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NIMS Institute of Management & Computer
M.BA-2nd Year
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CHAPTER- I
INTRODUCTION

NIMS Institute of Management & Computer Science
M.B.A-2nd Year
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INTRODUCTION:-
I. What is inventory management?
Inventory management is primarily about specifying the size and placement of stocked
goods. Inventory management is required at different locations within a facility or within
multiple locations of a supply network to protect the regular and planned course of
production against the random disturbance of running out of materials or goods. The scope of
inventory management also concerns the fine lines between replenishment lead time, carrying
costs of inventory, asset management, inventory forecasting, inventory valuation, inventory
visibility, future inventory price forecasting, physical inventory, available physical space for
inventory, quality management, replenishment, returns and defective goods and demand
forecasting.
In health care organization, inventory management and supply chain is a new way of
conceptualizing medical inventory management. Supply chain is an indispensable component
in inventory management. A supply chain as “a virtual network that facilitates the movement
of product from its production, distribution and consumption”. In considering supply chains,
health care manager are not only concerned with their relationship with the companies at the
upstream source of the product to minimize their overall cost in supply management. The
health care manager, as a leader of the provider link in the chain, is in a strategic position and
should facilitate collaborative partnership with the adjacent links of the chain. Let us closely
examine the various links in the supply chain from the perspective of a health care provider.
II. WHY KEEP INVENTORY?
Why would a firm hold more inventory than is currently necessary to ensure the firm's
operation? The following is a list of reasons for maintaining what would appear to be
"excess" inventory.
a) MEET DEMAND.
In order for a retailer to stay in business, it must have the products that the customer wants on
hand when the customer wants them. If not, the retailer will have to backorder the product. If
the customer can get the good from some other source, he or she may choose to do so rather

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than electing to allow the original retailer to meet demand later (through back-order). Hence,
in many instances, if a good is not in inventory, a sale is lost forever.
b) KEEP OPERATIONS RUNNING
A manufacturer must have certain purchased items (raw materials, components, or
subassemblies) in order to manufacture its product. Running out of only one item can prevent
a manufacturer from completing the production of its finished goods.
Inventory between successive dependent operations also serves to decouple the dependency
of the operations. A machine or work center is often dependent upon the previous operation
to provide it with parts to work on. If work ceases at a
Work center, then all subsequent centers will shut down for lack of work. If a supply of
work-in-process inventory is kept between each work center, then each machine can maintain
its operations for a limited time, hopefully until operations resume the original center.
c) LEAD TIME
Lead time is the time that elapses between the placing of an order (either a purchase order or
a production order issued to the shop or the factory floor) and actually receiving the goods
ordered. If a supplier (an external firm or an internal department or plant) cannot supply the
required goods on demand, then the client firm must keep an inventory of the needed goods.
The longer the lead time, the larger the quantity of goods the firm must carry in inventory.
A just-in-time (JIT) manufacturing firm, such as Nissan in Smyrna, Tennessee, can maintain
extremely low levels of inventory. Nissan takes delivery on truck seats as many as 18 times
per day. However, steel mills may have a lead time of up to three months. That means that a
firm that uses steel produced at the mill must place orders at least three months in advance of
their need. In order to keep their operations running in the meantime, an on-hand inventory of
three months’ steel requirement would be necessary.
d) HEDGE
Inventory can also be used as a hedge against price increases and inflation.
Salesmen routinely call purchasing agents shortly before a price increase goes into effect.
This gives the buyer a chance to purchase material, in excess of current need, at a price that is
lower than it would be if the buyer waited until after the price increase occurs.

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e) QUANTITY DISCOUNT
Often firms are given a price discount when purchasing large quantities of a good. This also
frequently results in inventory in excess of what is currently needed to meet demand.
However, if the discount is sufficient to offset the extra holding cost incurred as a result of
the excess inventory, the decision to buy the large quantity is justified.
f) SMOOTHING REQUIREMENTS
Sometimes inventory is used to smooth demand requirements in a market where demand is
somewhat erratic.
There are three basic reasons for keeping an inventory:
1) Time - The time lags present in the supply chain, from supplier to user at every stage,
requires that you maintain certain amount of inventory to use in this "lead time"
2) Uncertainty - Inventories are maintained as buffers to meet uncertainties in demand,
supply and movements of goods.
3) Economies of scale - Ideal condition of "one unit at a time at a place where user needs it,
when he needs it" principle tends to incur lots of costs in terms of logistics. So Bulk buying,
movement and storing brings in economies of scale, thus inventory.
SUPPLY CHAIN MANAGEMENT OF HOSPITAL:-
The healthcare supply chain is composed of three major players at various stages:
1) Producers,
2) Purchasers,
3) Healthcare providers.
1) Producer/Manufacturers:-
Producers include pharmaceutical companies, medical-surgical products companies, device
manufacturers, and manufacturers of capital equipment and information systems. Purchasers
include grouped purchasing organizations (GPOs), pharmaceutical wholesalers, medical-
surgical distributors, independent contracted distributors, and product representatives from
manufacturers. Providers include hospitals, systems of hospitals, integrated delivery networks

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(IDNs), and alternate site facilities. At a broader level, healthcare supply chains are very
fragmented. The three players are largely operating independently from one another and
coordinated supply chain management hardly exists. The Journal of the American Medical
Association found that 85 – 90% of hospital cost structure is comprised of fixed costs
(Roberts, 1999). This finding puts hospitals more in a league with transportation or heavy
manufacturing than with most other service industries (Ward, 2006). Neumann indicates
(2003) that supplies constitute 25% to 30% of a hospital’s total operating expense. In
addition, 25% of those expenses are tied to administration, overhead, and logistics. The
healthcare industry is slow to adopt the supply chain management techniques that have had
proven success in other industries.
2) Distributors, Wholesalers, and Electronic data interchange (EDI):-
Distributors for medical-surgical suppliers are independent intermediaries who operate their
own warehouses; they purchase the product from manufacturer and suppliers to sell to
providers. The intermediaries are called distributor or wholesalers depending on whether the
product’s final resale has another layer before reaching the customer. One of the most
significant contributions of distributors to the health care supply chain was the deployment of
electronic order-entry systems to their customer base.” Linking providers through electronic
communication to their distributors is formally defined as electronic data interchange (EDI).
EDI provides direct, real time computer to computer electronic transmission of purchase
orders, shipping notices, invoices, and the like between providers and distributors. The cost
for standardized EDI transactions for a purchase order, as compared to costs with manual
systems, saves operational costs for both providers and distributors.
3) Group Purchasing Organizations (GPOs):-
Group purchasing organizations provide a critical financial advantage to providers,
especially hospitals and hospital systems, by negotiating purchasing contracts for products
and nonlabor services. A typical GPO has many hospital organizations as its members and
uses this as collective buying power in negotiating contracts with many suppliers: of
pharmaceuticals, medical-surgical supplies, laboratory, imaging, durable medical equipment,
facility maintenance, information technology, insurance, and food and dietary products and
services. The contracts usually last three to five years, giving providers price protection. The

