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  • The analogy presented in this and the next four slides may help to illustrate the action of inventory in hiding problems.
  • TC = AC + HC + OC + ShC
  • Chapter 1
  • Total acquisition cost is constant No shortage costs
  • Where are the real issues? Other factors Obsolescence risks Scarcity Number of suppliers, location of suppliers Lead times Effects of warehousing Control: A – permanent ex: transaction bancaire B – weekly C – monthly, as needd (office supplies) Simplified with the avent of bar-coding
  • Welcome

    1. 1. HOSPIATL MATERAILS MANAGEMENT WELCOME TO P.NAMBIAR MHA,PGDMM(IIMM)
    2. 2. NECESSITY IS THE MOTHER OF INVENTION
    3. 3. ADVERSITY <ul><li>IS THE MOTHER OF INVENTORY </li></ul>
    4. 4. DEFINITION <ul><li>INVENTORY IS AN IDLE RESOURCE HAVING A FUTURE ECONOMIC VALUE. </li></ul><ul><li>RESOURCES OTHER THAN INVENTORY & CAPITAL ARE: </li></ul><ul><li>TIME </li></ul><ul><li>EQUIPMENT </li></ul><ul><li>LABOUR </li></ul><ul><li>FACILITIES </li></ul>TELF
    5. 5. THE CHANGING CORPORATION GLOBAL DOMESTIC REACH MASS CUSTOMIZATION MASS PRODUCTION PRODUCTS/SERVICES VIRTUAL INTEGRATION VERTICAL INTEGRATION OPERATIONS INFORMATION PHYSICAL ASSETS RESOURCES INTERDEPENDENCIES SELF-SUFFICIENCY STRUCTURE CHANGE STABILITY SOURCE OF STRENGTH FLEXIBLE STUCTURES STYLE EXTERNAL INTERNAL FOCUS THE WEB THE PYRAMID ORGANIZATION 21 ST CENTURY 20 TH CENTURY CHARACTERSTIC
    6. 6. 21 ST CENTURY 20 TH CENTURY CHARACTERSTIC EMPLOYEES, FREE AGENTS EMPLOYEES WORKERS NO COMPROMISE AFFORDABLE BEST QUALITY REVOLUTIONARY INCREMENTAL IMPROVEMENTS TO BUILD TO COMPETE MOTIVATION PERSONAL GROWTH SECURITY JOB EXPECTATIONS INSPIRATIONAL DOGMATIC LEADERSHIP BOTTOM –UP TOP-DOWN STRATEGIES HOURS MONTHS INVENTORIES REAL-TIME QUARTERLY FINANCIALS
    7. 7. INTRODUCTION <ul><li>THE OBJECTIVE OF INV.MGT.HAVE BEEN: </li></ul><ul><li>1.TO KEEP ENOUGH INV.TO MEET CUSTOMER DEMAND </li></ul><ul><li>AND ALSO BE </li></ul><ul><li>2.COST EFFECTIVE </li></ul>
    8. 8. <ul><li>INV.IS AN OBVIOUS CANDIDATE FOR COST REDUCTION.IT IS ESTIMATED THAT INV.CARRYING COST IS APPROX.30%. </li></ul><ul><li>IF INV.COULD BE REDUCED BY HALF,THEN 50% WOULD BE SAVED,A SIGNIFICANT COST REDUCTION(50L TO 25 L INV.) </li></ul>
    9. 9. Lowering Inventory Reduces Waste Scrap Work in process inventory level (hides problems) Unreliable Vendors Capacity Imbalances
    10. 10. Lowering Inventory Reduces Waste Scrap Reducing inventory reveals problems so they can be solved. Unreliable Vendors Capacity Imbalances WIP
    11. 11. Lowering Inventory Reduces Waste Scrap Reducing inventory reveals problems so they can be solved. Unreliable Vendors Capacity Imbalances WIP
    12. 12. <ul><li>INV.CAN BE REDUCED BY REDUCING UNCERTAINTY AT VARIOUS POINTS ALONG THE SUPPLY CHAIN. </li></ul><ul><li>UNCERTAINTIES ARE: </li></ul><ul><li>1.POOR QUALITY </li></ul><ul><li>2.VARIATIONS IN DELIVERY TIMES, </li></ul><ul><li>3.UNCERTAIN PRODUCTION SCHEDULE </li></ul><ul><li>4.LARGE FLUCTUATIONS IN CUSTOMER DEMAND </li></ul><ul><li>5.POOR FORECASTS OF CUSTOMER DEMAND. </li></ul>
    13. 13. PHYSICIANS USER DEPT SUPPLIER MARKETING FINANCE MM
    14. 14. <ul><li>Today’s employers refuse to reward employees for yesterday’s skills. They demand that MM professionals like most of you use the most modern skills and achieve unprecedented results. They want you to save more money, achieve better operational performance and reduce risk. </li></ul>
