MATERIAL MANAGEMENT

MADHUR VERMA

PG JR 1ST

INTRODUCTIONMaterial is defined as “equipment, apparatus and

supplies used by an organization for the purpose of rendering services”,

The basic objective of management is to optimize the resources, i.e: Men, Money, Materials, Machines& Minutes(time)

INTRODUCTION Lack of proper attention to the material management in the

health system in the country has been a major problem in effective implementation of various health programs

Man fails to realize the fact that material represents money and also there is a lack of perception about the inter-relatonship between money and the material

Non availability of drugs and materials supplies– dissatisfaction among health personnel and also community

DEFINITION

MM is a scientific technique which is concerned with the planning, organizing and controlling the flow of materials from their initial purchase through internal operation to the distribution to the service points

BASIC FUNCTIONS OF MATERIAL MANAGEMENT

1. Effective management and supervision

2. Sound purchasing methods

3. An efficient purchase system

4. A simple inventory control programme

5. A result oriented requisition and distribution system

6. Written policies and procedures

7. A practical receiving programme: It denotes the need for accountability and responsibility. For the best results, the purchasing, receiving & paying of invoice should be done by separate persons.

AIM for MM

To have material in hand when neededTo pay the lowest possible price, consistent with quality

and value requirementTo minimize inventory investmentTo operate efficiently

•To gain economy in purchasing

•To satisfy the demand during period of

replenishment

•To carry reserve stock to avoid stock out

•To stabilize fluctuations in consumption

•To provide reasonable level of client services

PURPOSE OF MATERIAL MANAGEMENT

For delivery of effective health care services it is necessary that-

Right material at right time at right place in right quantity and of right quality should be made available to perform the assigned activities in an effective and efficient manner

Recurring expenditure of an average hospital –60%---on salaries of employees30-35%--- on materials5-7% ---- on non material resources

Stock: The goods kept on the premises of a business or warehouse and available for sale or distribution

Inventory–- total quantity of material available in the store

Logistics–- defined as function of moving, storing and distributing resources and goods

Economy in MM Purchase cost– actual cost of material Carrying cost- cost of using or borrowing money

cost of storage space

cost of additional manpower

cost of obsolescence

cost of deterioration

cost of pilferage, breakageCarrying cost may be 25-30% of the actual inventory cost

How to reduce it? Buy in small quantity.

But this increases PC

A point/ quantity at which both are minimum called economic order

quantity (EOQ)

Shortage cost--- deals with the cost of not having a material. It would vary according to the nature of an item

Ordering cost--- cost of placing an order to the firm

Primary•Right price•High inventory turnover•Low procurement & storage cost•Continuity of supply•Consistency in quality•Cordial relationship with supplier•Development of vendors•Good information system•Low storage cost•Good records

Objective of material management

Secondary• Economic Forecasting•Inter-departmental harmony•Product improvement•Standardization•Make or buy decision•New materials & products•Favorable reciprocal relationships

Advantages of MM

Improved accountabilityBetter coordinationBetter performanceAnalysis of dataBetter team work

ELEMENTS OF MATERIAL MAMANGEMENT

DEMAND ESTIMATION

PROCUREMENT

DISPOSAL

CONDEMNATIONMAINTENANCE

& REPAIR ISSUE & USE

RECEIPT & INSPECTION

STORAGE

SELECTION AND DEMAND ESTIMATION

Selection of items to be purchased need some basal document, e.g., for medicines as per latest figure sixty thousand formulation of drugs are manufactured and sold in Indian market, while WHO says only three hundred odd number of drugs are sufficient even for a tertiary hospital of developing country.

Limited funds available are often ill spent on ineffective duplication or unacceptable dangerous drugs.

It is therefore imperative to prepare a list of essential drugs for a hospital & included in HOSPITAL FORMULARY.

FORECEASTING OR ESTIMATING 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.

Following guidelines: Trends in consumption pattern during last 2-3 years. Objective of the hospital. Morbidity pattern of the community The clienteles Cyclic changes in epidemiological occurrence of disease. Resources constraint. Existing stock position.

Methods of forecasting of demands in hospital

1. Last period demand–

2. The arithmetic average &

3. Moving average– it generates the next period’s forecast by averaging the actual demands for the last ‘n’ time periods

PROCUREMENTProcess of acquiring suppliesThree sources:

Purchase Donations Manufacturing

Objective of well procurement system: Acquire needed supplies as inexpensively as possible. Obtain supplies of high quality Assure prompt, dependable delivery. Distribute the procurement workload to avoid period of idleness &

overwork. Optimize inventory management the scientific procurement procedures.