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overwhelming majority of hospitals participate in group purchasing. Often a hospital belongs
to one or more GPOs. The GPOs can be either for-profit and investor owned, or nonprofit.
They differ in geographic coverage, size, and scope.
.
4) E-Distributors:-
E-commerce in health care can be viewed from different perspectives. Here we will
concentrate on two aspects: business-to-business (B2B) commerce and business-to-customer
(B2C) commerce. B2B e-distribution provides efficiencies in many areas for providers,
GPOs, and suppliers in the chain through reduced transaction costs and prices, reduced cycle
times with automatic replenishments, deliveries on a JIT basis, and dynamic planning—all
the way to upstream forecasting for pull-demand, rather than push-demand sales by suppliers.
Firms provide e-Catalog, e-Request for Proposal (eRFP), e-Auction, and e-Specials (limited
discounts on some items), which emulate traditional systems on-line and are available to both
hospitals and physician offices.
NEW CONCEPT OF MATERIAL MANAGEMENT
Materials Management in Healthcare
(A patient-centered approach)
Materials management plays a crucial role in providing efficient healthcare by touching three
vital aspects of medical supplies used in the hospital viz.
a) Availability,
b) Safety and
c) Affordability.
Supply chain is the lifeblood of a healthcare organization. As most departments depend
heavily on supplies, materials management can ease or cramp a hospital’s operations. From a
low cost needle to a high-end orthopedic implant, micro steel instruments or pieces of linen,
supplies are indispensable during a patient’s stay at the hospital. Quality care cannot be
provided on time unless required material is available in adequate quantity. Materials
management plays a crucial role in providing efficient healthcare by touching three vital
aspects of medical supplies used in the hospital viz. availability, safety and affordability.

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a) Timing (The most crucial aspect):-
The time factor is probably not as crucial in any other field as it is in healthcare delivery
where delay of a few seconds can cost a life. Moreover, availability of a low cost catheter is
as critical as a high value pace maker when it comes to medical care. Therefore, inventory
managers have the huge responsibility of making thousands of diverse medical consumables
available on time. The challenge is even greater as the number of expected patients are
unpredictable; suppliers are unreliable and costs are rising.
With recent developments in automation and information technology and emerging trends in
the medical supplies industry, materials managers are now better equipped to handle time
constraints. Innovative inventory supply models like consignment and rental contracts have
eased the pressure of making critical supplies available on time. Life-saving products like
defibrillators, drug eluting stents and heart valves are available at hospitals at zero
investment. The responsibility for replenishing the stock lies on the vendor. In addition, the
patient benefits from the latest technological innovations without the hospital having to carry
the fear of obsolescence.
b) Patient safety – (The first priority)
The safety of patient is the top priority in healthcare, and materials managers play a crucial
role in protecting his / her interest. The biggest responsibility of a materials manager is to
ensure that the products purchased for clinical use are of good quality. It can be achieved by
developing a ‘product evaluation’ system consisting of well-defined parameters to guarantee
that only approved products enter a hospital’s stockroom.
Despite cost being an important criterion in assessing new products, safety and clinical
efficacy concerns are prioritized. Physicians should be consulted to help determine if a new
product is performing and producing desired clinical impact. Another effective way of
determining the safety of a product is to check for CE mark or FDA approval. The vendor’s
access needs to be restricted and back door sales discouraged to ensure that only properly
reviewed products are brought into the facility.
Materials managers need to take initiative in organizing hands-on training for caregivers to
ensure safe use of complex and critical equipment like laparoscopic graspers, staplers and
arterial filters. Absence of proper training can result in patient injury leading to serious
medico-legal issues. Training programmes conducted by experts can be held either in-house

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or at specially designed state-of-the-art institutes equipped with ergonomically designed
simulation labs and conference halls with telesurgery facilities. In many instances, clinical
outcome improves with the use of advanced techniques and hence regular training should be
encouraged.
C) Cost (An important variable)
There is tremendous pressure on materials mangers to initiate serious cost cutting measures.
While the cost of medical supplies has been spiraling up, greater number of patients is
demanding high quality and reasonably priced healthcare services. Since cost of supplies
forms a significant portion of healthcare expense, materials mangers should continuously
strive to get better deals. Economical prices help ensure affordable medical care for vast
majority. The healthcare organization in turn reaps the benefit of better revenue realization
stemming from increased number of patients. While the prices available to an organization
are influenced by the purchasing volumes, negotiation skills of the purchasing personnel also
play an important role. Knowledge of competitive products, awareness of current market
trends and capability to use the database for price/volume information helps tremendously in
the bargaining process. Other sources for product related information, including regulatory
issues are product fairs and conferences, internet articles and periodicals.
Collaborative relationships with clinicians and networking with other hospitals and vendors
can help in keeping abreast with latest products and upcoming technological trends. Such
close and continuous interaction also gives important clues about non-performing products.
Instituting an efficient system for payables is effective in getting rebates and discounts, which
can be passed on to the patient. The medical supplies industry is flooded with innovative
products and services. Materials managers should continuously scout for competitive
alternative product / techniques that can give better outcome. While cost is an important
criterion, quality of the product needs to be the primary concern to ensure that patient care is
not compromised.
A good inventory management programme is always patient-centered. While inventory is
concerned with monetary issues, hospitals are in the business of serving patients. Although