    15. 15. OTHERWISE WILL BE SENT TO JURRASIC PARK
    16. 16. QUALITIES FOR MM PERSONNEL <ul><li>1.COMPETENT </li></ul><ul><li>2.CO-ORDINATION </li></ul><ul><li>3.COMMUNICATION </li></ul>
    17. 17. WHY STORES NEEDED? <ul><li>Because </li></ul><ul><li>The time of purchase and </li></ul><ul><li>The time of consumption is not </li></ul><ul><li>Simultaneous. </li></ul>
    18. 18. Functions of Inventory <ul><li>To meet anticipated demand (make-to-stock) </li></ul><ul><li>In-Transit inventory: goods being transported </li></ul><ul><li>To take advantage of order cycles or to take advantage of quantity discounts (cycle stock) </li></ul><ul><li>To protect against stock-outs . </li></ul><ul><li>To smooth production requirements (seasonal inventories) </li></ul><ul><li>To help hedge against price increases (speculative inventories ) </li></ul>
    19. 19. Types of Inventories <ul><li>Raw materials </li></ul><ul><li>Components (purchased parts) </li></ul><ul><li>Partially completed goods: work in progress (WIP) </li></ul><ul><li>Finished Goods </li></ul><ul><li>M.R.O. (Maintenance, Repairs and Operating supplies) </li></ul><ul><li>Independent versus dependent demand </li></ul>
    20. 20. Inventory Related Costs <ul><li>Holding (carrying) Cost </li></ul><ul><li>Ordering Cost </li></ul><ul><li>Shortage Cost </li></ul>
    21. 21. HOLDING/CARRYING COST Cost of money - The cost of capital to the company or, in some cases the &quot;opportunity cost&quot; or return that could be earned on the money by applying it productively elsewhere. The cost of money has ranged anywhere from 6% to 18% in the last 25 years. Obviously, cost of money has a very significant impact on investment strategy.
    22. 22. OBSOLESCENCE <ul><li>• The risk of INVENTORY never being used, or needing rework to make it usable, needs to be factored into the cost of owning INVENTORY. In theory (and practice), the larger the INVENTORY is, and the longer it is held, the more likely engineering changes, customer preferences and technological changes will render that INVENTORY unusable. In the clothing industry, it is not uncommon to see inventories depreciate as much as 90% when styles change. Certain portions of the electronics industry have problems with INVENTORY becoming obsolete very quickly due to technological changes. </li></ul>
    23. 23. SHRINKAGE <ul><li>A portion of INVENTORY becomes unavailable to the owner due to loss, damage, theft or spoilage. The longer INVENTORY is there and the more there is, the more likely this is to happen. Steps to prevent it only raise carrying costs in other areas, such as security, air conditioning, better control systems, recruiting policies, etc. </li></ul>
    24. 24. TAXES <ul><li>INVENTORY is regarded as an asset by most accounting and tax rules. Therefore, building large inventories shows &quot;profits&quot; and profits are usually taxed, usually by multiple government entities. </li></ul>
    25. 25. INSURANCE <ul><li>The cost of carrying insurance on INVENTORY needs to be considered, as well as insuring the space, equipment, people and other resources needed to control it. </li></ul>
    26. 26. SPACE <ul><li>Costly storage space sometimes occupies 25-30% of the total facility, when one considers raw material warehouses, stockrooms, work-in-process storage, receiving, shipping, outside warehouses, etc. INVENTORY reduction campaigns frequently help companies avoid the need to move to large facilities, or permit them to shut down or cut back existing facilities. </li></ul>
