A brief description of Material Management in Hospitals.

1. Brig Gen Dr Zulfiquer Ahmed Amin
M Phil, MPH, PGD (Health Economics), MBBS
North South University (NSU)

2. Definition:
Material Management is the coordinated function responsible to
plan for, acquire, store, move and control materials to provide
customer service in accordance with organizational goals.

3. Materials constitute a significant expenses in hospital activity.
Hence, efficient buying and utilization to meet the need or demand
of hospital is the function of material management.

4. Recurring expenditure of a hospital includes:
• 60%- On salary of employees
• 12-40%- On materials
• 5-7%- On non-material resources (Quiet places, beauty, security, garden and
safety).
Thus, an effective material management can contribute in cost
containment of a hospital.

5. Aim of Material Management
Right material,
in right quantities,
at right time,
at right price,
from right sources,
at a least cost.

6. IMPORTANCE OF MATERIAL MANAGEMENT
• Optimum materials acquisition.
• Prospect of cost reduction.
• Reduction in inventories and storage space.
• Reduction in damage to materials.
• Smooth flow of production.
• Better utilization of resources.
• Effective issue and distribution.
• Elimination of losses and pilferage.
• Greater profit and better patient-care

9. Material Planning
Material Planning is the scientific method of determining the
requirements of consumables, raw materials, spare parts and other
miscellaneous materials essential for the production plan
implementation.

10. 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.
By keeping in the view of uncertainty and allowance, it is required to
include two aspects in forecast output i.e. estimation of demand in
the best way and error estimation to creep in the forecast.

12. Methods of Forecasting Demand
Methods of forecasting demand:
• Last Period Demand
• Arithmetic Average
• Moving Average
Last Period Demand
-Naïve forecasting or Last Period Demand assumes that demand in
the next time period will be the same as demand in the last time
period.
-For example, if a retailer sells 600 BP Machines in February, the
naïve forecast would be for demand of 600 BP Machines in March.
-This approach rules out all the types of fluctuation – like seasonal
variation, pandemic situation etc.

13. Arithmetic Average Method
• Arithmetic Average Method simply takes the average of all past
demands for a certain period in arriving at forecast.
• The arithmetic average works well in a stable situation where the
level of demand does not change. It neglects seasonal fluctuations,
pandemic etc.
Moving Average Forecasting
• 3-Month Moving Average = (M1+M2+M3) / 3
• A three month moving average, for instance, takes the average
demand per month of the three preceding months and updates the
calculation for each month.

14. Moving Average Method of Forecasting:
• Instead of using the most recent period to forecast demand for the
next period, a moving average uses the average demand from a
series of preceding periods to forecast the next period’s demand.
• The moving average mitigates the effects of random variations.
Advantages of Moving Average Forecasting

15. Standardization of Demand
Standardization is grouping together items of similar
specification, use or application to enable hospital to chose one
out of the many similar options.
It ensures:
- Non-duplication of inventory
- Variety reduction
- Economical purchase cost
- Efficient use of materials

16. The price of goods.
Price negatively influences demand of goods.
The type of goods.
Priority is given to commonly used and essential items.
Competitors and product alternatives make selection of item
complex.
Technological advancement. New technology can render various
products obsolete, making the demand forecasting extremely
challenging.
Economic development.
Positive and negative developments in the economies have the
power to make demand forecasting also positive and negative.
Factors Affecting Demand Forecast

17. Procurement Management
Procurement management involves sourcing, generating requests,
placing the order, an inspection of the supply and receiving the
goods. The main aim of procurement management is to optimize the
cost.

19. Methods of Purchasing
2 methods of purchasing:
1. Centralized: All purchases are made centrally.
2. De-centralized: User departments purchase according to
their needs.

20. Purchasing Procedure
• Drawing up specification
• Inviting quotations
• Preparing comparative statement
• Shortlisting
• Issuing purchase order

21. Drawing Up Specification
A specification is a requirements of a commodity, which is clearly
stated, for example about the necessary features in the design of an
MRI machine.

