Senapati Bapat Road, Pune: 411004, (MS), India

Phone: 91-20-25655023, 8888892258

Email: [email protected]
Website: www.schcpune.org

Roll number: 17200077

Name of the program: PGDHHM -Post Graduate Diploma in Hospital & Health Care
Management

Assignment no. 3 (based on module 3): Materials Management

Total marks: 100

1st Set of Assignments (Modules 1 to 5)

Module 3
Materials Management
Total: 100 Marks

Answer the following questions. Each question carries 20 marks.

1. Enumerate objectives and functions of material management and describe

newer concepts used in materials management.

The need for materials management was first felt in manufacturing undertakings. The servicing
organizations also started feeling the need for this control. And now even non-trading
organizations like hospitals, universities etc. have realized the importance of materials
management. Every organization uses several materials. It is necessary that these materials are
properly purchased, stored and used.

Any avoidable amount spent on materials or any loss due to wastage of materials increases the
cost of production. The object of materials management is to attack materials cost on all fronts
and to optimize the overall end results. Materials management connotes controlling the kind,
amount, location and turning of the various commodities used in and produced by the industrial
enterprises. It is the control of materials in such a manner that it ensures maximum return on
working capital.

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Definition: Material management is the integrated functioning of the various sections of an

organization dealing with the supply of materials and allied activities in order to achieve
maximum co-ordination.

Importance of Material Management:

Material management is a service function. It is as important as manufacturing, engineering and
finance. The supply of proper quality of materials is essential for manufacturing standard
products. The avoidance of material wastage helps in controlling cost of production. Material
management is essential for every type of concern.

The importance of material management may be summarized as follows:

1. The material cost content of total cost is kept at a reasonable level. Scientific purchasing helps
in acquiring materials at reasonable prices. Proper storing of materials also helps in reducing
their wastages. These factors help in controlling cost content of products.

2. The cost of indirect materials is kept under check. Sometimes cost of indirect materials also
increases total cost of production because there is no proper control over such materials
3. The equipment is properly utilized because there are no break downs due to late supply of
materials.

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4. The loss of direct labour is avoided.

5. The wastages of materials at the stage of storage as well as their movement is kept under
control.

6. The supply of materials is prompt and late delivery instances are only few.

7. The investments on materials are kept under control as under and over stocking is avoided.

8. Congestion in the stores and at different stages of manufacturing is avoided.

Objectives of Material Management:

The objectives and functions of materials management can be categorized in two ways as
follows:
Primary objectives
Secondary objectives
They are discussed below:
Primary objectives Which can be classified as: (i) Efficient materials planning (ii) Buying or
Purchasing (iii) Procuring and receiving (iv) Storing and inventory control (v) Supply and
distribution of materials (vi) Quality assurance (vii) Good supplier and customer relationship (viii)
Improved departmental efficiency
(II) Secondary objectives There can be several secondary objectives of materials management.
Some of them are given below: (i) Efficient production scheduling (ii) To take make or buy
decisions (iii) Prepare specifications and standardization of materials (iv) To assist in product
design and development (v) Forecasting demand and quantity of materials requirements (vi)
Quality control of materials purchased (vii) Material handling (viii) Use of value analysis and
value engineering (ix) Developing skills of workers in materials management (x) Smooth flow of
materials in and out of the organization To fulfill all these objectives, it is necessary to establish
harmony and good coordination between all the employees of material management
department and this department should have good co-ordination with the other departments
of the organization to serve all production centers.

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The basic objectives of management in an organization are: (1) Sales increase through sales
promotion (2) Profit maximization (3) Improvement in customer services (4) Globalization of its
product sales (5) Meet the technological changes (6) Good employer - employee relationship (7)
Selection of alternative materials (8) Reduction in manufacturing and other cost. (9) Social
objectives in order to fulfill these basic objectives of management the objectives of materials
management should be set in such a way that they should totally help to meet ultimate goals.

Functions of Material Management:

In order to fulfill the objectives of materials management as stated above to meet the basic
objectives and goals, the functions of the materials management are also categorized as primary
and secondary functions.
(I) Primary Functions
To meet the primary objectives, the primary functions of the materials management are given
as follows:

(i) Materials Requirements Planning (MRP)

Planning of materials requirements in manufacturing is a necessary function in any organization,
as inventory of materials involve about 60% of the total investment of the organization. The
profit earned depends on the utilization of these materials and reducing the inventory of the
materials.
The latest technique used is called Just in Time (JIT) is referred practically to no inventory.
However, in the present situations in any of the organization particularly manufacturing
organization, it is not absolutely possible to keep no inventory of materials required for
production. The MRP is a technique used to plan the materials starting from the raw materials,
finished parts, components, sub-assemblies and assemblies as per Bill of Materials (BOM) to
procure or produce them to support a Master Production Schedule (MPS). It is used on
computers productively by any company that uses a MPS to manufacture
products that require assemblies, components and materials to produce the final products. The
MPS is exploded using the bills of materials to determine requirements of lower-level
assemblies, components, finished parts and raw materials. It plans orders to meet these needs.