    27. 27. MANPOWER <ul><li>All of this INVENTORY needs people to order, receive inspect, record, move, count, store, retrieve, post it to the ledger, etc. People are the largest or second largest expense (behind material) for most manufacturers. </li></ul>
    28. 28. RECORD KEEPING SYSTEMS <ul><li>Software, procedures, equipment and paper must be used to stay on top of INVENTORY. </li></ul>
    29. 29. MATERIAL HANDLING <ul><li>Storage Equipment - Conveyors, fork lifts, bar code readers, scales, trucks, carts, bins, racks, shelves must all be purchased, leased, maintained and cared for. </li></ul>
    30. 30. PHYSICAL INVENTORIES, RECONCILIATIONS <ul><li>Must be conducted to ensure that inventories are properly accounted for and maintained. </li></ul>
    31. 31. TRANSPORTATION <ul><li>Must be provided to move INVENTORY in and out of the facility, to vendors, within the facility to different workstations and storage areas. </li></ul>
    32. 32. ENERGY <ul><li>Heat, light, humidity control, air conditioning, refrigeration and fuel must be consumed to make all this happen. </li></ul>
    33. 33. ORDERING COSTS <ul><li>Order processing </li></ul><ul><li>Calling Quotations </li></ul><ul><li>Issue of tenders </li></ul><ul><li>Preparation of comparative statements </li></ul><ul><li>Releasing P.O </li></ul><ul><li>Follow up/Expediting the delivery </li></ul><ul><li>Cost of Transportation </li></ul><ul><li>Receipt & Inspection </li></ul><ul><li>Verification of of Invoice </li></ul><ul><li>Salaray of Purchase dept.staff </li></ul><ul><li>Cost of Staionery used </li></ul><ul><li>Cost of communication </li></ul><ul><li>Travelling Expenses </li></ul><ul><li>Legal Expenses in case of Dispute and other like insurance claims etc. </li></ul><ul><li>Handling </li></ul>
    34. 34. MM INTERVETIONS <ul><li>ARE THE INTERVENTIOS/INITIATIVES UNDERTAKEN BY MM DEPT.TO CARRY OUT EFFECTIVE CO-ORDINATION TO ENSURE COST EFFECTIVE TREATMENT OF THE PATIENTS. </li></ul><ul><li>THESE ARE: </li></ul>
    35. 35. 1.COLLECTIVE PROCUREMENT <ul><li>HOSPITALS WITH A COMMON INTEREST OF COST CONTAINMENT COME TOGETHER TO FORM A COLLECTIVE PROCUREMENT GROUP.THIS TYPE OF MODEL CAN BE VERY WELL UTILISED WITH MUTUAL TRUST,FAITH AND CONFIDENCE EVEN BY THE COMPETING HOSPITALS. </li></ul>
    36. 36. 2.EFFECTIVE INVENTORY CONTROL <ul><li>EVERY HOSPITAL SHOULD TRY AND REDUCE THE INVENTORY LEVELS AND SEE THAT UNNECESSARY INVENTORIES ARE AVOIDED. </li></ul><ul><li>OPERATION THEATRE CAN HAVE THREE –DAY INV.MGT. FOR PLANNED CASES AND A WEEK’S INV.PATTERN FOR EMERGENCY CASES. </li></ul>
    37. 37. 3.PURCHASING <ul><li>IS ONE OF THE IMPORTANT FUNCTIONS OF MM.THE GOALS INCLUDE : </li></ul><ul><li>GET ITEM ON RIGHT: </li></ul><ul><li>QUALITY </li></ul><ul><li>QUANTITY </li></ul><ul><li>RATE </li></ul><ul><li>SOURCE </li></ul><ul><li>TIME </li></ul>
    38. 38. 5.CARRYING COSTS <ul><li>ALREADY EXPLAINED </li></ul>
    39. 39. 6.LEAD TIME <ul><li>GAP BETWEEN ORDERING AND RECEIVING AN ITEM. </li></ul><ul><li>THEY ARE INTERNAL AND EXTERNAL. </li></ul><ul><li>EXAMPLES; </li></ul><ul><li>ADMN. </li></ul><ul><li>MANUFACTURING </li></ul><ul><li>INSPECTION </li></ul><ul><li>TRANSPORTATION </li></ul>
    40. 40. DEFINITION
    41. 41. FOR HOSPITAL: ADMISSION PROCESS,REGISTARTION PROCESS,DISCHARGE PROCESS ETC.