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technology has an important role to play, the emphasis should be on using it in a way that
makes a difference to the quality of patient care. Automating inefficient processes may not
yield any productive result. Processes should be reengineered to make them more patient-
friendly. Cost-effectiveness, time consciousness and safety are key drivers of a patient-
centered approach. Once this goal is clear, technology can support and drive the efforts
towards realizing efficiencies and improving the quality of health care services.
Requirements for effective inventory:
1. A system to keep track of the inventory in storage and on order.
2. A reliable forecast of demand.
3. Knowledge of lead times and lead time variability.
4. Reasonable estimates of inventory holding costs, ordering costs, and shortage costs.
5. A classification system for inventory items in terms of their importance.
TECHNIQUES USED IN INVENTORY MANAGEMENT
 ABC ANALYSIS
 VED ANALYSIS(Vital, Essential, and Desirable)
 FSND ANALYSIS(Fast, Slow-moving, Non-moving and dead stock)
 SDE ANALYSIS(Scare, Difficult and Easy)
 HML ANALYSIS(High, Medium and Low)
a) A-B-C ANALYSIS:-
The ABC analysis is a business term used to define an inventory categorization technique
often used in materials management. It is also known as Selective Inventory Control. Policies
based on ABC analysis:
 A ITEMS: very tight control and accurate records

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 B ITEMS: less tightly controlled and good records
 C ITEMS: simplest controls possible and minimal records
The ABC analysis provides a mechanism for identifying items that will have a significant
impact on overall inventory cost, while also providing a mechanism for identifying different
categories of stock that will require different management and controls.
The ABC analysis suggests that inventories of an organization are not of equal value. Thus,
the inventory is grouped into three categories (A, B, and C) in order of their estimated
importance.
'A' items are very important for an organization. Because of the high value of these ‘A’ items,
frequent value analysis is required. In addition to that, an organization needs to choose an
appropriate order pattern (e.g. ‘Just- in- time’) to avoid excess capacity.
'B' items are important, but of course less important, than ‘A’ items and more important than
‘C’ items. Therefore ‘B’ items are intergroup items.
'C' items are marginally important.
b) VED ANALYSIS:-
VED analysis divides items into three categories in the descending order of their critically as
follows:
V’ stands for vital items and their stock analysis requires more attention, because out of stock
situation will result in stoppage of service. Thus, 'V items must be stored adequately to ensure
smooth operation of the plant.
'E' means essential items. Such items are considered essential for efficient running but
without these items the system would not fail. Care must be taken to see that they are always
in stock.
'D’ stands for desirable items which do not affect the service immediately but availability of
such items will lead to more efficiency and less fatigue.
VED analysis can be very useful to capital intensive process industries. As it analyses items
based on their critically, it can be used for those special raw materials which are difficult to
procure.

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C) FNSD ANALYSIS:-
FNSD analysis divides the items into four categories in the descending order of their usage
rate as follows:
'F' stands for fast moving items and stocks of such items are consumed in a short span of
time. Stocks of fast moving items must be observed constantly and replenishment orders be
placed in time to avoid stock-out situations.
'N' means normal moving items and such items are exhausted over a period of a war or so.
The order levels and quantities for such items should be on the basis of a new estimate of
future demand to minimize the risks of a surplus stock.
'S' indicates slow moving items, existing stock of which would last for two years or more at
the current rate of usage but it is still expected to be used up.
Slow moving stock must be reviewed very carefully before any replenishment orders are
placed.
'D' stands for dead stock and for its existing stock no further demand can be foreseen. Dead
stock figures in the inventory represents money spent that cannot be realized but it occupies
useful space. Hence, once such items are identified, efforts must be made to find all
alternative uses for it. Otherwise, it must be disposed off.
d) HML ANALYSIS
The HML (High, Medium Low) classification is similar to ABC classification, but in this
case instead of assumption value of items, the unit value of item is considered. The cutoff
point will depend on the individual units. For example, kerosene would be low value item for
jeweler and a high value for a small shopkeeper. The focus here is directed to control the
purchase item.
 Unit value is the basis of this analysis and not the annual consumption value.
 H- High cost item
 M-Medium cost item
 L-Low cost item

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e) SDE ANALYSIS:-
SED analysis classified items into three groups called scarce, difficult and easy and focuses
on ease of procurement as the criterion. The information so collected is then used for
finalizing purchasing strategies. Scarce group include items of which there is death, are
imported or obtained through canalizing agencies of the government. Such items are procured
on annual basis without any EQO type analysis, difficult items include those items which are
available indigenously but are not easy to procure due to exotic raw material being used.
Certain items which are difficult to be produced due to design complexity also come under
difficult category. Items under easy category are produced on a mass- scale, locally available,
absence of string specification and are easy to produce.
For the obvious reason scarce group is taken care by the experienced senior buyers while the
easy group procurement is the responsibility of junior and inexperienced buyers.
S- Scare items
D-Difficult item
E-Easy item
STATEMENT OF PROBLEM:-
A study on effectiveness of “Inventory management in APEX HOSPITAL”.
OPERATIONAL DEFINATION:-
International Accounting Standard Committee (I.A.S.C) defines inventory as
“Tangible property (1) held for sale in the ordinary course of business (2) in the process
of production for such scale or (3) to be consumed in the process of production of goods
of service for sale.”
The American Institute of certified Public Accounts (AICPA) defines inventory in the sense
of tangible goods, which are held for sale, in process of production and available for ready
consumption.
According to Accounting Standard 2, inventories generally constitute the second longest item
after Fixed Assets, particularly in manufacturing organizations. The valuation and

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presentation of inventories therefore has a significant effect in determining and presenting the
financial position and performance of industrial and commercial undertaking.
OBJECTIVES OF THE STUDY:-
1. To study the tools and techniques of inventory management adopted at APEX hospital.
2. To study the inventory control measures in inventory management.
3. To study how ABC analysis and VED techniques are implemented in inventory
management.
4. To identify problems related to inventory management.
5. To study the inventory management procedure.
SCOPE OF THE STUDY:-
Inventory management being a very important concept in all the company’s having a void
coverage often calls for the managerial attention. In the modern times inventory management
has become the integral part of the all companies. So all the firm gives special importance for
inventory management. The major objective of the study is to examine the effectiveness of
inventory management system adopted by APEX hospital; the study mainly focuses on the
techniques used by the hospital to control the inventory.
 In supply-chain management.
 In productivity enhancement.
 In operation management.
 In assets management.
 In inventory forecasting, valuation and visibility.
 In quality management
 In demand forecasting

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LIMITATIONS OF STUDY:-
 The study is confined to APEX hospital, jaipur only.
 The interpretations and recommendations are merely applicable to the APEX hospital.
 Sample size was restricted to 60 respondents.
 Time constraints.
 Top management had not adequate time, due to their busy schedule.
 Some information was confidential.