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(ii) Purchasing
All the organizations needs an efficient and economic purchasing and procurement of its various
supplies of materials from the suppliers. The materials management department has to perform
this function of purchasing and procurement of materials very efficiently. Since 50% to 60% of
sales turnover is spent on the purchase of various materials, the amount of profit earned on this
sales very much depends how economically the materials are purchased and utilized in the
organization. The profitability depends on the efficiency by which this function of purchasing
and procuring the requisite materials at
appropriate time will be done, and its availability is assured.
The function of purchasing can be stated as follows:
(1) The requisition of material is necessary by proper authority to initiate its purchase.
(2) To select proper supplier for the materials requisitioned, before placing an order.
(3) To negotiate about the price of the material from the supplier and it will be purchased at the
cheapest price.
(4) The quality of material must be assured and should not be compromised with the cost of the
material.
(5) The material should be purchased of right quantity and right quality at proper time at the
cheapest cost.
(6) To set the proper purchase policy and procedure.

(iii) Inventory Planning and Control

The modern concept of inventory planning is that the materials should be purchased and
brought in the stores just before it enters the production or sold out so that inventory cost is
negligible. The zero inventories are the ideal planning. There are three types of inventories.
(i) Raw materials
(ii) Purchased goods
(iii) Finished parts and components
The inventory control of these various materials lies with the materials management
department, production department and sales department. Inventory at different levels is
necessary to make sure about the availability of all these types of materials and goods and their
proper flow from one facility to

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another at different levels of production centers in a manufacturing concern.

The storing of various types of materials and parts as inventory is therefore very essential before
its delivery and use at different production centers. This involves inventory planning and control
of materials in the stores department. Many a time, the supplier may not be in a position to
supply the materials of the ordered quantity at the proper time. To maintain the continuity in
production and line balance in assembly work, the various types of inventories are necessary to
be maintained and kept in the stores.
The raw materials before being supplied to a production process, some of it is sent to store as
inventory and rest is sent to production facility as per its requirements and in the same way,
various parts manufactured and assembled as components and assemblies are also stored as
finished parts inventories at the different places in the stores. The final products before being
supplied to the customers are also stocked as inventory of final products of the organization to
meet the fluctuating demand and to regularize the supplies in the market.

Thus, the inventory control is a very important function of the materials management
department. The various types of inventory models are developed for the different materials to
economize the purchase, supply, inventory control and production control to analyze and
optimize the costs involved in ordering, set-up and inventory carrying of materials required in
the production.

(iv) Ascertaining and Maintaining the Flow and Supply of Materials

Distribution of materials requisitioned by the various production centers and other departments
must be ascertained and its flow and continuity of supply must be maintained by the materials
management department. Insufficient or zero inventories many times create the situations of
stock-outs and leads to stoppage of production. Failure of materials handling devices is also
responsible for disruption of material supplies. Alternatives or emergency supply systems can
be used for assuring production lines to continue. Uncertainty in demand and production
quantity is the main factor. As the customer requirements as per his needs and liking, are
changing very fast. The management has to maintain continuity in production to meet this
uncertainty in demand and control the situation by proper flow of materials supply and

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distribution at various production facilities and other departments as per changes in production
quantity.

(v) Quality Control of Materials

The quality of the product manufactured by the organization depends upon the quality of the
materials used to manufacture that product. It is a very important and necessary function of
materials management to purchase the right quality of materials. The inspection, quality
control, simplification, specification, and standardization are the activities which are to be
followed for the measurement of quality of the materials. The quality assurance is decided by
inspection and checking. The various properties of materials as per their specifications and
standard. The size and dimensional measurements within tolerance limits assures the
interchangeability and reliability of components and parts. Quality is largely determined by
consumer taste and liking. The market is under buyer’s control. Customer decides the quality of
the product. Material quality control aims at delivering product at higher and higher quality at
lower cost. The product will be specified not only by its dimensional accuracy but its quality
standards, durability and dependability, high performance, reliability and aesthetic value. Each
of this factor aids cost to the product.
In order to achieve high quality, the materials input to the product should be of high quality,
which will have higher cost. The performance decides the reliability, which is obtained through
high quality production. The performance is checked by quality inspection and accuracy. This
also aids cost to the product. The quality of the materials also decides the selection of vendors
and the relationship between buyers and suppliers. The specifications, size and quality of
materials must be referred and if possible, the standard should be followed for specifications
and sizes. The types of tests required for assuring the quality should be specified and conducted
to establish the standards.

