Material management

INVENTORY CONTROL

1. Material Management Presented by Dr. Ravi Prakash JR-III Department of Community Medicine Katihar Medical College

2. MATERIALS Materials may be defined as equipments, apparatus and supplies procured, stocked and utilized by an organization. These are the things needed for smooth functioning of an activity in the organization .

3. - process of management concerned with planning, organizing and controlling of the flow of materials to, through, and out of an organization in an integrated fashion Material Management

4. M A T ER I A L M A N A G E M EN T It is planning, directing, controlling and coordinating all those activities concerned with material and inventory from the inception to their introduction into the manufacturing processes. It includes all the activities of store from stage of forecasting of requirements to utilization to the final disposal. Store required by the hospital varies from simple housekeeping materials to sophisticated equipment.

5. It is concerned with providing the drugs, supplies and equipment by the personnel to deliver health care services . It is also viewed as a scientific technique concerned with planning, organizing and controlling the flow of materials from their initial purchase, internal operations to the distribution at service point .

6. . Sound purchasing methods Skillful and hard poised negotiations Effective purchase system Should be simple Must not increase other costs Simple inventory control programme

7. AIM Right quality of material Right quantity of supplies of materials Right time Right place Right cost .

8. OBJECTIVES To avoid surplus of material To have appropriate storage and easy to retrieve To ensure distribution to the point of usage whenever required To ensure effective and efficient utilization of available resources To optimizing the use of resources to meet the needs in an efficient manner To obtain correct quality of materials at lowest possible price.

9. ELEMENTS Material planning and programming Purchasing and outsourcing Inventory control Storekeeping and warehousing Standardization and evaluation of all products Transportation and material handling Inspection and quality control Cost reduction through value analysis Disposal of surplus/obsolete material Distribution.

10. M A N A G E M EN T T E CHNI QUE S USED Right Item Right Quantity Right Price Right Source Right Method Right Delivery Value analysis, Standardization Inventory control Cost/Benefit analysis, Value analysis V endor research ABC, VED etc. analysis Operation research

11. PROCEDURE

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13. PROCUREMENT Procurement is the sourcing and purchasing of goods and services for business use. It is the acquisition of goods or commodities by a company, organization, institution, or a person. This simply means the purchase of goods from suppliers at the lowest possible cost. Selecting the vendors Arranging upon the purchase price Time and place of delivery Verifying deliveries Settlement an d p a yment o f v endo r s remuneration claim

14. O B J ECT I VE S Acquire needed supplies Obtain high quality supplies Assure prompt and dependable delivery Distribute the procurement workload Optimize inventory management

15. . Review sel e ction Determine needed quantities Reconcile needs and funds Choose procurement method Select supp l i e rs Specify contract terms Monitor order status Receipt and inspection

16. Procurement methods The Open tender method The limited restricted tender method Negotiated tender Direct procurement Rate contract Spot purchase

17. I N VE N T O R Y It is the stock to ensure uninterrupted supplies, the idle resources which have future economic value and cushion between estimated and actual demand of materials . Inventory is ‘anything that is bought and held prior to use.

18. method where all stocks of goods are properly and promptly issued, accorded and preserved in the best interest of the firm. monitor the stock of goods used for production, distribution and captive (self) consumption . Inventory control is the method of maintenance of stock at a level at which purchasing and stocking costs are the lowest possible without interference with supply. Inventory Control

19. O B J ECT I VE S To supply the materials in time To give maximum clients service To reduce or minimize investment in inventories To minimize idle time To avoid shortage of stock To minimize the losses To meet unforeseen future demand To average out demand fluctuations To balance various inventory costs

20. T Y P E S O F I N V EN T O R Y C OS T S Ordering Cost Inventory Carrying (holding) Cost Out of Stock/Shortage Cost Other Costs

21. M a jo r Ac tivitie s O f I n ve n t o r y Control Planning Procurement Receiving and inspection Storing and issuing the inventories Recording the receipt and issuing of inventories Physical verification Follow up functions Material standardization and substitution.

22. S e ttin g u p o f v a r i o u s s t oc k l e v e l s Minimum Level Maximum Level Reorder Level Reserve Stock

23. Minimum Level Minimum level is the minimum stock to be maintained for smooth production Minimum level = Reorder level - Average usage per period X average time to obtain delivery Maximum Level It is the level of stock, beyond which the stock is not maintained Maximum level = Reordering level - Expected minimum consumption in units during the least time to obtain delivery + Reorder quantity

24. Reorder Level It is the stock level at which an order should be placed Reorder level = Maximum reorder period X maximum usage Equal to consumption o expected during lead time, in addition to buffer stock.

25. Reserve Stock Excess usage requirement during normal lead time

26. Basic principles of inventor y control Safety Stock (SS) Lead Time (LT) Average Inventory: INVAVG Reorder Point

27. T EC H N I Q U E S O F I N V E N T O R Y CONTROL Items Quality: Value analysis, standardization, codification Quantity: Purchasing balancing of inventories EOQ Price: Cost price value analysis Source; Market research, purchasing techniques selection Delivery: Procurement technique, Follow up PERT/Operational research Methods: Work study system analysis: ABC Analysis etc

28. CLASSIFICATION ABC Analysis (Always Better Control) VED Analysis (Vital, Essential, Desirable) FSN Analysis (Fast, Slow moving and Non-moving) SDE Analysis (Scarce, Difficult, Easy) HML Analysis (High, Medium, Low) XYZ Analysis GOLF Analysis SOS Analysis

29. ABC Analysis Basic supply chain technique “Always Better Control ” 10% items consume about 70% of budget (Group A). The next 20% consume 20 % of financial resources (Group B) and remaining 70 % items account for just 10% of budget (Group C)

30. ‘A’ Items small in number consume large amount of resources managed by top management. tight control, rigid estimate of requirements, strict & closer watch require low safety stocks. consume major portions of funds.