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CHAPTER- I I
HOSPITAL PROFILE

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HOSPITAL PROFILE:-
History of Hospital:
Apex Hospital is multi-specialty, 102 bedded, state-of-art medical center, in Jaipur
(Rajasthan, INDIA). Established in year 1994, Apex became one of the first institutes in
India to attain ISO 9001 under the leadership of the Managing Director, Dr S.B. Jhawar, a
renowned name in the field of medicine over the entire belt of Rajasthan. Dr. S.B. Jhawar,
M.D. (Medicine), worked in different hospitals in Dept. of Medicine/Geriatric Psychiatry
in England (1975-76). He is one of the first practitioners to start and pioneer
Ultrasonography in Rajasthan.
Growth of Hospital:-
From 1994, over the next few years, the hospital gained momentum by leaps and bounds
as an impressive team of well known doctors joined in. Apex, since its beginning, set
continual expansion and enrichment as its goal. Today, apex is one of the very few
medical centers in the region with multi-specialty facilities for Cardiac care, Renal
transplant, Joint replacement, Obesity surgeries etc. under one roof. We are committed to
deliver high quality medical care at an economic price. Apex hospital is authorized by
state government and other institutes ( Refer complete list ). The hospital is under process
of getting NABH accreditation.
A quick glance at Apex Hospital
 Large building with 30,000 sq built
up area
 Total number of beds: 102
 Intensive Care Unit: 15 beds
 Fully equipped Neonatal ICU
 5 operation theatres
 200 full-time employees
 35 eminent consultants
 Cath labs & angiographies
 Kidney Transplants
 Obesity / Weight loss Surgery
 Medical Tourism Initiatives
 FeaturingTele-medicine

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Apex hospital is equipped with most modern technology & machines to provide authentic
diagnostic services.
Present Status:-
 Apex Hospital has got National Accreditation Board for Hospital (NABH) and
National accreditation Board for Testing and Calibration (NABL) accreditation in
recent years.
 Apex Hospital has started evening OPD from 4pm to 6pm. This service has started
from August, 15, 2012.
 Apex Hospital has come up with “Apex swasthya kalyan blood bank”.
DIAGNOSTIC SERVICES
a) Cardiology:-
 Cath Lab
 Angiography
 Angioplasty
 Echo, colour Doppler, CTMT, ECG.
b) Endoscopy:-
 Gastro-duodenoscopy and Sclerotherapy
 Varicial ligation
 Sigmoidoscopy
 Coconoscopy
 ERCP
 Bronchoscopy and alveolarlavage
 Cystoscopy
C) Radiology:-
 CT Scan
 Digital X-ray
 Barium studies
 Intravenous pyelography
 Ultrasound, HSG

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d) Cytology and Histopathology:-
 Analysis of all types of body fluids
 Histological assessment of various biopsy specimens
 FNAC
 Tru cut Biopsy & Laparoscopic Biopsy
OTHERS:-
A) Endocrinology:-
 Thyroid function test
 Growth hormone
 Prolactin
 ACTH, Cortisol assay
B) Ophthalmology:-
 Complete evaluation with Slit lamp
 Bimicroseopy
 Automated refraction
 Ultrasound scan, Contact lens
C) Neurology:-
 EEG
 EMG
 Nerve Conduction Studies
D) Biochemistry:-
 Blood Sugar, GTT, Blood urea, Creatinine, SGOT/PT, Bilirubin
 Total protein AG ratio

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 Alkaline Phosphatase Acid Phosphatase,
Calcium and Phosphate
 Electrolyte, Total Lipids Profile
 Amylase and Lipase, Cardiac enzymes
(PK, MB, TropT, LDH, etc)
E) Microbiology:-
 Cultures
 GRAM's Stain
 Infection Control
F) Pulmonary Medicine:-
 Lung function tests
 ABG
FACILITIES:-
 24 hours Emergency
 State of art advanced Cath Lab ( Siemens Artis Zee ) with fully equipped 8 bed CCU
 Fully equipped Neonatal ICU, Phototherapy, Radiant warmer, & Exchange
transfusion.
 All vaccinations & Nebulizer therapy for asthmatic children
 Five highly equipped operation theatres with a separate labour room.
 Super deluxe & deluxe rooms (with A/C, Balcony, TV, Fridge, Telephone)
 Cafeteria, Dormitory with bath / toilet for the attendants
 24 hrs. Medical shop, Ambulance, Laboratory and Radiology services
 Evening OPD (5- 7 PM): Dentistry, ENT, Gynecology, Medicine, Ophthalmology,
Physiotherapy, Surgery.
 Aerobics Center : ‘Fat to Fit with Fun’
 MLC Approved service.

