MATERIAL

MANAGEMENT
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
ESTIMATIO INSPECTION
N

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 of
TENDER BUYING drugs as far as the govt. hospitals are
concerned. Under these contracts the firms
 Open tender are asked to supply stores at specified rates
 Restricted tender during period covered by the contact.
(selective) DGS&D keeps a close watch.
 Negotiated  Many state govt. & other organizations,
procurement like ESI, have preferred to have their own
 Direct rate contract.
procurement
 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 including
materials are compared to the - Using Gauges
the buyer and the seller
specifications - Laboratory Tests
- 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 will be Materials Rejected
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

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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
If the material passes inspection

ThIenrveecneitvoinrgy
cCleorknutrsoulally
prepares a “Move
Material Ticket” to the
is transferred
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 whose function.
shortage can be
 E  essential Should always
tolerated forbe present
short in sufficient
period only.
 D  desirable quantity andifsufficient
But safety
not available stock
over should be
a long
maintained
Whose to ensure
shortage
period…adversely 100%
will
affectnot availability.
adversely
patient care andaffect
the patient care or
Controlled byhospital function,
top manager
hospital even if
levels.
functioning.
they areControlled
not availablebyformiddle
longermanager
periods. level.
 COMBINATION OF ABC & VED
ANALYSIS
V E D
A AV AE AD Cat I (15%)
BV BE BD Cat II (40%)
B CV CE CD Cat III (45%)

C
 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….