31. ‘ B’ Items moderate control. purchased based on rigid requirements strict watch and control. management is done by middle level managers.

32. ‘ C’ Items larger in number consume lesser amount of resources ordinary control measures. purchase is based on usage estimates require high safety stocks.

33. Advanta ges Investment in inventory can be maintained Easy to control the wastage of costly items Helps in maintaining safety to the total cost Easy to maintain stock and turnover rate M an a ger is able to control the inventories specially controlling ‘A’ items .

34. D i s a d v a nt a g e s Considers only the money value not the importance of items for functioning .

35. VED Analysis Vital, Essential and Desirable materials are classified based on criticality ‘V’ is for vital items without which a hospital cannot function (10%) ‘E’ for essential items without which an institution can function but may affect the quality of the services (40%) ‘D’ stands for desirable items, unavailability of which will not interfere with functioning because they can be easily purchased as and when required (50%)

36. Advantages U seful for monitoring and control of stores and spares inventory by classifying them into 3 categories viz., Vital, Essential and Desirable . Determine the criticality of an item and its effect on production and other services . It is specially used for classification of spare parts/items . It is useful in controlling and maintaining the stock of various types.

37. C o m b i n at io n o f ABC a n d VED Analysis V E D A AV AE AD 10% B BV BE BD 20% C CV CE CD 70% 10% 40% 50% 100%

38. Category 1 Maximum attention 15% Category 2 Moderate control 40% Category 3 Lower level of management 45%

39. FSN Analysis ‘ Fast moving, Slow moving, and Non-moving’ based on the consumption pattern of the items Method Date of receipt or last date of issue whichever is later, is taken to determine the number of months which has lapsed since the last transaction. The items are usually grouped in periods of 12 months. Non-moving items must be periodically reviewed to prevent expiry.

40. Analysis For analysis, the issuing of items in past two or three years are considered If there is no issuing of item during that period, it is labeled ‘N’ item Then up to certain limit say 10-15 issues in that period, the item is ‘S’ Item The items exceeding such limits of numbers of issues during that period is ‘F’ Item

41. Advanta ges Helps to avoid investment in non-moving or slow items Facilitates timely control

42. SDE Analysis Scarce, difficult, easy to obtain ' S ’ stands for ‘scarce’ items, those which are difficult to obtain and generally require source development, generally imported, and those which are in short supply, managed by top level management . ‘D’ stands for ‘difficult’ items which are available indigenously but are difficult items to procure . ' E ’ stands for ‘ Eas ily available ’ items which are easy to acquire and which are readily available in the local markets.

43. Advantages Vital to the lead time analysis Useful in the context of scarcity of supply To determine the method of buying and to fix up the responsibilities of buyers.

44. HML ANALYSIS High, medium, low The basic criteri a of HML classification is the unit value of the item .

45. Advantages Used to keep control over consumption at departmental level For deciding the frequency of physical verification.

46. XYZ ANALYSIS based on the value of the inventory stored X items are those whose inventory values are high Y items are those which have moderate inventory stocks Z items are those whose inventory values are low

47. G O L F A N A L Y S I S Government, Ordinary, Local, Foreign . basis of source of material .

48. SOS ANALYSIS Seasonal and Off Seasonal items Type of items Strategy Seasonal items(s) which are available only for a limited period Procure and stock for meeting the needs of the full year . Seasonal items available throughout the year The quantity required should be compared with t he c ost s a v i ngs o n ac c ount o f lo w e r prices, if purchased during season . Off-seasonal items (OS) Quantity is consider ed.

49. IN VE N TORY ACCOUN T IN G SY ST E M Perpetual Inventory System Periodic Inventory System

50. Perpetual Inventory System Perpetual inventory system may be defined as a method of recording stores balances after every receipt and issue to facilitate regular checking and to obviate closing down for stock taking P a r ts Bin Card Store Ledgers Continues Stock Taking

51. Periodic Inventory System A periodic inventory system implies when the quantity of inventory on hand is determined on periodically such as once a month, quarterly or at the beginning and end of each year, and does not have an accurate record of the inventories in between these points .

52. Features All acquisitions of inventory during the accounting period are recorded by debits to a purchases account. The total in the purchases account in the end of the accounting period added to the cost of the inventory on hand at the beginning of the period. Inventory subsidiary ledger is not updated after each purchase of inventory. Inventory quantities are not updated continuously rather updated on a periodic basis.

53. Social Marketing Application of commercial marketing concepts, tools, resources, skills to encourage socially beneficial behavior among those segment of population not served or not adequately served.

54. Establish management and operating procedure. Select the products to be marketed. Identify the consumer population. Decide on brand names and packaging. Fix appropriate price. Identify the distribution system. Recruit sales outlets/shops. Implement sales promotion programmes .

55. Thank you..