(vi) Departmental Efficiency

The objective of this function is to ensure the efficiency of the system adopted. If the system
and procedure adopted for materials management are inefficient or faulty, none of the
objectives mentioned above can be fulfilled, howsoever the procedure may be good. In order to

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maintain the things in proper way as per planning an efficient control is necessary in the
department over each process. Management Information System
(MIS) and feedback control at every stage of working must be adopted to control and make the
management and employee work as efficiently as possible to achieve the best results.

(II) Secondary Functions

There can be number of secondary functions. Some of them are discussed below:
(i) Standardization and Simplification
The standards and specifications of various types of materials are fixed by design and technical
department of the organization and they are followed by production department. Standards
define the quality, reduction in sizes and variety, interchangeability of parts and products. It
ensures efficient utilization of materials and reduces wastages. Standard materials are always
available at reasonable cost. It also helps purchasing department in selection of materials and
vendors. If less variety of items purchased and put in the stores the types of inventories will be
reduced and in this way the cost of carrying the inventories in the stores will be reduced. The
objective of this function will be to produce standard product reducing the overall cost of the
product.

(ii) Design and Development of the Product

The variety in product and functionality are the important factors to promote the sales of a
product. The new techniques of designing a product using Computer Aided Design (CAD) has
made possible to develop variety of products at faster
rate. The new technological development in manufacturing using Computer Aided
Manufacturing (CAM) can produce variety of products at much faster rate with all types of
flexibility in the manufacturing as compared to conventional methods. Materials management
department must act according to use of such variety of materials to produce variety of parts
and ensure the supply of such materials. It should also be decided how to purchase and produce
such variety of products with flexibility and economic cost.

(iii) Make and Buy Decisions

These types of decisions are the policy decisions of the management. The capacity of the
organization and the various facility developed by the organization to manufacture various items

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is the main objective of every organization. This is the important planning activity of every
undertaking. But when a company grows fast, its sales increases at rapid rate then it becomes
an important matter to decide whether the company should buy the parts and components or
increase and establish its facilities to cope up with the increased demand and sales. This will be
greatly concern to materials management department. It will help in selecting the suppliers to
buy the items at reduced cost. The material evaluation, its availability, alternative materials
selection, procurement and inventory control are the functions influence the make and buy
decisions. The make and buy decisions are largely based on cost economics and cost benefit
analysis made by the organization using the existing production capacity of labor, skill and
machines available with the factory and how best they can be utilized.

(iv) Coding and Classification of Materials

This is an important function of the materials management to help the production and
purchasing department of every organization. It uses its own methods of classification of
materials used to manufacture the product or a company selling various goods. ABC analysis is
one of the simple and standard method used by most of the firms for classification and storing
their variety of materials. The materials are recognized to purchase and store as an inventory by
its codes and nomenclatures. The various methods of coding are used by every organization to
control the variety of materials and its quantity and price rates.

(v) Forecasting and Planning

Materials requirements planning is based on correct forecasting of sales and demand of the
products in the market. The market fluctuations are to be observed to control production of the
organization. The various methods of forecasting are available, and the materials management
department can choose
the one which gives the best results to the company.
Forecast of future demand of sales sets the planning of materials supply. Analytical methods are
adopted for systematic forecasting and planning to procure the various materials required for
production.

In case of fluctuating demands, there can be uncertainties in supply as well. This can be
overcome by maintaining the proper quantity in inventory of short supply materials at proper

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 Senapati Bapat Road, Pune: 411004, (MS), India
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time. The different techniques available to use correct forecasting have to be utilized by
materials manager to plan the procurement, purchase, supply, managing the outside and inside
transport and storing of the materials to maintain the supply chain lines at every production
facility to meet the changes in production quantity and schedule of production to meet the
fluctuating demand of sales of products manufactured by the organization.

2. What is inventory control? Describe functions and techniques of inventory

control.

"Inventory Control" focuses on the process of movement and accountability of inventory.

This consists of strict polices and processes regarding:
1. The physical and systemic movement of materials
2. Physical Inventory and cycle counting
3. Measurement of accuracy and tolerances
4. Good Accounting Practices

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The simple meaning of inventory in dictionary is “detailed list of all the goods in stock.”
• In short, inventory can be defined as the “a stockpile of goods an organization is offering for
sale and components that are used in the manufacturing process.”
It includes:
a) Finished goods
b) Raw materials (works in process)
c) Supplies

• Organizations such as hospitals provide the consumer with finished goods i.e. medicines
and drugs. Inventory is purchased in salable form and used without any further processing.
• Inventory exists because supply and demand are difficult to synchronize perfectly.
• Different types of costs are associated with inventory like item cost, ordering costs, holding cost
and stock-out cost.

