This document discusses materials management in healthcare institutions. It defines material management and its importance, stating that 25-40% of health expenditures are on materials. The aim of material management is to ensure the right quality, quantity, and cost of supplies are available at the right time and place. It discusses various elements of material management like forecasting demand, purchasing, quality control, storage, and inventory management. Inventory management techniques like economic order quantity, reorder level, and ABC analysis are explained. The document emphasizes the need for proper planning, organization, and control of materials from initial purchase to use to ensure efficient use of resources in healthcare.

1. Materials Management
Dr. Mitasha Singh
Department of Community Medicine
DRPGMC, Kangra at Tanda

2. Definition
• Material may be defined as equipment,
apparatus and supplies procured, stocked
and utilized by an organization
• Management is a process which is applied to
convert inputs into outputs (goods or
services) or a process of planning,
organizing, staffing, directing and
controlling, usually by a manager

3. Material Management
• A scientific technique concerned with
planning, organizing & control of flow of
materials from their initial purchase to
destination

4. MM in health care Institutions
• Developed in USA during second world war
which helped them to make a spectacular
progress in improving their productivity.
• MM in India was introduced in sixties.
• Hospital organizations are an ideal
situation for application of this concept as
25-40 % of budgetary expenditure is done
on accomplishing the store function.

5. Why material management is of
importance?
• Financially: Large proportion (25-40%) of health
expenditure is on materials
• For better availability: Supply of right material at
right time
• Complex requirement: Technical and non-technical
items
• To maintain cold chain for vaccines
• Contraceptives supply
• Social marketing is to be supported
• There is need and potential for increased efficiency
and effectiveness

6. Aim
To ensure
1. The Right quality
2. Right quantity of supplies
3. At the Right time
4. At the Right place
5. At the Right cost

7. Objectives
• Most important aspect of MM is to obtain correct quality of
materials at lowest possible cost (economic order quantity)
• High inventory turn over
• Low storage cost (reduce capital and recurring expenditure)
• Maintain continuous supply
• Maintain quality of purchase
• Cordial relationship with suppliers
• Good records
• Avoid wastage

8. Elements of MM
• Identification of items
• Estimating demand
• Forecasting the materials
• Purchase and procurement
• Inspection and quality control
• Storage
• Inventory control
• Issue procedure
• Maintenance, repairs, condemnation
• Information system

9. Material planning
• Identification of items for eg: drugs.
• WHO has published a guideline list of basic or
essential drugs, which are indispensable and
necessary for health needs and updated time to time.
• For finalization of drugs to be purchased for hospitals
or health centers , a committee is formed of clinicians,
pharmacologists, administrators, medical stores etc.
to make short lists.
• the lists contain the non-proprietary generic names,
which helps in lowering the cost

10. • Estimate future demands:
• Time trend over a period of 2-3 years is seen,
requirements may be estimated for different items,
fluctuations, unusual occurrences in past, stock
out positions, excess stock .

11. • Selection of sources of supply:
• Most important responsibility of purchasing
• Supplier must be motivated, assisted and
periodically evaluated
• Two evaluation techniques: the weighted
point method and the cost ratio method
(adopted by health services dptt.)

12. Forecasting
• A process of estimating the relevant events
of future, on the basis of their past and
present analysis.
• Sales forecasting is to be done first and then
should be converted into material
requirement.

13. Methods for forecasting
Four basic types-
• Qualitative- subjective/ judgemental and are
based on estimates and opinions.
• Time series analysis- data relating to past
demand can be used to predict future
demand.
• Simulation models allow the forecaster to
run through a range of assumptions about
the condition of the forecast.

14. Indenting and Purchasing
• Purchase is a strategic activity, directed
towards acquiring materials, supplies,
equipments and services for the purpose of
consumption and rendering services by
organization in an efficient manner.

