventory system (also referred to as a perpetual system and a fixed-order-quantity system ), a continual record of the inventory level for every item is maintained. Whenever the inventory on hand decreases to a predetermined level , referred to as the reorder point , a new order is placed to replenish the stock of inventory.

49. Fixed-Time-Period System In a periodic inventory system (also referred to as a fixed-time-period system or a periodic review system), the inventory on hand is counted at specific time intervals ; for example, every week or at the end of each month. After the inventory in stock is determined , an order is placed for an amount that will bring inventory back up to a desired level .

50. The E conomic O rder Q uantity  ( EOQ ), is a company's optimal order quantity for minimizing its total costs related to ordering and holding inventory. C= Ordering cost per order R= Annual demand in units H= Holding cost per unit per year Q= Lot size or order quantity in units P= Purchase cost of an item F = Holding Factor

51. Inventory costs depends mostly on Ordering costs and Holding costs Ordering cost: Salaries and wages of involved persons Postal, telex, telephone and other similar bills Advertisements Stationary Entertaining the vendors/suppliers Travel of store personnel Holding Cost ( Inventory carrying cost ): Cost of storage Salary and wages of store personnel Insurance Stationary, forms, paperwork, Loss of interest money deadlocked in inventory Deterioration and obsolescence Losses due to pilferage

52. C= Ordering cost per order R= Annual demand in units H= Holding cost per unit per year Q= Lot size or order quantity in units P= Purchase cost of an item F = Holding Factor

53. Example: BSMMU purchases 1,600 pairs ( R ) of surgical gloves each year at a unit cost (P) of Tk. 15.00. the order cost (C) is Tk. 100.00 per order, and the holding cost (H) per unit per year is computed at Tk. 8.00. The EOQ (Q) will be: = = 200 units Number of Orders needed in a year C= Ordering cost per order R= Annual demand in units H= Holding cost per unit per year Q= Lot size or order quantity in units P= Purchase cost of an item F = Holding Factor

54. Factors which influence Order Quantities -Lead Time. -Minimum Stock Holding. High value items should have very low stock Low value items can have high quantum of stock In case of short life items , the quantity held can be very small . -Safety (Buffer) Stock: It is the level at which fresh supply should normally arrive. Quantity of stores that one must set apart as an insurance against the variations in demand and procurement period, and to avoid stock-out . C alculated by multiplying the difference between maximum and average consumption rate per day/week/month with the lead time for the item.

55. Issue and Distribution Issue should be made after receiving written indents . Distribution system can be either direct supply or through a sub store . 2 methods of distribution. - Push Method (Allocation System) - Pull Method (Requisition System)

56. Push Method: Initiates production in anticipation of future demand . Pull Method: Initiates production as a reaction to existing demand .

57. Obsolete: Out of Date

58. Loss and Pilferage in Hospital Lost, stolen, and misplaced drugs and equipment is creating significant financial losses for hospitals, while increasing costs for patients and threatening quality of care. Estimated 7.29% of healthcare expenditure is lost due to theft and fraud globally – amounting to £230 bn a year .

59. To reduce loss and pilferage 1. Access to all stores should be limited. 2. Locking and unlocking of stores and handling of keys should be strictly controlled . 3. Intensive vigilance to prevent frauds involving purchasing personnel and collusion with vendors. 4. Limiting or controlling follow mal-practices : -Control of commission under the table , specially for emergency purchase - Inflating prices -Accepting sub-standard goods -Making fraudulent payments 5. Developing system of internal audit 6. Strict policies and procedures guiding purchase, receipt, storage and distribution 7. Proper monitoring 8. Protection of patients’ belonging .

60. CONCLUSION Material Management in hospital is all about making equipments, drugs, and devices available, reducing waste, decreasing the cost of service and thus ensure efficiency and quality of healthcare.

61. Mid Term Exam 22 July 2022

62. THANKS