PROCUREMENTMethods of purchase:

TENDER BUYING

Open tenderRestricted tender (selective)Negotiated procurementDirect procurement

RATE CONTRACT

Most important methods of procurement of drugs as far as the govt. hospitals are

concerned. Under these contracts the firms are asked to supply stores at

specified rates during period covered by the contact.

DGS&D keeps a close watch. Many state govt. & other organizations, like ESI, have preferred to have their own

rate contract.

RECEIPT AND INSPECTION

Supplies offered are received in the store.The inspection policy should enunciate the sampling

procedure for inspection and this procedure must be followed.At the point of delivery check each item physically and count

against supplier’s invoice The lot thus picked up by a random sampling method should

be subjected to physical and chemical inspection. Thus any discrepancy, problem or error in a specific transaction, becomes evident during the receiving operation.

Carry out basic documents immediately i.e. day book or inward good register

The Receiving Process

Enclose:- Packing Slip- Bill of Lading- Invoice for Freight

Check- Against Purchase Order- Physical check of goods

Formality- Receiving Report

Submit to Purchasing Department, the user & accounting department

The Receiving Clerk In Charge

Inspecting the Material

Characteristics of Incoming materials

are compared to the specifications

Tests:- Blue Prints

- Using Gauges- Laboratory Tests- Visual Inspection

Inspection report is sent to all relevant

departments including the buyer and the

seller

Quality Control Head in Charge

RECEIPT AND INSPECTION

Procedures:Unloading & checking suppliesUnpacking & inspecting suppliesGoods received notesDelivery of materials to the proper stocking locations

Receiving records shows–

- - which supplies are consistently late in their deliveries -- which have the maximum number of rejects ---which deliver the greatest no. for split consignments

Any of these supplier is costly to the buyer

Return Policy

• If buyer reworks or scraps the material – supplier will be charged or credited

Material Scrapped / Reworks

If the Material is Rejected

STORAGEMedical store should be accessible to supplies as well as

indenters.Location of store will, therefore, be guided by the flow

activities of the store. Also, light, ventilation, cupboards, shelves should be of adequate size.

Items received later from the supplies should be stored behind similar items and the principle of FIFO should be adopted.

Refrigerators or cold rooms are necessary.Combustible and non-combustible– should be kept separatePoisonous drugs & narcotics should be stored in locked

cupboardsRodent free.

MONITORING OF EXPIRY DrugsThere are number of checks:

Purchased quarterlyEnsure sufficient span of time to consume it before expiry

date.Arrangement with supplier for replacementExpiry chart

NAME OF DRUG 2011 2012 remarks

j f m a m j j a s o n d j f m a m j j a s o n d

Erythromycin O X

STORAGE METHODS

The Two-Bin system—stock of each item is physical 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

This system works well only if the supply time is half the purchasing interval

ISSUE AND USE Issue should be made after receiving written indents

Distribution system can be either by direct supply or through a sub store’

Push method (allocation system)Pull methods (requisition system)

Selective inventory control

LEAD TIME --It denotes the average duration of time between placing an order to the supplier and receipt of materials in your medical stores

Internal lead time– duration between the moment at which some one is aware of the need for the additional stock and order is placed

External lead time—taken by the supplier to supply the materials after it receives the supply order from an org.

Working stock– used to satisfy the demand between deliveries

Safety stock( Buffer stock)– exits to protect against stock outs which would otherwise occur when either the deliveries are delayed on the working stock is consumed at an unexpectedly high rates

Reorder level-stock level at which a fresh order has to be placed. It is equal to average consumption per day multiplied by the lead time

Inventory Control

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If transferred to stores – becomes inventory

IDEAL INVENTORY MODEL

Demand rate

0 TimeLead time

Lead time

Order Placed

Order Placed

Order Received

Order Received

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Reorder point, R

Order qty, Q

As Q increases, average inventory level increases, but number of orders placed decreases

ave = Q/2

Economy order quantity

Economy order quantity– the quantity most economic to buy

EOQ = √2AC A=annual consumption in units

H C =cost of placing & receiving an order

p =purchase price per unit

H =holding cost per unit per year

Total annual cost

= (purchase cost) + (order cost) + (holding cost)

TC=AP +AC/Q +QH/2

HoldingCosts

OrderingCosts

EOQ

Units

$

Suppose drug A priced at Rs 1000/- per box of 1000 tablets, with 1000 boxes being used per year. Placement of an order cost Rs 160/- and annual carrying cost after delivery is 20% of the purchase price

√2CA/H = √2(160)A/200 = √1.6A = √1.6x 1000 = 40 Given the minimum cost order quantities, an order for 40 boxes

should be placed on 25 occasions during the year Stock will vary between 0 to 40 boxes averaging 20 The ordering plus carrying cost will thus be 25(160)+ 20(200) = 8000 4000 + 4000