    42. 42. The more time it takes to complete a product or service, the more handling, tools & equipment, hand-offs and inventory, etc. is involved. As a result, the cost is certainly higher, while the quality of service is jeopardized. Eliminates waste because the more time it takes to complete a product or service:
    43. 43. 7.BUFFER/SAFETY STOCK <ul><li>TO TAKE CARE IN CASE OF VARIATION IN DEMAND IN CONSUMPTION OR FLUCTUATION IN LEAD TIME. </li></ul>
    44. 44. Use of Safety Stock <ul><li>Safety stock (SS) is extra inventory held to help prevent stockouts </li></ul><ul><li>Frequently demand is subject to random variability (uncertainty) </li></ul><ul><li>If demand is unusually high during lead time, a stockout will occur if there is no safety stock </li></ul>
    45. 45. Use of Safety Stock
    46. 46. <ul><li>The main reason of keeping safety stock is to buffer against random fluctuations in demand. Other reasons are because of the unreliability of supply and long transportation lead time. </li></ul>
    47. 47. <ul><li>With improvements in product quality, supplier's lead time and logistics infrastructure, the last two factors can become relatively insignificant. Uncertainty in customer's demand can be dealt with using forecasting techniques. </li></ul>
    48. 48. CUSTOMER SERVICE LEVELS <ul><li>Safety stock level has a direct impact on customer service level. There are two types of Customer Service you can use - one with regards to safety stock and another with regards to order fulfilment. </li></ul>
    49. 49. 8.REORDER POINT
    50. 50. 9.STOCK TURNOVER <ul><li>OR INVENTORY TURN OVER </li></ul><ul><li>= COST OF GOODS SOLD/ </li></ul><ul><li>AVERAGE INVENTORY </li></ul>
    51. 51. 10.ECONOMIC ORDER QUANTITY
    52. 52. ECONOMIC ORDER OF QUANTITY (EOQ)
    53. 53. EOQ Model EOQ Order Quantity: Order quantity Annual Cost Holding Cost Curve Total Cost Curve Order (Setup) Cost Curve Optimal Order Quantity (Q*) Minimum total cost
    54. 54. Minimizing EOQ Model Costs <ul><li>Only ordering and carrying costs need to be minimized (all other costs are assumed constant) </li></ul><ul><li>As Q (order quantity) increases: </li></ul><ul><ul><li>Carry cost increases </li></ul></ul><ul><ul><li>Ordering cost decreases (since the number of orders per year decreases) </li></ul></ul>
    55. 55. EOQ: cycle inventory levels (graphical) Time Inventory Level Order Quantity (large Q) Time Inventory Level Order Quantity (small Q) Smaller Q  more orders, but lower inventory
    56. 56. BASIC ECONOMIC ORDER QUANTITY (EOQ): PRINCIPLES <ul><li>Assumptions of the basic EOQ model </li></ul><ul><ul><li>Only one product is involved </li></ul></ul><ul><ul><li>Annual demand requirements are known </li></ul></ul><ul><ul><li>Demand is spread evenly throughout the year (constant demand rate) </li></ul></ul><ul><ul><li>Lead time does not vary </li></ul></ul><ul><ul><li>Each order is received in a single delivery </li></ul></ul><ul><ul><li>There are no quantity discounts </li></ul></ul>
    57. 57. EOQ Model Q = Number of pieces per order D = Annual demand in units for the Inventory item S = Setup or ordering cost for each order H = Holding or carrying cost per unit per year Annual setup cost = (Number of orders placed per year) x (Setup or order cost per order) Annual demand Number of units in each order Setup or order cost per order = = (S) D Q Annual setup cost = S D Q
    58. 58. EOQ Model Q = Number of pieces per order D = Annual demand in units for the Inventory item S = Setup or ordering cost for each order H = Holding or carrying cost per unit per year Annual holding cost = ( Average inventory level ) x ( Holding cost per unit per year ) Order quantity 2 = (Holding cost per unit per year) = (H) Q 2 Annual setup cost = S D Q Annual holding cost = H Q 2
    59. 59. EOQ Model Q = Number of pieces per order Q* = Optimal number of pieces per order (EOQ) D = Annual demand in units for the Inventory item S = Setup or ordering cost for each order H = Holding or carrying cost per unit per year Optimal order quantity is found when annual setup cost equals annual holding cost Solving for Q* D Q S = H Q 2 2DS = Q 2 H Q 2 = 2DS/H Q* = 2DS/H
    60. 60. INVENTORY MODELS Two questions:  How Much to order?  When to order ?