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INVENTORY MANAGEMENT IN APEX HOSPITAL:-
Material management department/ store department is indispensable for any organization.
The nature of work in hospital is always emergent and variable in nature, due to unique
feature of hospital industry makes it different from other industries and the role of material
management becomes very crucial. Material management department should keep in mind
this unique feature of hospital industry and take decision for storage of material and replenish
of the items.
Apex hospital is multi-specialty 200 bedded, it has a store department in the basement of
hospital. Apex hospital is a small set up; therefore it has a single department named as store
department, which handles purchasing, storage, issue and inventory control. Store department
of apex hospital store consumable, stationary, equipments and lab reagents.
HEIRARICHAL STURCTURE OF STORE DEPARTMENT:-
STORE MANAGER
GENERAL MANAGER
PURCHASE MANAGER
WARD BOY
STORE- IN-CHARGE

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STANDARD OPERATING PROTOCOLS
 Receiving the material at Receiving Bay
 Receipt of Material in Stores from Receiving Bay
 Receipt of consignment goods
 Processing of Invoices for stocked material
 Emergency Cash Purchase
 Physical Stock Verification
PROCESS
Receiving the material at Receiving Bay
Material is first received at the receiving bay, where it is inspected for the items, item
quantity, batch no. and expiry date as per the challan or invoice.
Material in checked for Quantity and specifications, as per the purchase order.
If the material is found to be as per PO specifications, the receipt of goods is acknowledged
by stamping and signing the challan or invoice.
After accepting the goods in the receiving bay, the details of the goods received are also
recorded at the Security post near Receiving Bay. The security stamp and signatures are put
on the challan / invoice.
One copy of the challan is retained at the receiving bay and the other copy is returned to the
vendor.
The Goods Receipt Note is prepared at the receiving bay mentioning the quantity accepted,
batch numbers, expiry date, MRP, and details of Taxes and Discounts if any. This updates the
Main Store stocks. (Ideally, the stocks should be updated after the quantities are received
and verified in Main Stores and are accepted on system by Stores.)

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One copy of the challan is retained at the receiving bay and the other copy is returned to the
vendor.
The Goods Receipt Note is prepared at the receiving bay mentioning the quantity accepted,
batch numbers, expiry date, MRP, and details of Taxes and Discounts if any. This updates the
Main Store stocks. (Ideally, the stocks should be updated after the quantities are received and
verified in Main Stores and are accepted
on system by Stores.)
The goods are transferred to main stores along with two copies of the GRN.
Receipt of Material in Stores from Receiving Bay:
The items for which the GRN has been prepared at the receiving Bay are transferred to the
Main Stores along with two copies of GRN’S.
The items brought in are tallied with the GRN in terms of quantity, batch no and expiry date
etc.
In case the item quantity is as per the GRN, the receipt of goods is acknowledged. One copy
of the GRN is signed by the receiving person in Stores, which is returned to Receiving Bay.
This signed copy of the GRN is attached with the original invoice and is forwarded to
Accounts department for releasing the payments.
The items are arranged in a manner, which helps dispensing according to the FIFO principle
i.e. in the ascending order of expiry date. Items with short expiry are kept on the outer side
and are dispensed earlier. Items with longer expiry dates are kept at the back and are
dispensed after the short expiry goods only. (FIFO- First in First Out)
In case any item is supplied after 6pm when the receiving bay is closed, the Main Stores
receives the same.
The Pharmacist receives the material in the Basement near Security post.
The copy of the challan is signed and Security stamp is put after physical verification of the
goods.
The material is kept in the Main store, which is handed over to the receiving bay next
morning along with all the documents of receipt.

M.B.A-2nd Year
23
Receipt of consignment goods
Consignment goods are physically received in the Receiving Bay accompanied with two
Copies of challan. Preferably, only one item is received against one challan.
The item received is checked for the Item name, qty mentioned, Batch no. and expiry date. If
the details mentioned on the challan are found to be correct the goods are accepted. If not, the
same are returned to vendor immediately for necessary correction.
In case the details are found to be correct, both the challan copies are stamped and signed at
the receiving bay. The entry of the receipt of goods is made at the security post near receiving
Bay. One copy of the challan is returned to the vendor and one copy is kept in Stores for
records.
The details of goods received at the Receiving Bay are documented, which include Item
name, qty received, Batch no., Challan no/Date, Date of receipt of goods, Name of the
receiving person on a register.
The goods are transferred to Main Stores from the receiving Bay, along with the
documentation. If found correct, the goods are received in Stores. As an acknowledgement of
receipt of goods, the receiving person in Stores signs the register.
The GRN (Receipt without order) of the consignment goods is prepared in Main Stores. One
GRN has only one consignment item.
In the GRN, all information like Challan No., Cost Price, MRP, Batch no. is fed in. In the
field of batch no., the challan number is also fed. (Batch no. / Challan no.) This will give a
unique Item Identity no. to the consignment item as there may be more than one similar item
of the same batch.

M.B.A-2nd Year
24
The print out of the GRN is taken which will be attached with the challan. The GRN No. is
mentioned over the challan copy. The attached challan and GRN are filed company wise in
the folders.
The challan no and GRN no. is mentioned on the box of the consignment item in the given
format (Challan no. / GRN No.)
The GRN results in the addition of this item in the Consignment inventory of Main Stores,
which is segregated in the report from the other stocked inventory of main Stores.
After consumption of the consignment item, copy of the Invoice, challan, GRN and patient
consumption details are forwarded together to the Accounts for processing of payments.
Processing of Invoices of stocked material
All goods are physically received in the Receiving Bay accompanied with either challan or
invoice. The invoice for the goods received on challan is received on a later date.
The material is taken on HIS by making Goods Receipt Note after which it is transferred to
Stores.
Following documents are attached together before forwarding the invoices to the Accounts
department:
• A copy of GRN signed by the Stores for the receipt of goods
• Challan copy bearing security stamp for the entry of goods
• Original invoice
• Proof of any other payments made e.g. octroi.
For the material received on challan, the GRN does not have the Invoice no. After the invoice
is received, invoice no. is fed in the system as per the provision provided in HIS.

M.B.A-2nd Year
25
Payment request is made on HIS.
Payment request will be approved on HIS after verification with the invoice.
Invoice is stamped, verified and signed for processing of payment. Corresponding GRNs are
also verified and signed.
The invoices are forwarded to Accounts for payment.
The list of challan nos. is prepared against which the material has been received but the
invoice has not been received from the vendor. This list is sent to accounts by 1st of every
month.
Physical Stock Verification
Complete stock verification of the Main Stores is done every three months and that of “A
category” (High value) items including consignment items is done at least once a month.
Information about the stock verification is sent to all nursing stations and departments, as
stores remain closed during the period of stock verification. No material transaction is done
in this period.
Teams are made for different stores to carry out the stock verification.
All pending patient and departmental returns are accepted on HIS, against which the material
has been physically received in Stores.
All issues and receipts are stopped before the process of stock verification begins. This is
done so as to freeze the inventory.
Print out of the inventory valuation report is taken. The report is also saved in an excel file.