Need for inventory control

• Inventories constitute the most significant part of the current assets, representing as much as
50%-70% of the capital investment. Therefore, it is imperative to manage inventories
effectively and efficiently in order to avoid unnecessary investment in them.
• If a company's inventory level is too low, it risks delays in fulfilling its customer orders.

If the inventory level is too high, it is using up money that can be better used in other areas. It
also risks obsolescence and spoilage.
• In hospital, about one-third of the annual expenditure budget is spent on buying medicines (Kant
S., et al; 1997). To minimize the inventory investment, the hospital may keep the medicines
inventory low, but on the other hand, maximum service to the patients cannot be provided and
the lack of medicines for patients in critical condition may cause serious problem.

Defining inventory control

• Inventory Control is defined as the supervision of supply, storage and accessibility of items in
order to ensure an adequate supply without excessive oversupply.
• The objective of inventory management is to have the appropriate amounts of materials in the
right place, at the right time, and at low cost.

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Functions of Inventory Control

Techniques of inventory control:

ABC ANALYSIS
• ABC analysis is based on Pareto principle (80-20 rule) which states that 80% of the overall
consumption value (expense) is based only on 20% of the total items.

i.e. small portion of the items may typically represent the bulk of money value, while a
relatively large number of items may form a small part of the money value.
• ABC analysis is a method for dividing on-hand inventory into three classifications A, B, C
based on annual consumption unit.
• “A” item: money value is highest 70%, represent only 10% of items
• “B” items: money value is medium 20%, represent about 20% of items
• “C” items: money value is lowest 10%, represent about 70% of items

• The following steps along with example will explain to we the classification of items
into A, B and C categories

1. Find out the unit cost and the usage of each material over a given year.
2. Multiply the unit cost by the estimated annual usage to obtain the net annual value.

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3. List out all the items and arrange them in the descending value. (Annual Value)
4. Accumulate annual value and calculate cumulative percentage of annual value.
5. Categorization and summary

Management policies for ABC categorization:

• Managing all the inventories in hospital will take personal time and costs money. ABC
classification shows that not all the inventories need to control with equal attention.
• ABC analysis for prioritization allows the management to decide which items require most
effort in controlling

A-items should have tight inventory control under more experienced management. Re-orders
should be more frequent.
• B-items require medium attention for control. An important aspect of class B is the
monitoring of potential evolution toward class A or, in the contrary, toward the class C.
• C-items require minimum attention and may be kept under simple observation. Re-ordering
is less frequent.

Group A items, which are the costliest should be kept under strict control and should be monitored
closely for turnover and expiry. If such costly items accumulate in large quantities in a hospital, they
would block scarce finances and lead to high cost of operating the hospital. ABC analysis of inventory
leads to certain benefits in form of guidance to the manager about level of control for each type of
item, which are summarized in Table below.

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❑ Advantages of ABC analysis:

1. Helps to exercise selective control over such items, which are having a sizable investment.
2. Helps to point out obsolete stocks easily.
3. Provides sound basis for allocation of funds & human resources.
4. It enables the maintenance of high inventory turnover rate.

❑ Disadvantages of ABC analysis:

1. Considers only money value of items & neglects the importance of items for the production
process or assembly or functioning.
2. It does not categorize the items based on their critical needs, hence sometimes the purpose
of ABC categorization may be defeated.

After the inventory has been classified, the two fundamental questions posed to any inventory
system are how much and when to order?
• There are 2 (two) inventory system that can be used to answer these questions.
1. Fixed order size system
2. Fixed order interval system

1. Fixed order size system (Q-system)

The size of order (Q) is fixed for each replenishment. Time between orders (interval) may vary.

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2. Fixed order interval system (T-system)

The interval between orders (T) is constant, while size of the order vary depending on the need
to reach the maximum stock level.
❖ Example:
• Three most commonly encountered problems in managing logistics of vaccine are stock-out,
inadequate stock and excess stock.
• These problems can be avoided if a minimum/maximum inventory control system is
implemented. This system will ensure that quantity in hand is always between maximum and
minimum stock levels.

