This is a slide presentation showing Inventory, Inventory control, Inventory management, and the different ways of Inventory management in a healthcare system, government hospital and private hospitals. This slide will also give an idea about the different types of stocks in a hospital or a healthcare facilities and the ways to handling them.

1. Dr. Arindam Maiti
2nd-year Post-Graduate Resident
Department of Community Medicine
NSCB Medical College, Jabalpur

2. Contents : -
 History and Definition of Inventory
 Importance of Inventory
 Reasons for holding Inventory
 Inventory Control
 Types of Inventories
 Important terms related to Inventory
 Inventory cost
 Methods of ordering
 Inventory turnover
 Types of Inventory Analysis
 Summary

3. Inventory - early 15th century - Middle French inventaire- “detailed
list of goods”
Commonly used in retail- in stock-ready to use.
Ist invented by Herman Hollerith (American)- modern automatic
computation machine-replacing pen and paper.
History

4. Definition of Inventory
Inventory refers to all the items, goods, merchandise, and materials held
by a business for selling in the market to earn a profit.
In a manufacturing or product industry, inventory is the final product
manufactured and ready to sell, the raw materials used in production, and
the semi-finished goods in the warehouse or on the factory floor.

5. Importance of Inventory
Pressures for large inventories
Customer service
Ordering cost Setup cost
Labour and equipment
utilization
Transportation cost Payments to
suppliers

6. Reasons for Holding Inventory
Anticipation of customer demand
Protection against stockouts
Advantage of economic order cycles
Maintenance of independence of operations
Allowance for smooth and flexible production operations
Guarding against price increases

7. Main Benefits of Inventory Management
Better Analytics & Trends
Improved Productivity
Accurate Records
Better Decision Making

8. To minimize investment on materials so that sufficient working capital is
available for other activities of the organization.
The primary purpose of inventory control is to decrease material costs by
preventing overstocking of materials/out of stock/lying idle/risk of
pilferage/detoriation/obsolence.
Optimization of materials - Econonic Order Quality (EOQ).
To minimize the purchase costs and stock-out costs.
Inventory Control
It is a quantitaive method-right quantity in right time.

11. Economic Order Quantity (EOQ)
The EOQ model seeks to ensure that the right amount of inventory is
ordered per batch so a company does not have to make orders too
frequently and there is not an excess of inventory sitting on hand.
The costs of inventory in the model include holding and setup costs.
It assumes that there is a trade-off between inventory holding costs and
inventory setup costs, and total inventory costs are minimized when both
setup costs and holding costs are minimized.

13. Lead time (L)
 Time required to obtain the supply once the need is determined. It is the average number of
days between placing an indent and receiving the material.
 1. Administrative or buyer's lead time ; 2. Delivery or supplier's lead time
 Lead-time is specific for each item and for each supplier. It is dependent upon factors such
as item availability in the market, form of availability, location of the manufacturer/
supplier,
import formalities, vendor response time etc.
 Longer the lead-time, higher the inventory level.
To cut down the lead-time, especially for high consumption value items.

17. Seasonal stocks
These are accumulated to absorb seasonal fluctuations in supply or
demand. Fulfillment of current demand.
Cycle stocks
Due to fixed transportation and handling charges or set-up requirements.
Economical to order or produce large quantities at a time.

18. Pipeline stocks
Inventories in-transit.
Fulfillment of future demand.
How much of your assets are tied up in stock.
Amount of stock that is kept in reserve to avoid out of stock :-
- consumption increases unexpectedly
- lead time turns out to be longer than normal.

19. Safety stock (SS)
Quantum of risk to be protected- depending on the criticality of the item.
These are built as a hedge against uncertainties in supply or demand.
Safety stock (SS) = (Dmax-Davj) X L
L is the lead-time in days
D max is maximum demand on any day at the specified risk level
D avj is average daily demand.

20. Reorder Level (ROL)
Predetermined stock level- to replenish the stock.
It is equivalent to minimum stock level plus reqirements during lead time.
(Davg x L) + SS
D avj is average daily demand
SS - Safety stock
L- Lead time

21. Maximum Stock
Predetermined limit beyond which the stock level is not exceeded in the normal
course.
Minimum stock level plus the quantity of supplies received at any point of time.
Minimizing investment on materials.
Total consumption value is high, and where bulk orders are placed with
staggered deliveries.
Avoiding excess stock, which could lead to wastage, obsolescence, deterioration
in storage and pilferage.