M.B.A-2nd Year
26
The inventory valuation report is distributed to the team members and the process of
physical verification is initiated.
The process is carried out following the category wise verification since the stocks are
stacked category wise on the racks.
The physical stock is written against each item.
After verifying all the items in the list, the sheets are signed by the person who has verified
the stocks. The sheets are handed over to the Stores In charge once the verification is
completed.
The report of the stock verification is prepared and submitted to Accounts.
INVENTORY MANAGEMENT TECHINIQUES UEDE IN APEX HOSPITAL:-
 A-B-C Analysis
 V.E.D Analysis
A-B-C Analysis:-
S.N
O
NAME OF ITEMS QTY RS TOTA
L
% C% CAT
EG
AR
Y
1 ELECTROLYTE
REAGENT
26KIT 13125 341250 0.070353485 0.070353485 A
2 HIV J MITRA 50
TEST
92 BOX 2882 265144 0.054663163 0.125016648 A
3 GAUZE THAN
90X16MTR
1200NO 150 180000 0.03710953 0.162126178 A
4 DENGUE NSI
10TEST
60KIT 2500 150000 0.030924609 0.193050787 A

M.B.A-2nd Year
27
5 GLUCOMETER
STRIP
15000NO 10 150000 0.030924609 0.223975396 A
6 REGISTRATION
FILE
20000NO 6.4 128000 0.026388999 0.250364395 A
7 HDL
CHOLESTROL
12KIT 10240 122880 0.025333439 0.275697834 A
8 DILLUENT 20LTR 34NO 3000 102000 0.021028734 0.296726568 A
9 LYSE 500ML 24NO 3360 80640 0.01662507 0.313351638 A
10 MALERIA KIT 122KIT 600 73200 0.015091209 0.328442847 A
11 MICROPORE 1 3800NO 18.9 71820 0.014806703 0.34324955 A
12 COTTON ROLL
500GMS
840ROLL 85 71400 0.014720114 0.357969663 A
13 BILLING RIM
90X12X3
212RIM 336 71232 0.014685478 0.372655142 A
14 NANOLAB
CUVETT
11BOX 6405 70455 0.014525289 0.38718043 A
15 VACCUTE EDTA
1X50
270PKT 250 67500 0.013916074 0.401096504 A
16 INJ TROFENTYL
10ML
700NO 95 66500 0.01370991 0.414806414 A
17 VACCUTE PLAIN
1X50
264PKT 250 66000 0.013606828 0.428413242 A
18 SURG GLOVES
N.S STERILE
100PKT 625 62500 0.012885254 0.441298495 A
19 ISOTROY 250ML 40NO 1522 60880 0.012551268 0.453849763 A
20 SBC JAR 10LTR
R1
245NO 247 60515 0.012476018 0.466325781 A
21 VACCUTE
NEEDLE 1X100
135PKT 446 60210 0.012413138 0.478738919 A
22 MICROGEN -125 30NO 2000 60000 0.012369843 0.491108763 A
23 SONOGRAPHY
ROLL
150ROLL 380 57000 0.011751351 0.502860114 A
24 LYSE H-18 11NO 5135 56485 0.011645177 0.514505291 A

M.B.A-2nd Year
28
25 PAPER RIM 470RIM 118 55460 0.011433859 0.525939149 A
26 IPD FILE 4000NOS 13.5 54000 0.011132859 0.537072009 A
27 TRIVITROM GET
GARD
5NO 9975 49875 0.010282432 0.547354441 A
28 SURG GLOVES
STERILE
70PKT 650 45500 0.009380465 0.556734906 A
29 CRITICAL CARE
CHART
7000NO 6 42000 0.00865889 0.565393796 A
30 LABLE A4 ST 250NO 165 41250 0.008504267 0.573898063 A
31 BED SIDE
LOCKERS
17NO 2302 39134 0.008068024 0.581966088 A
32 HBS AG STRIP 50
TEST
85 BOX 450 38250 0.007885775 0.589851863 A
33 ALK PHOSPATE
ACCUREX
35KIT 1090 38150 0.007865159 0.597717022 A
34 ELECTROLYTE
REAGENT H-18
3KIT 12390 37170 0.007663118 0.60538014 A
35 LETTER HEAD
LAB
60000NO 0.6 36000 0.007421906 0.612802046 A
36 ECG
ELECTRODES
6600NO 5.25 34650 0.007143585 0.61994563 A
37 URISTIX 100PKT 341 34100 0.007030194 0.626975825 A
38 DIS MASK 16200NO 2 32400 0.006679715 0.63365554 A
39 MEDICIAN CARD 10000NO 3.2 32000 0.00659725 0.64025279 A
40 BILLURUBIN 38KIT 840 31920 0.006580757 0.646833547 A
41 BED SIDE
RAILING
60NO 525 31500 0.006494168 0.653327715 A
42 MRD FILE 4000NOS 7.75 31000 0.006391086 0.6597188 A
43 DILLUENT 20LTR
H-18
8NO 3874 30992 0.006389436 0.666108237 A
44 UREA KINETIC 13KIT 2275 29575 0.006097302 0.672205539 A
45 AHD SPECIAL
500ML
120NO 236.2
5
28350 0.005844751 0.67805029 A