➢ For ex; say monthly requirement of DPT vaccine at a PHC is 280 doses and lead time is 1
week.
• Buffer stock = 70 doses (25% of requirement)
• Minimum stock (Re-order level) = lead time + buffer stock = 70 + 70 = 140 doses

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• Maximum stock level = minimum stock + stock used between orders (3 weeks stock) = 140 +
210 = 350 doses
➢ As soon as the stock falls to re-order level, inform the district vaccine stores for
replenishment and place and indent to avoid stock-out.

3. Describe Equipment procurement. Discuss condemnation and disposal procedures.

Steps in equipment procurement:

a) Create awareness about the equipment planning and management among all
the functionaries of the hospital.
b) Planning and assessment, demand estimation.
c) Provision of budgets and finance.
d) Technology assessment and selection.

e) Procurement and logistics.

f) Installation and commissioning.
g) Training and skill development.
h) Operation and safety of equipment as well as occupational safety.
i) Maintenance and repair.
j) Monitoring and evaluation
k) Decommissioning and disposal.
Create awareness about the equipment planning and management among all the functionaries
of the hospital: Equipment planning determines the objectives to be achieved and future
course of action to be taken to achieve them. Planning of the equipment is also based on
deciding in advance. Just acquiring equipment is not a sound planning. Hospital equipment
these days are very expensive. It is mentioned that in a modern hospital, equipment and
appliances make about a third to half of the total project cost. In a recent estimation, it has
been calculated that idle, non-installed or nonfunctional equipment responsible for wasteful
expenditure of millions of rupees, in hospital. The lack of preventive maintenance, non-
availability of required funds for maintenance are mainly responsible for failure of
equipment maintenance and failure.
Planning and assessment, demand estimation i.e., realistic demands: The first point in the

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planning process is the realistic demand estimation of equipment in the hospital. The
equipment planning is required to have broad skills in the management of several areas,
including Technical problems, Finances, purchasing procedures, stores supply and control,
Workshops, Staff development.
Provision of Budgets and Finance: The purchase price of a piece of equipment represents only
a small part of the total lifetime costs of owning that item. The cost of operation, maintenance
and training through the life of the equipment may be as much as four times the purchase
price.
Technology assessment and equipment selection:
The selection of the equipment should be based on the following as per the recommendations
given by Bureau of Indian standards (1994)
i) Need of the hospital
ii) Budget or available funds.
iii) Optimum utilization.
iv) Maintenance of the equipment.
v) Manpower development and training of the staff.
vi) Spare parts management.
vii) Performance and utilization evaluation.
Great emphasis should be given on the selection of the equipment. Hospital equipment is very
expensive. Modern hospital equipment and appliances make up about a third to half of the
total project cost. While selecting the equipment the following factors are to be kept in mind,
they are Hospital point of view, cost of equipment, Profitability of the hospital, Quality
of patient care, use of the equipment.
Patient’s point of view, are cost of treatment, Safety of patient, Quality of treatment, Non-
invasiveness in treatment.

Utilization of Equipment:

Proper utilization of the hospital equipment will lead to Optimal patient handling and rapid
turnover, Minimum possible cost, Quality patient care and satisfaction. Procurement and
Logistics: Obtaining equipment is intensive work, both in terms of time and resources. Number
of factors need to be considered before committing to buying, accepting donations, or hiring
equipment. Reasons for procurement are equipment requires replacement, regular supplies of

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equipment related items are required. Additional equipment is required that is outside the
health facility’s own plans. These points become relevant only when funds are available.

Installation and commissioning:

The equipment once purchased to be installed in a best suitable place to run the services. The
following are the considerations to be kept in mind before installation.
-location
-space availability and Accessibility.
-auxiliary facilities.
Operational requirements are Man power, Material, Methodology and environment. Training
and skill development: After successful installation and commissioning, the users and
maintainers need training on the type of equipment and the model purchased. The training
team often involves different people, such as those with clinical or training skills. After the
training the equipment can be handed over to the user department for regular use.
Operation and Safety of Equipment as well as Occupational Safety: Ensure moveable parts
such as lids, wheels, and extensions are securely locked in place before the equipment is used.
Keep loose clothes away from moving parts.
Always make sure the correct service supplies are available before switching the machine on.
Use only the correct accessories specific to a machine.
Portable equipment is used only while it is safely positioned on a suitable flat surface, such as
a worktop, trolley or the floor.

Maintenance and Repair:

Maintenance is an action or combination of actions carried out of retain equipment in or

restore it to an acceptable condition. The equipment maintenance is one of the most
important components of equipment management. The maintenance program in fact starts
from the planning of the equipment and carries value till the equipment is disposed. The basic
concept of the maintenance policy is to support the life and health of patient while keeping
the

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reliability and safety of the equipment.

