MATERIAL

MANAGEMENT

MADHUR
VERMA
INTRODUCTION
 Material 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 needed
 To pay the lowest possible price, consistent with quality
and value requirement
 To minimize inventory investment
 To operate efficiently
PURPOSE OF MATERIAL
MANAGEMENT
•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
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 employees
30-35%--- on materials
5-7% ---- 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, breakage
Carrying 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
 Objective of material management
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
Secondary
• Economic Forecasting
•Inter-departmental harmony
•Product improvement
•Standardization
•Make or buy decision
•New materials & products
•Favorable reciprocal relationships
Advantages of MM
 Improved accountability
 Better coordination
 Better performance
 Analysis of data
 Better team work
ELEMENTS OF MATERIAL MAMANGEMENT
DEMAND RECEIPT &
PROCUREMENT
ESTIMATION INSPECTION

DISPOSAL STORAGE

MAINTENANCE
CONDEMNATION ISSUE & USE
& REPAIR
 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
 PROCUREMENT
 Process of acquiring supplies
 Three 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.
 PROCUREMENT
 Methods of purchase:

RATE CONTRACT
Most important methods of procurement
TENDER BUYING of drugs as far as the govt. hospitals are
concerned. Under these contracts the
Open tender firms are asked to supply stores at
Restricted tender specified rates during period covered by
(selective) the contact.
Negotiated procurement DGS&D keeps a close watch.
Direct procurement 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
The Receiving Clerk In Charge

Submit to
Formality Purchasing
- Receiving Report Department, the
user & accounting
Check department
- Against Purchase Order
- Physical check of goods
Enclose:
- Packing Slip
- Bill of Lading
- Invoice for Freight
 Inspecting the Material
Quality Control Head in Charge

Tests:
- Blue Prints Inspection report is sent to all
Characteristics of Incoming
relevant departments
materials are compared to the - Using Gauges
including the buyer and the
specifications - Laboratory Tests seller
- Visual Inspection
 RECEIPT AND INSPECTION
Procedures:
 Unloading & checking supplies
 Unpacking & inspecting supplies
 Goods received notes
 Delivery 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 the Material is Rejected • Materials can be
returned OR
• Reworked OR
• Scrapped off

• If buyer reworks or
scraps the
material – supplier Materials Rejected
will be charged or
credited Material Returned

Material Scrapped • Buyer will prepare

/ Reworks shipping notice
• Reverse purchase
order
 STORAGE
 Medical 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 separate
 Poisonous drugs & narcotics should be stored in locked
cupboards
 Rodent free.
 MONITORING OF EXPIRY Drugs
 There are number of checks:
 Purchased quarterly
 Ensure sufficient span of time to consume it before expiry
date.
 Arrangement with supplier for replacement
 Expiry chart

NAME OF DRUG 2011 2012 re

ma
rks
j f m a m j j a s o n d j f m a mj 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
If the material passes inspection

Inventory
The Control
receiving clerk usually
prepares a “Move Ticket”

Material is transferred to the

User or to the Storage Area

If transferred to stores –
becomes inventory
 IDEAL INVENTORY MODEL
Demand
Order qty, Q
rate
Inventory
Level

ave = Q/2

Reorder point, R

0 Lead Lead Time

time time
Order Order Order Order
Placed Received Placed Received

As Q increases, average inventory level increases,

but number of orders placed decreases
 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

 EOQ

Holding
Costs

Ordering
Costs

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
Copyright 2006 John Wiley & Sons, 12-40
Inc.

Class A
 5 – 15 % of units
 70 – 80 % of value
Class B
 30 % of units
 15 % of value
Class C
 50 – 60 % of units
 5 – 10 % of value
 VED ANALYSIS
Based on critical value of an item and its effect on patient
care.
V  vital item Without which institution cannot
Those items function.
whose shortage can be
E  essential Should always
tolerated for be present
short periodinonly.
sufficient
D  desirable But
quantity and sufficient
if not safety
available overstock should
a long
period…adversely affect
notpatient
be maintained to ensure 100% availability.
Whose shortage will careaffect
adversely and
theControlled
care by
or top
patient hospital manager
functioning.
hospital levels.
function, even
Controlled
if they by middlefor
are not available manager level.
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 ANALYSIS
 Based on availability position of items in market.
S  scarce in market (imported drugs)
D  difficult to obtain
 E  easily available
 Used to avoid out of stock position of items.

FSN
 Based 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 manpower
 A hostile environment
 A 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
MAINTENANCE
 HISTORY SHEET:
 Identification data  make model and date of purchase
 Source of details of supplies and its spares
 Purchase cost and detail of purchase procedure
 Details of breakdowns and repair undertaken
 Expenditure 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 maintenance
 Whether in working condition or not.
 RECORDS NEEDED FOR
MAINTENANCE
 PERFORMANCE RECORD OF EQUIPMENT:
 Essential to recommend for condemnation
 Period since working
 Level of utilization in terms of output
 Periods 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 repair
 Non-functional and obsolete
 Functional but obsolete
 Functional but hazardous
 Functional 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, OPD
 Return to vendor if he is willing to accept
 Sell to other hospitals
 Sell to scrap dealers
 Local destruction
 By 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….