M.B.A-2nd Year
29
46 MICROPORE 3 490NO 57.75 28298 0.005834031 0.683884321 A
47 AMYLASE
4X10ML
11KIT 2567 28237 0.005821455 0.689705775 A
48 CIDEX 5LTR 36NO 777 27972 0.005766821 0.695472596 A
49 RINCE 20LTR 9KIT 3045 27405 0.005649926 0.701122522 A
50 INJ TROFENTYL
2ML
800NO 34 27200 0.005607662 0.706730184 A
51 URINE
CONTAINERS
6700NO 3.94 26398 0.005442319 0.712172503 B
52 PLAIN TUBE
SKREW CAP
175PKT 150 26250 0.005411807 0.71758431 B
53 BETADINE
SCARB 747
100NO 262 26200 0.005401498 0.722985808 B
54 SGOT 2X150ML 16KIT 1611 25776 0.005314085 0.728299893 B
55 SGPT 2X150ML 16KIT 1611 25776 0.005314085 0.733613978 B
56 RINCE H-18 2LTR 11KIT 2300 25300 0.005215951 0.738829928 B
57 UREA 160ML
BIRTH LOD
20KIT 1260 25200 0.005195334 0.744025263 B
58 DISCHARGES
TICKET
9000NO 2.7 24300 0.005009787 0.749035049 B
59 EDTA VIAL TUBE 173PKT 140 24220 0.004993293 0.754028343 B
60 LETTER HEAD
APEX
40000NO 0.6 24000 0.004947937 0.75897628 B
61 BILLING RIM
90X12X2
52RIM 446 23192 0.004781357 0.763757637 B
62 MEDICIAN SLIP 2000PAD
S
11 22000 0.004535609 0.768293246 B
63 DIS SHARP
CONTAINERS
150PCS 140 21000 0.004329445 0.772622691 B
64 SPIRIT 4.5 LTR 56CAINE 375 21000 0.004329445 0.776952137 B
65 PHYNOIAL 800LTR 26 20800 0.004288212 0.781240349 B
66 ECG PAPER TMT 35NO 577.5 20212 0.004166988 0.785407337 B
67 BIO BAG 20X24 175KG 115 20125 0.004149052 0.789556389 B

M.B.A-2nd Year
30
BLACK
68 CRETININE 17KIT 1180 20060 0.004135651 0.79369204 B
69 ADA MTB 15
TEST TULIP
20KIT 973 19460 0.004011953 0.797703992 B
70 URIC ACID 160ML
ACC
13KIT 1491 19383 0.003996078 0.80170007 B
71 TREAT MENT
SHEET
400PADS 48 19200 0.00395835 0.80565842 B
72 PT CUVETT 2PKT 9500 19000 0.003917117 0.809575537 B
73 RENOGRAPH
1LTR
5LTR 3623 18115 0.003734662 0.813310199 B
74 ECG ROLL 6108
BPL
450ROLL 40 18000 0.003710953 0.817021152 B
75 OMNIPAQUE
100ML
20NO 892.5 17850 0.003680028 0.82070118 B
76 OXYGEN
REGULATOR
20NO 892 17840 0.003677967 0.824379147 B
77 SODALIME PLUS
5KG
6NO 2940 17640 0.003636734 0.828015881 B
78 EEG
ELECTRODES
80PCS 220 17600 0.003628487 0.831644369 B
79 BIO BAG 30X36
BLACK
150KG 115 17250 0.00355633 0.835200699 B
80 PAPER ECG
RECORDING
25NO 656 16400 0.003381091 0.838581789 B
81 TRIGLYCIRIDES
125ML ACC
7KIT 2313 16191 0.003338002 0.841919791 B
82 GLOVES
EXAMINITION
80PKT 200 16000 0.003298625 0.845218416 B
83 HAND WASH
5LTR
60LTR 260 15600 0.003216159 0.848434576 B
84 CHIKUNGUNIYA
25 TEST
4BOX 3750 15000 0.003092461 0.851527037 B

M.B.A-2nd Year
31
85 DIS CAP 7500NO 2 15000 0.003092461 0.854619497 B
86 DISTILEED
WATER
3000LTR 5 15000 0.003092461 0.857711958 B
87 SEVERANE 250 2NO 6825 13650 0.002814139 0.860526098 B
88 PLAIN TUBE 70PKT 190 13300 0.002741982 0.86326808 B
89 PT REAGENT 6KIT 2185 13110 0.002702811 0.86597089 B
90 E Z CLEANING
SOL
6NO 2100 12600 0.002597667 0.868568558 B
91 BETADINE SOL
2LTR 5%
65NO 190 12350 0.002546126 0.871114684 B
92 PRESCRIPTION
PAD
200PADS 58 11600 0.002391503 0.873506187 B
93 SOAP LIFEBOUY 2400NO 4.75 11400 0.00235027 0.875856457 B
94 BLUE TIP 65PKT 160 10400 0.002144106 0.878000563 B
95 BIO BAG 18X18
BLACK
90KG 115 10350 0.002133798 0.880134361 B
96 WIDAL KIT 34KIT 300 10200 0.002102873 0.882237235 B
97 ECG FOLDER 4000NOS 2.45 9800 0.002020408 0.884257642 B
98 BIO BAG 20X24
RED
85KG 115 9775 0.002015254 0.886272896 B
99 BIO BAG 20X24
BLUE
85KG 115 9775 0.002015254 0.88828815 B
100 CFL 11WATT 12NO 80 9600 0.001979175 0.890267325 B
101 ACETIK ACID
2.5LTR
14NO 680 9520 0.001962682 0.892230007 B
102 PROBE CLEANER 15NO 630 9450 0.00194825 0.894178257 B
103 BIO BAG 20X24
YELLOW
80KG 115 9200 0.001896709 0.896074966 B
104 CHOLESTROL
ACC
6KIT 1491 8946 0.001844344 0.89791931 B
105 CALSIUM
CHL.15ML
8KIT 1090 8720 0.001797751 0.89971706 B
106 CIDEZYME 1LTR 7NO 1240 8680 0.001789504 0.901506564 B