Monitoring and Evaluation:

The monitoring is the measurement of day to day or routine activities these may be discrete or
continuous activities. When we measure these activities, record, compile, and analyze these
help us keeping a track of the plan. The effective monitoring process will result into an
effective evaluation process. One of such tools of evaluation and control is the network
analysis, the easiest way is to prepare a chart. Every different type of equipment has its
own way of functioning, and its own safety requirements. Thus, it is very important to know
how to make the best use of all types of equipment, so that they can last if possible, provide
we with maximum benefits, and not become hazardous to we or our patients. Several
investigations have shown that, of the equipment problems reported, approximately one-third
arise from operator problems one-third arise from minor easy to solve technical problems only
one-third require more serious fault-finding procedures and special knowledge of
the equipment. So, at least two-third of the problems could be corrected by properly trained
equipment users.

Decommissioning and disposal:

Assessment of life of equipment can be done on the basis number of years equipment used,
built up structure and technology of equipment, availability of spare parts, change in
technology, obsolescence of technology. Condemnation and disposal of equipment has
become due to nonfunctional and beyond economical repair, functional but hazardous,
functional but obsolete, functional but no longer required. Disposal of equipment is done if the
condemnation committee has certified the equipment as condemned, it is finally disposed by
auction, or buy back to firm, transfer to other hospital, scrap.
The strategy for equipment planning should follow the factors of simple economic technology
should be used. Go for advance technology where it is a must and optimize its use. The
equipment should be easily operable and easy to maintain. Adequate spares should be easily
available to have an uninterrupted supply system

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 Senapati Bapat Road, Pune: 411004, (MS), India
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Condemnation and disposal procedures:

The life cycle of equipment is fairly simple, but one process that seems to cause problems is
deciding when to condemn and how to dispose of equipment.

When looking at condemnation and disposal, the engineer in charge of the department should
have the experience, knowledge, and authority to decide when a piece of equipment should be
scrapped and removed from use.

The reasons for condemning equipment will usually be:

• Beyond economical repair - Where equipment comes in and the cost of repairing it is
considered too high after looking at the current value (taking depreciation into account),
and the age of the equipment.
• Technically obsolete - Parts and service support are no longer available.
• Clinically obsolete - The clinician using the device (or manufacturer) recommend
replacement for clinical reasons. (Diagnostic ultrasound imaging usually becomes
clinically obsolete after 5 years due to the rapid improvements in imaging technology
but can still be used and supported by the supplier.)
• Equipment that has been damaged by contamination.

Criteria for Condemnation:

The following criteria should be followed for condemnation of equipment:

▪ Non-functional and obsolete

▪ Non-functional and beyond economical repair
▪ Functional but obsolete
▪ Function but hazardous
▪ Functional but no longer required

Procedure for condemnation:

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Condemnation committee

This committee assesses and decides whether an item/equipment should be condemned or not.
The recommendation should be based on recommendation of the user department, history/ log
sheet/ alternative place of use and so on. The committee should meet at regular intervals at
least twice a year. The committee may be construed of the following

▪ Designated Medical Officer

▪ Matron/designated Nursing Officer
▪ Stores-in-charge
▪ In charge Maintenance Cell
Scrap

This term applies to unusable materials whose value is only in terms of its materials value e.g.
iron, wood. Surplus from production processing are inevitable. Many raw materials undergo
various transformations in the production process while they are being converted into finished
goods. As a result, not all the materials a firm purchase is wholly consumed; a residue is left.
One company stamps disk from copper strip for use in its main product. From this operation, at
least 15 percent of the copper left cannot be used elsewhere in the firm’s production operations.
The excess copper, therefore, must be disposed of as surplus. It is impossible for management
to eliminate this type of surplus, which is called “scrap”. Rather management’s objective is to
minimize legitimate scrap by means of intelligent planning and effective production controls.

Types of scrap:

The scrap may be two types of processes.

1. Revert scrap- originates as a result of making steel and steel products like those shown, and
others-plates, structural, sheet, coils, bars, castings, wire, and so on. Often called “home
scrap”.

Industrial scrap- originates when steel products are made into items like automobiles, farm
equipment, ships, and the many other things we use that are made from steel.

Disposal

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 Senapati Bapat Road, Pune: 411004, (MS), India
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After an item has been condemned it may be disposed.