If 100 boxes ordered: 10(160) + 50(200) 1600 + 10000 = 11600

If 20 boxes are ordered: 50(160)+10(200) 8000+2000=10000

Reorder Point

Quantity to which inventory is allowed to drop before replenishment order is made

Need to order EOQ at the Reorder Point:

ROP = D X LT

D = Demand rate per period

LT = lead time in periods

SELECTIVE INVENTORY CONTROL

Effective manager should isolate those items that require more precise control from those that do not

Items are classified into groups based on different criteria

ABC analysis of drugs-- based on annual cost of the items. Also known as Always Better Control

ABC Classification

Class A5 – 15 % of units70 – 80 % of value

Class B30 % of units15 % of value

Class C50 – 60 % of units 5 – 10 % of value

Copyright 2006 John Wiley & Sons, Inc.

12-40

VED ANALYSISBased on critical value of an item and its effect on patient

care.V vital itemE essentialD desirable

Without which institution cannot function.

Should always be present in sufficient quantity and sufficient safety stock should be maintained to ensure 100% availability.

Controlled by top manager levels.

Those items whose shortage can be tolerated for short period only.

But if not available over a long period…adversely affect patient care and hospital

functioning.Controlled by middle manager level.

Whose shortage will not adversely affect the patient care or hospital function, even if they are not available for longer periods.

COMBINATION OF ABC & VED ANALYSIS

V E D

A AV AE AD Cat I (15%)

B BV BE BD Cat II (40%)

C CV CE CD Cat III (45%)

SDE ANALYSISBased on availability position of items in market.

S scarce in market (imported drugs)

D difficult to obtainE easily available

Used to avoid out of stock position of items.

FSNBased on rate of consumption

F fast moving

S slow moving

N not moving

Equipments Management

Equipments play a major role in a hospital.

Medical equipments aids the treating physician in providing efficient health care in diagnostic and therapeutic areas and make the patient stay comfortable

Effective management and efficient maintenance of health care delivery and are vital for the smooth functioning of every health facility from PHC to the most sophisticated hospital in every country

Problems- wide variety of equipments at various level of sophistication level but without adequate maintenance support

Even less sophisticated equipments lead to high maintenance cost by local agents

Lack of technically qualified manpowerA hostile environmentA developing country will seldom have about 50% of its

equipments in usable condition at a given time

Before ordering an equipment hospital should ensure Latest technology is being purchased Full repair and maintenance facilities exist with a minimum of down time Availability of post –warranty repair of reasonable cost Purchased from reputed manufacture Consumables are readily available Operating cost should be low

RECORDS NEEDED FOR MAINTENANCEHISTORY SHEET:

Identification data make model and date of purchaseSource of details of supplies and its sparesPurchase cost and detail of purchase procedureDetails of breakdowns and repair undertakenExpenditure incurred on repair

LOG BOOK FOR EQUIPMENT:Records for its maintenance should be kept, i.e., warranty

period & servicing/repair done, annual service contract, expenditure incurred.

Details of preventive maintenanceWhether in working condition or not.

RECORDS NEEDED FOR MAINTENANCE

PERFORMANCE RECORD OF EQUIPMENT:Essential to recommend for condemnationPeriod since workingLevel of utilization in terms of outputPeriods when not working, with reasons If beyond economic repair, a certificate from the

engineering unit should be procured.

CONDEMNATION & DISPOSAL

Minimum criteria to be followed for condemnation.Non-functional and beyond economical repairNon-functional and obsoleteFunctional but obsoleteFunctional but hazardousFunctional but no longer required

A CONDEMNATION COMMITTEE should be constituted for assessing whether or not an equipment should be condemned and disposed of based on the history sheet & recommendations of the user department.

CONDEMNATION & DISPOSAL

This committee should meet periodically at regular intervals, at least twice an year.

However, for condemnation of costly hospital equipment, a SPECIAL CONDEMNATION BOARD may be constituted as per rule of the organization.

CONDEMNATION & DISPOSAL

PROCEDURES:Circulate within the hospitals, wards, OPDReturn to vendor if he is willing to acceptSell to other hospitalsSell to scrap dealersLocal destructionBy Auction: normally 10% of book price is accepted as

reserve price for auction

CONCLUSION

Material management is an important management tool which is very useful in getting the right quality & right quantity of supplies at right time.

Provides good inventory control & helps in adopting sound methods of condemnation & disposal, and therefore improves the efficiency of the organization, whether it is Private, Government, Small organization, Big organization or Household. All these makes the working atmosphere healthy.

Even a common man must know the basics of material management so that he can get the best of the available resources and make it a habit to adopt the principles of material management in all daily activities.

Thank you….