    61. 61. Reorder Point (ROP) <ul><li>ROP = d x L </li></ul>
    62. 62. Reorder Point: Determining When to Order <ul><li>After Q* is determined, the second decision is when to order </li></ul><ul><li>Orders must usually be placed before inventory reaches 0 due to order lead time </li></ul><ul><li>Lead time is the time from placing the order until it is received </li></ul><ul><li>The reorder point (ROP) depends on the lead time (L) </li></ul>
    63. 63. Example <ul><li>Assume lead time, L = 3 business days </li></ul><ul><li>Assume 250 business days per year </li></ul><ul><li>Then daily demand, </li></ul><ul><li>d = 1000 pumps /250 days = 4 pumps per day </li></ul><ul><li>ROP = (4 pumps per day) x (3 days) </li></ul><ul><li> = 12 pumps </li></ul>
    64. 64. CLASSIFICATION OF INV. <ul><li>CLASSIFICATION OF INV.CAN HELP IN EFFECTIVE CONTROL BY CONCENTRATING ON ITEMS WHICH ARE MOST IMPORTANT AS IT IS DIFFICULT TO GIVE EQUAL ATTENTION TO ALL ITEMS IN THE INVENTORY. </li></ul>
    65. 65. ABC Analysis 10 20 30 40 50 60 70 80 90 100 Percentage of items Percentage of dollar usage value 100 — 90 — 80 — 70 — 60 — 50 — 40 — 30 — 20 — 10 — 0 — Class C Class A Class B
    66. 66. ABC Classification : Guidelines
    67. 67. SELECTIVE INVENTORY CONTROL PROCUREMENT/HOLDING STRATEGIES NATURE OF SUPPLIES SOS(SEASONAL,OFF-SEASONAL) 8 PROCUREMENT STRATEGIES SOURCE OF THE MATERIAL GOLF(GOVT.,ORDINARY,LOCAL,FOREIGN) 7 LEAD TIME ANALYSIS AND PURCHASE STRATEGIES PROBLEMS FACED IN PURCHASING SDE(SCARCE,DIFFICULT,EASY) 6 TO CONTROL OBSOLESCENCE CONSUMPTION PATTERN OF ITEMS FSN(FAST,SLOW ,NON-MOVING) 5 TO REVIEW THE INV.AND THEIR USES AT SCHEDULED INTERVALS VALUE OF ITEMS IN STORE XYZ ANALYSIS 4 SPARE PART MGT. CRITICALITY OF THE COMPONENT VED(VITAL, ESSENTIAL,DESIRABLE) 3 MAINLY TO CONTROL PURCHASES UNIT PRICE OF THE ITEMS HML(HIGH,MEDIUM, LOW) 2 TO CONTROL CONSUMABLES IN BUSINESS. VALUE OF CONSUMPTION ABC ANALYSIS 1 MAJOR USES BASIC PARAMETER TITLE S.NO.