15. Centralised purchasing
enables quality control,
improved negotiating
capacity, hence minimizes
the cost.
may be delay in supply and
in distribution of the
stores, possibility of
consumer dissatisfaction
Advantage: Disadvantages :

16. Decentralized purchasing
• The peripheral units are
responsible for purchase and
distribution hence top
authority can get more time
for other organization
activity. Will be faster to
needs in emergencies, better
liaison and tight control as
purchase officer will have
more depth knowledge of
requirements.
• Can be expensive as
replication by each dept,
increases manpower
consumption since they have
to spare time for other than
their regular work. If
purchase is not managed
well, inspection and quality
control can suffer, inferior
goods may be supplied and
out of stock situations is
common
Advantages Disadvantage:

17. • Tender system is a form purchasing materials at competitive price,
without compromising the quality to be transparent and accountable
to people.
• Single tender- where only one firm is asked to submit its rates in
writing
• Limited tender- where bids are called for only from reputed /
prequalified parties
• Open tenders - through advertisement in media
• Global tenders -in case of large purchases tenders are often invited
from within India and abroad
• Indent: An internal company document used in the
purchasing process to authorize the requisition of materials prior to
initiating a purchase order.

18. Problems faced
• Inadequate delegation of financial power at
appropriate level to meet responsibilities
assigned.
• Prolonged lead time between placement of
indent and receipt of goods.
• Inaccurate estimates of demand leads to
either overstocking or shortage.
• Malpractices and pilferage

19. Purchase record
Need recognized,
demand
estimated
Tender/enquiry/imports
Suppliers records

20. Follow up
Invoice
check

21. Inspection and quality control
• ISO and ISI stipulates standard of quality.
• It is preferable to purchase items that bear
such certification , in other cases inspection
is done before purchasing/acceptance.
• Qualified Quality control inspectors are
usually appointed for this purpose.

22. Receipt
• After delivery the drugs are kept separate
from other stock until complete inspection
of supplies is complete.
• Ensure supplier has fulfilled the contract in
terms of quality, quantity, packaging, type of
items, consumption form any other special
requirement.

23. Storage of materials
• Medical and non-medical items to be kept
separate
• Convenient place for receipt of supplies and
delivery with adequate space and facilities,
preferably located in basement
• Combustible and non-combustible substances
to be kept separate
• Place to be free from rodents
• Poisonous and narcotic substances to kept
separately

24. Flow of Goods and Stores Accounting
• Rule of first in first out (FIFO)
• Rule of first to expire first out (FEFO)
• Last In, First Out (LIFO)- generally not recommended
in health care establishment
• Specific cost method- values of the material charged off
/ taken on charge are identical to the material issued /
received and hence is the most suitable method of
maintaining stocks in commercial organisations
• Average cost method: Average cost of each item issued
from stores/ received at stores is assessed and this value is
taken for maintaining the cost of inventory held by the
organisation

25. • Pilferage:
• Stealing of stores in small quantity which is
usually a continuous process/ ongoing
activity.
• Prevention- packing of drugs, Stamping of
containers, periodic surprise checks, strict
accounting system for vital and costly drugs,
internal audit of stores, minimum staffing,
computerization of stores, stockless
purchasing…

26. Inventory control
• Inventory may be defined as “usable but idle resource
having an economic value”.
• When we deal with tangible (touchable) items such as
materials, it is called stock. The literal meaning of word
inventory is stock of goods.
• It is done to ensure that adequate amount of raw
materials are available to meet the demand of the
organisation in a health care establishment some inventory
of essential drugs and supplies has to be maintained to
ensure that health care to patients does not suffer.

27. Important Terms in relation to
Inventory Control
• Order Cost: The cost of placing an order for
inventory. It includes advertising costs, salaries
of personnel required to determine the
inventory, stationary cost.
• Purchase cost: is the actual cost paid for the
purchase of materials & stores, and the aim
should be to reduce this as far as possible
without compromising on the quality and
quantity of items purchased.