Disposal takes five routes:

1. Circulation within the company: The usual method for circulation within the company is
to prepare specifications on the material or equipment and send them to each division. The
divisional management screens all facilities within its jurisdiction to determine whether the
equipment can be used.
2. Returns to vendors: Many vendors allow the return of all types of surplus, both new and
used. This is a courtesy that is routinely granted to large accounts. If the surplus material
cannot be used within the firm, the return-to-vendor method of disposal is generally the
next best meth of disposal.
3. Selling to other firms: Some companies sell surplus materials and equipment directly to
other firms. Sale to other companies, however, often depends upon the physical condition
of the surplus.
4. Selling to dealers and brokers: Surplus dealers and brokers constitute an excellent outlet
for surplus materials. When a firm advertises surplus materials for sale, dealers often
respond. Transactions with dealers are usually “where is, as is,” and most of the time they
are for cash.
5. Selling to employees: Many firms make it a practice to sell both the products the firms
manufacture and the firm’s surpluses to their employees. If the surpluses are the results of
overstocking or obsolescence and the materials are in a new or good condition.

4. Write short notes on. (any two)

a. VED analysis

VED (V-Vital, E-Essential, D-Desirable) classification is based on the criticality of the

inventories, in contrast to ABC classification which is based on consumption value.

➢ Vital (V): The medicines that are critically needed for the survival of the patients, which
must be available in the hospital all the times. Vital items (V) are items like Oxygen which are
vital for functioning of a health care establishment and whose shortage will have serious
adverse effects on routine functioning of the organization.

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 Senapati Bapat Road, Pune: 411004, (MS), India
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➢ Essential (E): Medicines with lower critical need, which may be available in the hospital.
Essential items (E) are the items whose shortage or non– availability can only be afforded for a
short time (such as intravenous sets & IV fluids in a hospital) and if their shortage continues for
anything more than the shortest time, the functioning would be affected seriously and
adversely.

➢ Desirable (D): The remaining medicines with lowest critically, the absence of which will
not be detrimental to the health of the patients. These are iteming whose shortage would not
affect the routine functioning of an organization even if the shortage is for a long time (such as
Vit E capsules or sun screen lotions in a hospital’s medical store)
• For V items, a large stock of inventory is generally maintained, while for D items, minimum
stock is enough

• However, if we only consider VED analysis alone, ideal control can be exercised on the vital
or essential category.
• But desirable category also contained in class A of ABC classification, hence it is not possible
to ignore the desirable category totally.
• And hence a matrix is formulated by combining ABC and VED analysis which can be
used for prioritization, known as ABC-VED matrix.

In hospital inventory management, ABC analysis (based on net value) should be coupled with
VED analysis (based on the criticality of an item) to narrow down the group of medicines
requiring greater managerial monitoring.

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Category I is high priority group, requires greatest attention. The management of class I
medicines by top management would help in keeping a check on the annual budget and their
availability. It contains all the vital and costly items, whose shortage may adversely affect the
functioning of the hospital or whose over stocking /pilferage may lead to financial loss to the
hospital. These items such as Inj Rabipur, Anti snake venom or costly medicines and vaccines
should be monitored by a senior manager himself.
• Category II is under moderate management and moderate attention is devoted. Here items
are essential but are less costly and can have lesser stringent controls.
• Category III is under simple management and receives loose attention. Here items are the
stores and medicines which are desirable but would not affect the functioning of the hospital
even if they are not available for a long time. In addition, this category would also include least
costly medical stores which need not be kept under strict conditions.

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 Senapati Bapat Road, Pune: 411004, (MS), India
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b. Maintenance budget

In order to maintain a quality health service, careful planning of existing and future
healthcare technology needs is essential. Equipment can only be used at its optimum
performance level if it is regularly maintained. Therefore, it is necessary to plan for the
annual cost of maintenance and repair for the equipment stock, which will include any
minor rehabilitation work required.

The objective of drawing up maintenance budgets is to estimate the money required to

maintain and repair the equipment, and thus ensure that the equipment remains
functional for as much of the year as possible. This is known as reducing the ‘mean-
time between failures’ (MTBF). It is important to make an estimate which is as realistic
as possible, since:
◆ under-estimation will result in unsatisfactory maintenance for that year
◆ over-estimation will deprive other essential services in the facility of their necessary
resources. For long-term planning, international experts provide estimates of the
amount which should be set aside each year. These amounts are expressed as a
percentage of the stock value. These estimates are based on an average, so some
equipment in our stock will require much less money and some will require much more
(the precise amount required will depend on the equipment type and age). Experts
suggest that maintenance and repair costs ought to be approximately as follows:
◆ for medical equipment, each year five to six per cent of the ‘new’ stock value is
required
◆ for buildings, each year one to two per cent of the construction costs is required
◆ for service supplies and plant, each year three to four per cent of purchase and
installation costs is required.

Nevertheless, it is common to have maintenance budgets as low as, or even less than,
one per cent of the equipment stock value, making it impossible to keep the equipment
functioning or safe. Also, because maintenance funding over many years has been
generally so low, maintenance staff have automatically self-limited their estimates and
disregarded the need to return many items of equipment stock to a working condition.