    68. 68. DRUGS MANAGEMENT <ul><li>Pharmacy Objectives </li></ul><ul><li>A hospital purchases and supplies drugs for the convenience of its patients. The objective of running a pharmacy in a hospital is to ensure convenience and reliability. These are to: </li></ul><ul><li>• Provide standard drugs and medicines to the patients. </li></ul><ul><li>• Facilitate easy and immediate access to these drugs. </li></ul><ul><li>• Maintain an optimum stock level of drugs. </li></ul>
    69. 69. CATEGORISATION OF DRUG ITEMS <ul><li>In the in-patient and out-patient pharmacies the drugs are categorised as: </li></ul><ul><li>• Tablets • Capsules </li></ul><ul><li>• Injections • Liquids </li></ul><ul><li>• Ointments • Surgical </li></ul><ul><li>• Drops • </li></ul><ul><li>• Powders • </li></ul><ul><li>Miscellaneous </li></ul><ul><li>• Fluids </li></ul>
    70. 70. <ul><li>In the operation theatre pharmacy the categories are: </li></ul><ul><li>• Injections • Ointments </li></ul><ul><li>• Surgicals • Drops </li></ul><ul><li>• Fluids • Miscellaneous </li></ul>
    71. 71. CONTROLLING OF LIFE-SAVING DRUGS <ul><li>SOMETIMES A PATIENT’S CONDITION IS SO ACUTE,SEVERE OR CRITICAL THAT ONLY THE IMMEDIATE USE OF CERTAIN DRUGSCAN SAVE HIS/HER LIFE.IT IS VITAL IMPORATNCE THAT SUCH DRUGS ARE ALWAYS IN STOCK.THE ABSENCE OF SUCH DRUGS DURING AN EMERGENCY MAY RESULTS IN A PATIENT’S DEATH.THIS CAN BE AVOIDED BY: </li></ul>
    72. 72. <ul><li># MAKING A LIST OF VITAL OR LIFE-SAVING DRUGS. </li></ul><ul><li>#PLACING THEM TOGETHER ON ONE SHELF </li></ul><ul><li>#CHECKING THE SHELF FREQUENTLY OR WHENEVER THE DRUGS ARE ISSUED </li></ul><ul><li>#ORDERING A NEW SUPPLY WHEN STOCKS REACH THE HALF-WAY. </li></ul>
    73. 73. CONSUMABLE MGT. <ul><li>THE MATERIALS USED IN THE HOSPITAL CAN BE CLASSIFIED BASED ON THEIR USAGE OR PURPOSE SUCH AS: </li></ul><ul><li>#DIAGNOSTIC </li></ul><ul><li>#SURGICALS </li></ul><ul><li>#BEDSIDE SERVICE </li></ul><ul><li>#THERAPY </li></ul><ul><li>#ENGINEERING </li></ul><ul><li>#HK </li></ul><ul><li>#PRINTING& STATIONERY. </li></ul>
    74. 74. CONTINUED: <ul><li>LAB.ITEMS CONSISTS OF : </li></ul><ul><li>REAGENTS,XRAY FILMS,CONTRAST MEDIA,MEDICAL TAPE, </li></ul><ul><li>ANTISEPTICS,CHEMICALS,SANITARY PRODUCTS,SURGICAL NEEDLES. </li></ul><ul><li>LINEN,MEDICAL GASES, LIQUIDS ETC.A PURCHASE POLICY MAY BE FRAMED TO MANAGE AND CONTROL OF ITEMS. </li></ul>
    75. 75. EQUIPMENT MANAGEMENT <ul><li>#EQPT.PLANNING </li></ul><ul><li>#FACTORS TO BE CONSIDERED FOR EQPT.PURCHASE: </li></ul><ul><li>1.THE NEED </li></ul><ul><li>2.TECHNOLOGY </li></ul><ul><li>3.PRICE </li></ul><ul><li>4,SERVICE </li></ul><ul><li>5.TRAINING </li></ul><ul><li>6.BRAND VALUE </li></ul><ul><li>7.TECHNICAL SPECN. </li></ul><ul><li>8.EQPT.MAINTENANCE </li></ul><ul><li>9.EQPT.SHARING </li></ul><ul><li>10.EQPT.REPLACEMENT </li></ul><ul><li>11.EQPT.AUDIT </li></ul>
    76. 76. MANAGING EQPT. <ul><li>1.ORDERING EQPT. </li></ul><ul><li>2.STORING EQPT. </li></ul><ul><li>3.ISSUING EQPT. </li></ul><ul><li>4.CODIFICATION & STANDARDISATION </li></ul>
    77. 77. END OF PART I

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