22. 1. Periodic/Cyclic system
- stocks are checked with certain periodicity - Review Period.
- stocks-desired level
- period of order-fixed
- Quantity orderd depends on lead time
1. If lead time < Review Period - (Maximum stock - Stock in hand)
2. If lead time > Review Period - (Above Pipline stocks - in transit )
 Used for vital and important items.
• Government - yearly
• Private - weekly/quarterly/yearly.

23. 2. Two Bin system
- Stocks held in two bins.
- one larger bin containing sufficient stock to meet the demands during the interval between
arrival of an order quantity and placing of the next order.
- Other bin containing stocks large enough to satisfy probable demands during the period of
replenishment.
- First bin is empty - an order for replenishment is placed.
- Stock in the second bin is utilized until the ordered material is received.

24. Used for non-essential and unimportant items.

Time for placing orders is not at predetermined periods during the year.

25. ABC Analysis- Revenue/ Value
SDE Analysis- Pace
VED Analysis- Importance
HMLAnalysis- Cost
FSN Analysis- Consumption

26. ABC Analysis- always better control
Category A holds 10% of the products
that bring 70% of revenue to
the business.
Category B holds 20% of the products
that bring in 20% of revenue.
Category C holds 70% of the products
that bring in the remaining
10% revenue.

28. Stock-keeping units (SKU)
Identify the classes so management can control inventory levels.
A Pareto chart.

31. V E D
A AV AE AD 10%
B BV BE BD 20%
C CV CE CD 70%
10% 40% 50% 100%
Combination of ABC and VED analysis
(AV, AE, AD, BV and CV) Vital or expensive -managed with maximum attention-
15%- Management by exception.
(BE, CE and BD) Essential and average costs -managed with little effort - 40 %-
Management by middle level-less priority-watched with moderation.
(CD) Desirable and inexpensive -lowest in the hierarchy-purchased periodically-
lower level of management-largest (45%).

35. SL.
NO.
Type of Control Criteria Application
1. ABC Annual consumption and value of
drugs or consumables
Cost Control
2. VED (Vital, Essential,
Desirable)
Critically of drugs, consumables or
equipment
Very important for hospitals in
developing storage guidelines.
Institution should never have
shortage of vital drugs and vital
equipment.
3. SDE (Scarce, Difficult,
Easy)
Availability of items in market for
procurement
Helps planning procurement
4. FSN (Fast, Slow, Not) Speed or use or sale of items To control obsolenece. Non-
moving may be removed and
fast moving in abundance.

36. SL.
NO.
Type of Control Criteria Application
5. HML (High, Medium, Low) Unit price of the items Extent of attention on
inventory items
6. XYZ Variation in consumption X=Minimum variation in
consumption, Y=Some
variation and Z= The most
erratic
7. SOS (Seasonal, Off-Seasonal) Specific pattern of demand in market
or institution
Procurement and stock pilling
of seasonal items like anti-
malarial, ORS, anti-asthmatics
etc
8. GOLF (Government,
Ordinary, Local, Foriegn)
Source of procurement. Ordinary
denotes non-government
In public sector preference in
that order. Procurement from
foreign-special purposes, high-
technology
9. MUSIC-3D (Multi-Unit,
selective, Inventory Control)
Combination of three domains Can be used for all items and
all times as it is the
combination of major systems

37. Physical Inventory
 To compare the actual stock on hand versus the expected number as per records.
Continuous ongoing - internal auditors - checks on spot- balance of stock on paper.
Other than urgent and vital items- regular issues are suspended.
Best means- evaluation the efficiency of stores personnel in material handling and record
keeping.
Helps to build-up of unofficial inventory, to detect pilferage, and makes end-users accountable.

38. Inventory Turnover
Ratio of quantitative measure of the number of times the total inventory
value is issued and replaced.
Calculated by dividing the total money value of supplies issued during the
period by the value of closing stock.
.
eliminating surplus-stock, reducing non-moving items.
safety stock levels, lead-time involved in stock replenishment.

39. References
1.Sathe P.V. and Doke P.P. , Epidemiology and Management for Health Care;
Inventory Control. 6th Edition. Vora Medical Publications (P) Ltd; 2022 : p.
160-6.
2.Lal S, Vikas. Public Health Management : Principles and Practice. 3rd
Edition. CBS Publishers and Distributors (P) Ltd.; 2022. p. 104-6.
3.Bisoi S, Handbook of Health Planning and Management; Material
Management. 2nd Edition. Academic Publishers (P) Ltd. ; 2022. p.215-21.