22. Open tender (Inviting Quotations)
•Public bidding, resulting in low prices.
•Published in newspapers.
•Term - 4 weeks.
•Quotations must be sent in the specific forms, that are sold
before the time and date mentioned in the tender form.
•For technical items, ‘two packets or two bins’ system is followed.
Offers are given in two separate packets.
- Technical bid
- Financial bid

23. •First Technical Bid is opened & short listed.
•After that, Financial Bid of selected companies are opened & lowest
price is selected.
•Delayed tenders and late tenders are not accepted.
•Quotations are opened in presence of indenting department,
accounts and authorized persons of party.
•Validity of tenders: The period within which a bidder’s offer is
considered legally binding (Generally 90 days). After this period, the
bidder is at liberty to change their bid, if the contract has not been
signed.

24. Earnest money
2.5 % of the tender amount or as decided has to be paid along with
all quotations. It is withheld in case of default.
Restricted or limited tender
- From limited suppliers (about 10)
- Lead-time is reduced
- Better quality.
Negotiated procurement
- Buyer approaches selected potential suppliers and bargain directly.
- Used in long time supply contracts.
Direct procurement
- Purchased from single supplier, at his quoted price
- Prices may be high
- Reserved for low priced, small quantity and emergency purchases.
Tender Related Terminologies

25. Rate contract
Firms are asked to supply stores at specified rates during the period
covered by the contract.
Spot Contract
- In finance, a spot contract, is a contract of buying or selling a
commodity, for immediate settlement (payment and delivery) on the
spot date, which is normally two business days after the trade date.
- It is done by a committee, which includes an officer from stores,
accounts and purchasing departments.
Risk purchase
If supplier fails, the item is purchased from other agencies and the
difference in cost is recovered from the first supplier.

26. Factors to consider before Purchase:
• Latest technology
• Availability of maintenance and repair facility with minimum
down time
• Post warranty repair at reasonable cost
• Upgradeability
• Reputed manufacturer
• Availability of consumables
• Low operation cost
• Installation facilities

27. Receipt of Shipments
Upon receipt of the goods at Central Receiving (CR), the unit will
make a visual inspection where possible to determine any damages
to the items. Where there is visual damage CR will notify first the
Purchasing Department, then the Purchasing Department will notify
both the Vendor and the requesting Department of the damages. At
the direction of the Purchasing Department, the damage to the
goods will not be accepted by CR. If there is no visible damage to the
goods, CR will then match the packing slip with their copy of the
purchase order, to determine whether the order is complete.
Receipt and Inspection

28. Inspection
All materials, equipment, supplies, and services are subject to
inspection and test. Items or services that do not meet specifications
may be rejected. Failure to reject upon receipt, however, does not
relieve the vendor of liability for latent or hidden defects
subsequently revealed when goods are put to use or tested. If latent
defects are found, the vendor is responsible for replacing the
defective goods within the delivery time originally stated in the
solicitation and is liable for any resulting expenses the institution
incurs.

29. What is 'Inventory'
Inventory is the raw-materials, work-in-process
products and finished goods that are considered to be
the portion of a business's assets that are ready or will
be ready for sale.

30. INVENTORY CONTROL
Process of ensuring that appropriate amounts of stock are maintained
by a business, so as to be able to meet customer demand without
delay, while keeping the costs associated with holding stock to a
minimum. Inventory control involves managing a company’s inventory
(also known as stock) from the time it lands in the warehouse to the
time it leaves. Warehouse

31. Functions of Inventory Control

32. Importance of Inventory Control
• It may be more economical to purchase an item on demand than to
maintain an inventory.
• At the same time , a certain minimum amount of each item must be
held to minimize the chances of total stock-out.
• Inventory control helps in maintaining an optimum level of the idle
resource at a least possible cost.
• To provide maximum supply service, consistent with maximum
efficiency and optimum investment.
• To provide cushion between forecasted and actual demand for a
material.

33. Functions of Stores Manager
1. That the required material is never out of stock;
2. That no material is available in much excess than required;
3. To purchase materials on the principle of Economic Order
Quantity (EOQ), so that the associated costs can be minimized;
and
4. To protect stores against damage, theft, etc.

34. Storage Method
• The Two Bin System: Stock of each item is physically 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

35. Storage Conditions
First-In, First-Out. (FIFO)
• Location of medical store should be guided by the flow activities of
the store.
• Physical facilities light, ventilation, cupboards, shelves should be of
adequate size.

