Presented byDr. (Lt Col) Sarder Mahmud Hossain, PhDAssociate ProfessorNUB

Material?

The substance or substances out of which a thing is or can be made.

How a Hospital should Look Like

Material Management as a function is responsible for the coordination of planning, sourcing, purchasing, moving, storing and controlling of materials in optimum manner so as to provide pre-decided services to the customer at minimum cost.MM is the branch of logistics that deals with the tangible components of a supply chain. Specifically, this covers the acquisition of spare parts and replacements, quality control of purchasing and ordering such parts, and the standards involved in ordering, shipping and warehousing the said parts.

Objective of the Study

1. To study the MM of a hospital.2. To list the following--

procedures followed by the Hospital.a. Purchasing activity.b. Stores management.c. Retrievabilityd. Distributione. Waste or scrap control.f. Inventory control.

Hospital Plastic Scrap

Process of Material Management• Budgeting and material planning.• Demand forecasting.• Procurement.• Receipt, Inspection and Payment.• Inventory control.• Use and Distribution.• Usage.• Maintenance.• Disposal.• Pilferage.

Purchase Activity

Stackable Items

One time purchase items

Purchase Procedure

Indents

PR

Place Order

InquiryFreezing the rates

Get Quotations

Purchase Procedure Benefits

It should be centralized rather than decentralized which has the following advantage—

a. Quantity discounts are possible through standardization and bulk orders.

b. Purchase costs are decreased because of consolidation and non-duplication of orders.

c. Lower inventory costs result because centralization makes possible a lower safety stock.

d. There is better management control as all aspects of purchase can be screened by the administration.

Stores Management

Material Receipt

Indenting

ExpiryChecking

Storage

Issuing

StockTaking

Hospital stores

Criteria of a Good Store

1. The stores should be divided into homogenous sections and separate area earmarked for different group of items.

2. Items in a group should be categorized based on their generic name or application and similar items must be stored contiguously (In actual contact; touching; also, adjacent; near; neighboring; adjoining).

Criteria of a Good Store-contd

3. The available floor and vertical space must be used as judiciously as possible while keeping adequate space for material handling.

4. Items should be kept as low and as near to the aisle as possible for easy retrieval.

5. To minimize obsolescence, items due to expire earlier should be kept in front of batches due to expire earlier.

Inventory Control

ABC Analysis

FSN

To know about the running items

To know about expiry or obsolete items.

Inventory controlIts principles seek to minimize investment on materials so that sufficient working capital is available for other important activities.

Primary Purpose for Inventory control---

1. To decrease material cost by preventing over-stocking of materials.

2. Simultaneously minimizing stock-out cost.

A thought may be given whether an item to be maintained in inventory or procure on demand.

Inventory Control-contdFollowing concepts are relevant to maintain inventory---1. Periodic/Cyclic system: It involves review of stock at

periodic/fixed interval and the order depends on the stock at hand and usage level. Here the ordering interval is fixed but the quantity to ordered varies each time.

2. Two-bin System: It is a well practiced system. In such case same item is maintained in two bins----a. One Larger bin—Contains sufficient medicine to meet the demands during the interval between arrival of an order quantity and placing the next order.b. Other Bin: It contains stock large enough to satisfy probable demands during periodic replenishment.

To Note

When the 1st bin is exhausted an order for replenishment is placed and the stock of the 2nd bin (larger) is utilized until the ordered material is received.In this case the order quantity is fixed but it is not in cyclic system.

3. Lead time: It is the time between placing an indent and receiving the material. It is two types---a. Administrative/ Buyer’s Lead time: (time for purchase requisition, getting quotations, preparing schedules, raising purchase order etc)b. Delivery/ supplier’s lead time: Time for manufacture, packing, shipping, delays in transit etc).

4. Minimum/ Safety/ Buffer stock: This is the amount of stock that is kept in the reserve to avoid stock out in case consumption increase expectedly or the lead time turns out to be longer than expected.

Safety Stock (SS)= (Dmax –Davj ) X L where

L=lead time, Dmax is maximum demand on any day, Davj

Average daily demand.Reorder Level (ROL)= (Davj X L) +SS

Inventory Control-contd

Maximum Stock: This is the predetermined limit beyond which the stock of an item should not be allowed to exceed in the normal course. It is equivalent to the minimum stock level plus the quantities of supplies received at any point of time.

Economic Order Quantity (EOQ)

The approach is to build a model of anidealized inventory system and calculatethe fixed order quantity that minimizestotal costs. This optimal order size iscalled the economic order quantity (EOQ).Q= The quantity for each order, R=Annual requirement of an item, Cp = the overhead cost per order.So, annual ordering cost /item=R/QXCp

Inventory Cost

1. Holding or carrying costs:

storage, insurance, investment, pilferage, etc. Annual holding cost = average inventory level x holding cost per unit per year= order quantity/2 x holding cost per unit per year

Inventory Cost-contd

• Setup or ordering costs: cost involved in placing an order or setting up the equipment to make the product

• Annual ordering cost = no. of orders placed in a year x cost per order= annual demand/order quantity x cost per order

EOQ (Economic Order Quantity) Model

• Assumptions

1.  Order arrives instantly

2.  No stock out

3.  Constant rate of demand

What is the order quantity such that the total cost is minimized?

1.  Total cost = holding cost + ordering cost = (order quantity/2) x holding cost per unit per year + (annual demand/order quantity) x cost per order

What is the order quantity such that the total cost is minimized?-contd

2. Optimal order quantity (Q*) is found when annual holding cost = ordering cost  

What is the order quantity such that the total cost is minimized?-contd

3. Number of orders = Annual Demand/Q*4. Time between orders = No. of working days

per year / number of orders5. Reorder point = daily demand x lead time +

safety stock

A Top 80% of total dollar volume 

B Next 15%

C Next 5%

 

ABC Analysis

ABC Analysis

ABC analysis is done on the basis of cost and usage basis.

This analysis tells us that---

Category % of items % of annual cost consumption

A 5-10 70

B 10-20 20-30

C 70 5-10

Item#

Annual Demand

Cost Demand x Cost

% of total cost

Class

234 50 200 10000 10% B

170 10 200 2000 2% C

222 100 800 80000 80% A

410 50 100 5000 5% B

160 15 200 3000 3% C

Total 100000

ABC Analysis -contd

FSN Analysis

F= Fast moving, needs special attention.S=Slow moving, needs less care. But

obsolescence to be avoided.N=Non-moving, these items should be identified

and reviewed periodically.

Scrap/ waste controlThere are 2 types of scrap----a. Regular scrap itemsb. Engineering items1. For regular scrap items the hosp has a separate scrap

room. It is located near the hosp itself.2. The scrap note is prepared by the user dept.3. Valuation of the scrap item.4. Hierarchy for sanction of scrap.5. Freezing the rates depending on the period of time.

Hospital Scraps

VED AnalysisV=Vital E=EssentialD=Desirable

ABC & VED Analysis are integrated into a matrix. V E D 1= 17% items

A 1 1 1 2= 45% itemsB 1 2 2 3= 38% itemsC 1 2 3

6. Preparing the scrap scale note.7. Finally the scraps are gate passed i.e.

approved by the authority to sale.8. For the engineering scrap they have a

Godown where the items are accumulated. The same procedure is followed for the disposal.

9. The wastage are written off from the balance sheet of the hospital.