28. • Inventory carrying cost: are the hidden costs
and pertain to maintenance of a large
inventory/stock. It include
• Cost of borrowed money which is the interest
paid to a financier or the interest lost which
could have been earned, had a large amount of
money not been used for purchasing the stock
presently held as inventory
• Cost of space: which needs to be hired for
storage, utilised for storage & which could have
been utilised for other activities

29. • Cost of additional manpower: by incurring
additional expenditure on salaries, etc. of
manpower required to manage the stocks
• Cost of obsolescence (out of date): All
materials, especially hospital supplies,
become obsolete, leading to financial loss

30. • Cost of deterioration : Supplies when stored
for a very long time tend to deteriorate with
time, especially crucial hospital supplies like
injections, medicines and intravenous
medicines etc
• Cost of pilferage: A large and unmanageable
inventory is bound to lead to pilferage and
loss to the organisation.
• Cost of insurance: Expensive inventory also
needs insurance against unforeseen
conditions

31. • Shortage costs are the direct and
indirect costs paid by an organisation
for not having a particular item in ready
stock.
• Direct cost is in form of the expenditure incurred
by the hospital in procuring these drugs urgently
from the open market at a premium.
• Indirect cost is in the form of adverse publicity,
suspended healthcare in form of refusal of
admissions and may be a few avoidable deaths due
to shortage of those critical drugs.

32. • Lead Time: It is the time required between placing
an order & receiving the same. The delays are at –
administrative level, production level, transportation
level & finally inspection & storage of received items.
• Internal LT- time gap between the moment at which
someone is aware of the need for additional stock and
the order is placed.
• External LT- time taken by supplier to supply the
materials after it receives the supply order from an
organization

33. • Buffer or safety stock- Stock that must be
maintained as emergency supplies for
unforeseen demands.
• Reorder level- the stock level at which fresh
orders have to be placed. It is calculated as
average consumption per day multiplied by
the lead time plus the buffer stock.
• Stock turnover- use the items before their
warranty or shelf life expiry date, use items
on a first in first out (FIFO) basis

34. Inventory management techniques
• For efficient inventory management, we
have to answer
-how much should be ordered ? (ans;EOQ)
-when should it be ordered ? (ans;reorder
point)

35. Economic order quantity
• ordering materials whenever stock
reaches the reorder point
• It tells how production to be scheduled
• optimum level of inventory involves two
types of cost
1.ordering cost
2.carrying cost

36. Ordering cost
• It is the entire cost to acquire the raw
material(supplies).
• It include
-Requisitioning
-order placing
-Transportation
-Receiving, inspecting and storing
-clerical and staff

37. Carrying cost
• It is the cost incurred to maintain the given
level of inventory
• It include
-Warehousing
-Handling
-clerical and staff
-Insurance
-Deterioration and obsolescene

38. • Assumptions
-known annual requirement
-steady usage
-ordering and carrying cost to be constant
through the entire period
Trial and error approach

39. Example
• Estimated annual requirement, A
=1200unit
• Purchasing cost per unit, P(Rs) =50
• Ordering cost (per order),O(Rs) =37.50
• Carrying cost per unit,c(Re) =1

40. Total cost in the various orders
Order size(Q) 1200 600 400 300 240 200 150 120 100
Average
inventory(Q/2)
600 300 200 150 120 100 75 60 50
No.of orders
(A/Q)
1 2 3 4 5 6 8 10 12
Annual carrying
Cost (Rs)(cQ/2)
600 300 200 150 120 100 75 60 50
Annual
ordering cost
(Rs)(OA/Q)
37.5 75 112.5 150 187.5 225 300 375 450
Total annual
costs (Rs)
637.5 375 312.5 300 307.5 325 375 435 500

41. Inference from the TC table
Order Total cost
1.For single order(once in year) 637.5
2.12 order (once in a month) 500
3.4 order(once in every 3 month) 300
i.e.the third option is the most economic

42. Order formula approach
• It is more easier way compared to trial and
error approach
• A=Total annual requirement
• C1- Replenishment/ procurement cost per
order
• C2- inventory holding cost/item
• EOQ= √2*A*C1/C2

43. Example
• Cost of one drug- Rs 180/ bottle
• Required at average rate of 60 bottles a month
• Cost to replenish the stock of an item – Rs 50 per
order
• Cost of holding inventories- Rs 2.60 per bottle
• EOQ-√2*60*12*50/2.60=167
• Since the drug has limited shelf life of 2 months,
max quantity to be ordered will be equal to 2
month’s consumption
• Reorder level= 2* 60=120