36. • Items received later from the suppliers should be stored behind
similar items and the principle of ‘First-In First-Out’ (FIFO) should be
adopted.
•Refrigerators of cold rooms are necessary.
• Combustible and non-combustible should be kept separate.
• Poisonous drugs and narcotics should be stored in locked
cupboards.
• Place should be rodent free.

37. Inventory Control
• ABC Analysis
• VED Analysis
• SDE Analysis
• HML Analysis
• FSN Analysis
• Economic Order Quantity (EOQ)
Inventory control, also called stock control, is the process of ensuring
the right amount of supply is available in an organization. The goal of
inventory control is to maximize profits with minimum inventory
investment, without impacting quality of services. Types of Inventory
Control:

38. ABC (Always Better Control) Analysis
• Inventory Control based on cost criteria, i.e. A, B, and C in
descending value.
• It helps to exercise selective control when confronted with large
number of items
• "A items" with very tight control and accurate records, "B items"
with moderately controlled and good records, and "C items" with the
simplest controls possible and minimal records.

39. Example of ABC Analysis

40. 'Just In Time - JIT'
Just-in-time (JIT) is an inventory strategy to increase efficiency and
decrease waste by receiving goods only as they are needed, thereby
reducing inventory costs. This method requires producers to forecast
demand accurately.
This inventory supply system represents a shift away from the older
‘Just-in-Case’ strategy, in which producers carried large inventories in
case higher demand had to be met.

41. Lean Stock (Inventory) Management
The core principle of lean is to reduce and eliminate non-value
adding activities and waste. The ideal goal for a company should be
to have an inventory as close to zero as possible.

42. VED analysis
Inventory Control based on critical value of an item.
Vital:- Those items , the absence or shortage of which, even for a
short period can seriously hamper the patient-care.
Essential:- Those items , the absence or shortage of which cannot be
tolerated for more than a day or so.
Desirable:- Those items , which are definitely needed, but the work
can continue even without them for a substantial period of time.

43. ABC and VED Classification Matrix
Category -1: Needs intense monitoring and control.
Category -2: Needs moderate control.
Category -3: Needs superficial control.
The coupling matrix model to accommodate both criticality and cost.

44. FSN Analysis
Inventory Control based on speed of utilization (Turn-Over) of
items.
• Fast Moving: Rotates ˃ 4 times in a year
• Slow Moving: Rotates more than 1 time, but ˂ 4 times in a year.
• Non- Moving: Does not rotate in a year.
Non-Moving items must be periodically reviewed to prevent expiry
and obsolescence.

45. SDE Analysis
Inventory Control based on availability of items in the market.

46. HML Analysis
HML Analysis is similar to ABC Analysis inventory control, except the
difference that instead of ‘Annual Inventory Turnover’, cost per unit
criterion is used. It is classified as:
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Zupitavir

47. Differentiation among Types of Inventory Control
Inventory Analysis Key Features
ABC Analysis Value of annual consumption of an item
HML Analysis Unit price of an item
VED Analysis Criticality of an item
FSN Analysis Speed of consumption pattern
SDE Analysis Lead time for procurement of an item
EOQ Economic Order Quantity

48. Lead Time: Lead time in inventory management is the amount of
time between, when a purchase order is placed to replenish
products and when the order is received in the warehouse. Ideally, it
is 2-6 weeks.
Internal lead Time: Internal Lead time is the time taken between
raising the materials requisition request and placing the order.
External lead Time: External Lead time is the time taken between
placement of an order to actual receipt of the item.
Terminologies in Inventory Control

49. Working Stock: Working Stock is the amount available to meet the
demand between deliveries.
Reorder Level: A reorder level is the point at which inventory needs
to be replenished in order to continue doing business effectively. It is
equal to average consumption each day, multiplied by lead time,
plus Safety Stock.

50. Buffer (Safety) Stock
Safety stock is an extra quantity of a product which is stored in the
warehouse to prevent an out-of-stock situation. It serves as
insurance in case of an emergency, supply chain failure,
transportation delays, or an unexpected surge in demand.

51. Inventory Control Systems
An inventory control system controls the level of inventory by
determining how much to order and when to order. There are two
basic types of inventory systems:
• Continuous (or Fixed-Order-Quantity) system
• Periodic (or Fixed-Time-Period) system.