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 Senapati Bapat Road, Pune: 411004, (MS), India
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As a start, we need to allocate at least some percentage of the equipment stock value
as our maintenance budget, if our situation is to start to improve. However, we may
have a large backlog of equipment waiting to be repaired. If so, this will have a knock-
on effect on our maintenance budgets, since the real value of annual maintenance
requirements will be much greater than our current planned maintenance budget
levels.

Maintenance costs are more than compensated by the gains obtained from extending
the useful life of equipment. Once we have overcome any backlog of equipment that is
waiting to be repaired, we should ultimately find that maintenance will not generate
costs but saves us money. In some industrialized countries, there are laws in place
which regulate that planned preventive maintenance (PPM) must take place in order to
ensure that equipment is safe. This is useful, as it means that funds for PPM must be
allocated by health service providers. It is likely we will have a great deal of equipment
within our facility which is very old. Some of this equipment may be past the end of its
lifetime and awaiting replacement. Other items may be waiting to be repaired.
However, it must be recognized that it might be uneconomical to continue to try to

repair such equipment.

If a large proportion of our equipment is past rehabilitation, it may be necessary to
make maintenance calculations based on a smaller proportion of the stock which we

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 Senapati Bapat Road, Pune: 411004, (MS), India
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can keep working, while increasing the replacement budget. The longer we leave it to
improve maintenance services, the greater our equipment replacement bill will be.

Elements of Annual Maintenance Budgets

I. Planned Budgets:
These allocate funds for anticipated maintenance costs, which can be derived from the following
main areas
of expenditure (see Figure 21 for strategies on how to calculate our requirements):
a) spare parts – which are required regularly, determined from previous experience and any
planned
remedial work
b) spare parts – which are required according to planned preventive maintenance (PPM)
schedules
and timetables
c) maintenance materials – which are required regularly, determined by previous experience
and any
planned remedial work
d) maintenance materials – which are required according to PPM schedules and timetables
e) service contracts – required for any planned remedial work
f) service contracts – for breakdowns which are likely to be required, determined from previous
experience
g) service contracts – required for PPM of complex equipment
h) calibration of workshop test equipment
i) replacement of tools at the end of their life
j) office material
k) any increased maintenance requirements brought about by planned new equipment
purchases under the
capital expenditure budget.
There will be other elements which may fall under other budgets. These could include:
◆ other administrative costs which are included in budgets held by other departments
◆ major repair works – in some cases the planned rehabilitation of equipment which requires
major work
with the purchase of substantial amounts of materials or contracts. The large sums of money
required for such projects may have to fall under the capital budget
◆ pre-installation work (such as site-preparation). This often falls under capital funds as it is
linked to specific purchases

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II. Contingency Budgets:

In addition to planned budgets, contingency budgets also exist. These allocate funds for
unplanned
maintenance work, such as emergencies, or sudden breakdowns which could not be predicted.
5. A. Multiple Choice Questions
a. The material management has following functions except:
i. Procurement and purchase procedure including setting quality standards.
ii. Accountancy and audit of inventory
iii. Procuring material at highest cost (Answer)
iv. Scheduling of purchase
b. Temperature required to be maintained at cold storage is:
i. 20C - 100C
ii. 150C - 250C (Answer)
iii. 180C
iv. -20C - 100C
c. Analysis based on “quantity and rate of consumption of items” is known as
i. HML analysis
ii. FSN analysis
iii. SDE analysis
iv. ABC analysis (Answer)
d. Maintenance and repair would include following:
i. Master maintenance plan
ii. Preventive maintenance
iii. Repair of equipment
iv. All the above (Answer)
e. “ABC analysis” is the analysis of items which is based on:
i. Criticality of the items in relation to the functioning of the hospital.
ii. Cost criteria
iii. Availability of items
iv. Cost per item per unit. (Answer)

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f. Economic Order Quantity (EOQ) is:

i. √ 2AD (Answer)
H
ii. √2AD × H
iii. √2ADH
iv. √2AD ÷ H
g. The hospital has varied types of stores which can be:
i. General stores
ii. Medical stores
iii. Kitchen store
iv. All the above (Answer)

B) Write 'True or False' in front of respective sentence

a. Generally, in most of the hospitals in India the medical equipment is in a satisfactory state
(False)
b. Letter of credit is a document in which exporter’s bank essentially promises to pay the
importer if the exporter does not pay. (False)

C) Fills in the blanks

Proper maintenance of equipment is essential for the proper functioning of Equipment
Audit Committee.

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