44. Graphical method
• Vertical axis =costs
-carrying cost (TCC)
-ordering cost (TOC)
-Total cost (TC)
• Horizontal axis =order size (Q)

45. Order Quantity Size (Q)
Cost(Rs.)
EOQ
Tc (Total Cost)
Carrying Cost
(Q/2)H
DS/Q (Ordering Cost)

46. • Carrying cost increases with increase order
size, because of large have to be maintained
• Ordering cost decline with increase in order
size, because larger order size means lesser
no of order
• Total cost has the behaviour of both
ordering cost and carrying cost
• EOQ=deviating point of TC

47. Method of inventory control
• ABC analysis (always better control)
• method for dividing on-hand inventory into
three classifications A, B, C based on annual
consumption unit.
• “A” items : money value is highest 70%,
represent only 10-15% of items
• “B” items : money value is medium 20%,
represent about 20-25% of items
• “C” items : money value is lowest 5-15%,
represent about 70% of items

48. • A items: procured frequently, the quantity
per occasion being small or atleast not
greater than EOQ
• B items: control need not be as rigid or
detailed as A items
• C items: procurement policy exactly reverse
of A items i.e. C items may be procured
infrequently and in large quantity

49. Methods of control
Advantage of ABC analysis
• Helps to exercise selective control over such items, which are
having a sizable investment.
• Helps to point out obsolete stocks easily.
• Provides sound basis for allocation of funds & human resources.
• It enables the maintenance of high inventory turn over rate.
Disadvantage
• Considers only money value of items & neglects the importance
of items for the production process or assembly or functioning.
• It does not categorize the items based on their critical needs,
hence sometimes the purpose of ABC categorization may be
defeated.

50. Steps involved in implementing the
ABC analysis
• Classify, determine expected use & price of the
inventories
• Determine total value of item(expected
unit * unit price)
• Rank the items (according to total value)
• Compute the ratios (no. of unit/total unit) &
(each value of item/total value of all item)
• Combine on the basis of relative values (A,B,C)

57. • VED: Based on criticality and importance of consumables,
items are classified as Vital (V), Essential (E) and Desirable
(D)
• Vital (V): The medicines that are critically needed
for the survival of the patients, which must be
available in the hospital all the times.
• Essential (E): Medicines with lower critical need,
which may be available in the hospital.
• Desirable (D): The remaining medicines with
lowest critically, the absence of which will not be
detrimental to the health of the patients.

58. ABC-VED Matrix Analysis
• 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

60. • Category I is high priority group, requires greatest attention.It contain
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.
• 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 control.

61. • HML: Items are classified based on cost of
individual item as High cost (H), Medium cost
(M) and Low cost (L). This classification does
not depend on consumption of items.
• SDE system is based on the ease of availability
of items and items are classified as Scarce (S),
Difficult to obtain (D) and Easy to obtain (E).
• GOLF system is based on the source of supply &
includes Governmental sources (G), Ordinary
(O), Local (L) and Foreign (F).

62. • FSN: Items are classified based on the rate
of issue from the stores into Fast- moving
(F), Slow moving (S) and Non-moving (N)
items.
• SOS is the classification of items based on
Seasonal (S) and Off-seasonal (OS)
availability.
• XYZ is the classification based on the value
of stocks of items held.

63. Maintenance, repair and
condemnation
• Preventive maintenance of sophisticated
expensive equipment, with training of users
• Repair to medical equipment is another area
where better management practices are
needed
• Criteria for condemnation- non functional
and obsolete item, beyond economical
repair, functional but
obsolete/hazardous/no longer required.

64. Information system
• Records maintenance
• Bin card- record of receipt, issue and stock
on hand

65. Summary
material
management
material
planning
purchase &
procurement
inspection
&quality
control
storage
inventory
control
issue
procedure
maintenance &
repairs
information
system

66. Thank You