52. Fixed-Order-Quantity System
In a continuous inventory system (also referred to as a perpetual
system and a fixed-order-quantity system), a continual record of the
inventory level for every item is maintained. Whenever the
inventory on hand decreases to a predetermined level, referred to as
the reorder point, a new order is placed to replenish the stock of
inventory.

53. Fixed-Time-Period System
In a periodic inventory system (also referred to as a fixed-time-
period system or a periodic review system), the inventory on hand is
counted at specific time intervals; for example, every week or at the
end of each month. After the inventory in stock is determined, an
order is placed for an amount that will bring inventory back up to a
desired level.

54. The Economic Order Quantity (EOQ), is a company's optimal order
quantity for minimizing its total costs related to ordering and holding
inventory.
C= Ordering cost per order
R= Annual demand in units
H= Holding cost per unit per year
Q= Lot size or order quantity in units
P= Purchase cost of an item
F = Holding Factor

55. Inventory costs depends mostly on Ordering costs and
Holding costs
• Ordering cost:
– Salaries and wages of involved persons
– Postal, telex, telephone and other similar bills
– Advertisements
– Stationary
– Entertaining the vendors/suppliers
– Travel of store personnel
• Holding Cost (Inventory carrying cost):
– Cost of storage
– Salary and wages of store personnel
– Insurance
– Stationary, forms, paperwork,
– Loss of interest money deadlocked in inventory
– Deterioration and obsolescence
– Losses due to pilferage

57. C= Ordering cost per order
R= Annual demand in units
H= Holding cost per unit per year
Q= Lot size or order quantity in units
P= Purchase cost of an item
F = Holding Factor

58. Example:
BSMMU purchases 1,600 pairs (R) of surgical gloves each year at a
unit cost (P) of Tk. 15.00. the order cost (C) is Tk. 100.00 per order,
and the holding cost (H) per unit per year is computed at Tk. 8.00.
The EOQ (Q) will be:
H
CR
Q
2
 =
= 200 units
8
1600
100
2 

 Number of Orders needed in a year 8
200
1600



Q
R
C= Ordering cost per order
R= Annual demand in units
H= Holding cost per unit per year
Q= Lot size or order quantity in units
P= Purchase cost of an item
F = Holding Factor

59. Factors which influence Order Quantities
-Lead Time.
-Minimum Stock Holding.
– High value items should have very low stock
– Low value items can have high quantum of stock
– In case of short life items, the quantity held can be very small.
-Safety (Buffer) Stock:
– It is the level at which fresh supply should normally arrive.
– Quantity of stores that one must set apart as an insurance against
the variations in demand and procurement period, and to avoid
stock-out.
– Calculated by multiplying the difference between maximum and
average consumption rate per day/week/month with the lead
time for the item.

60. Issue and Distribution
• Issue should be made after receiving written indents.
• Distribution system can be either direct supply or through a sub store.
• 2 methods of distribution.
- Push Method (Allocation System)
- Pull Method (Requisition System)

61. Push Method: Initiates production in anticipation of future demand.
Pull Method: Initiates production as a reaction to existing demand.

62. Obsolete: Out of Date

63. Loss and Pilferage in Hospital
Lost, stolen, and misplaced drugs and equipment is creating
significant financial losses for hospitals, while increasing costs for
patients and threatening quality of care.
Estimated 7.29% of healthcare expenditure is lost due to theft and
fraud globally – amounting to £230 bn a year.

64. To reduce loss and pilferage
1. Access to all stores should be limited.
2. Locking and unlocking of stores and handling of keys should be
strictly controlled.
3. Intensive vigilance to prevent frauds involving purchasing
personnel and collusion with vendors.
4. Limiting or controlling follow mal-practices:
-Control of commission under the table, specially for emergency
purchase
-Inflating prices
-Accepting sub-standard goods
-Making fraudulent payments
5. Developing system of internal audit
6. Strict policies and procedures guiding purchase, receipt, storage
and distribution
7. Proper monitoring
8. Protection of patients’ belonging.

66. CONCLUSION
Material Management in hospital is all about making equipments,
drugs, and devices available, reducing waste, decreasing the cost of
service and thus ensure efficiency and quality of healthcare.

67. Mid Term Exam