M.B.A-2nd Year
32
107 DIS.GLASS 380PKT 22 8360 0.001723532 0.903230096 B
108 ETO CARTRIGE 10BOX 832 8320 0.001715285 0.904945381 B
109 GLUCOSE 1000ML 8KIT 1017 8136 0.001677351 0.906622732 B
110 C,K MB 2X10ML
CORAL
3KIT 2637 7911 0.001630964 0.908253696 B
111 TISSUE PAPER
ROLL
525NO 15 7875 0.001623542 0.909877238 B
112 AIR FRESNERS
5LTR
12NO 650 7800 0.00160808 0.911485317 C
113 DUSTBIN SMALL
SIZE
120NO 65 7800 0.00160808 0.913093397 C
114 ANTI ABD 12KIT 647 7764 0.001600658 0.914694055 C
115 YELLOW TIP 48PKT 160 7680 0.00158334 0.916277395 C
116 VACCUTE PT 24PKT 315 7560 0.0015586 0.917835995 C
117 SOAP HAMAM 280NO 26 7280 0.001500874 0.919336869 C
118 VACCUTE ESR 20PKT 362 7240 0.001492628 0.920829497 C
119 REQUISITION
SLIP
200PADS 35 7000 0.001443148 0.922272645 C
120 FORMALIN SOL
5LTR
10NO 675 6750 0.001391607 0.923664253 C
121 REGISTER
300PAGE
180NO 37 6660 0.001373053 0.925037305 C
122 CRP OMEGA 6KIT 1100 6600 0.001360683 0.926397988 C
123 COVER SLIP 11PKT 590 6490 0.001338005 0.927735993 C
124 ALBUMIN
1X150ML
21 KIT 303 6363 0.001311822 0.929047815 C
125 HARPIC TOILET
CLEANER
120NO 52 6240 0.001286464 0.930334279 C
126 INVESTGATION
SUMMARY
130PADS 48 6240 0.001286464 0.931620742 C
127 C,K NAC 2X10ML
CORAL
6KIT 1036 6216 0.001281516 0.932902258 C
128 TOTAL PROTEIN 22KIT 273 6006 0.001238221 0.934140479 C

M.B.A-2nd Year
33
2X150ML
129 SODIUM
HYPOCLORIDE
360LTR 16 5760 0.001187505 0.935327984 C
130 HISTORY SHEET 120PADS 48 5760 0.001187505 0.936515489 C
131 NURSING
ASSESMENT PAD
120PADS 48 5760 0.001187505 0.937702994 C
132 MEDICIAN SLIP
EMERGENCY
300PADS 18.5 5550 0.001144211 0.938847205 C
133 SONOGARPHY
FOLDER
2000NO 2.75 5500 0.001133902 0.939981107 C
134 INJ MORPHITROV
15MG
300NO 18 5400 0.001113286 0.941094393 C
135 JHALAK POWDER
2.5KG
180NO 30 5400 0.001113286 0.942207679 C
136 GATE PASS
YELLOW
12000NO 0.45 5400 0.001113286 0.943320965 C
137 MICRO PROTEIN 4KIT 1330 5320 0.001096793 0.944417758 C
138 ID BAND WHITE 7000NO 0.75 5250 0.001082361 0.945500119 C
139 VACCUTE
GLUCOSE
16PKT 328 5248 0.001081949 0.946582068 C
140 CFL 18WATT 45no 115 5175 0.001066899 0.947648967 C
141 AUTOCLAVE TAP 10NO 513 5130 0.001057622 0.948706589 C
142 MICROSHIELD
500ML 636
15NO 320 4800 0.000989587 0.949696176 C
143 COUNSELLING
PAD
100PADS 48 4800 0.000989587 0.950685764 C
144 NURSING
REASSESMENT
4000NOS 1.2 4800 0.000989587 0.951675351 C
145 REGISTER
180PAGE
185NO 25 4625 0.000953509 0.95262886 C
146 BIO BAG 18X18
YELLOW
40KG 115 4600 0.000948355 0.953577214 C
147 BIO BAG 18X18 40KG 115 4600 0.000948355 0.954525569 C

M.B.A-2nd Year
34
RED
148 BIO BEG 18X18
BLUE
40KG 115 4600 0.000948355 0.955473924 C
149 SPONG 11X11 350NO 13 4550 0.000938046 0.95641197 C
150 ECG GLOSSY
PAPER
25PKT 180 4500 0.000927738 0.957339708 C
151 AMBO BAG 5NO 890 4450 0.00091743 0.958257139 C
152 SURGERY
REPORTS
1000NO 4.4 4400 0.000907122 0.95916426 C
153 FILE INDEX 136NO 32 4352 0.000897226 0.960061486 C
154 CHARGES SHEET 60PAD 72.5 4350 0.000896814 0.9609583 C
155 RING FILE 95NO 45 4275 0.000881351 0.961839651 C
156 PEN DRIVE 4GB 12NO 350 4200 0.000865889 0.96270554 C
157 SOAP ROSE MINI 2200NO 1.9 4180 0.000861766 0.963567306 C
158 STEPLER PIN BIG 40PKT 10 4000 0.000824656 0.964391962 C
159 R FACTOR 3KIT 1300 3900 0.00080404 0.965196002 C
160 DIS SYRINGE
5ML DISPO
2000NO 1.89 3780 0.0007793 0.965975302 C
161 BANDAGE 6 55PKT 68.25 3753 0.000773734 0.966749036 C
162 SODIUM HYPO
5LTR RANBAXY
10NO 375 3750 0.000773115 0.967522151 C
163 DIS SYRINGE
2ML DISPO
2400NO 1.47 3528 0.000727347 0.968249498 C
164 ID BAND PINK 2000NO 1.75 3500 0.000721574 0.968971072 C
165 GLASS SLIDE 85PKT 40 3400 0.000700958 0.96967203 C
166 OT BULB 12V50W 35NO 97 3395 0.000699927 0.970371957 C
167 CBC MACHINE
ROLL
75 NO 45 3375 0.000695804 0.971067761 C
168 SONOGRPAHY
JELLY 250ML
200NO 16.27 3255 0.000671064 0.971738825 C
169 ECG JELLY
250ML
200NO 16.27 3254 0.000670858 0.972409683 C
170 SWICH 16AM 40NO 79 3160 0.000651478 0.973061161 C

M.B.A-2nd Year
35
171 HCV J MITRA
50TEST
1BOX 3097 3097 0.00063849 0.973699651 C
172 BANDAGE 4 65PKT 47.25 3071 0.00063313 0.974332781 C
173 CARBOLIC ACID 28NO 108 3024 0.00062344 0.974956221 C
174 PEN 1500NO 2 3000 0.000618492 0.975574713 C
175 ODONIL 100NO 29 2900 0.000597876 0.976172589 C
176 FEVI STICKS 100NO 28 2800 0.000577259 0.976749848 C
177 C.K PREST 2X6ML 1KIT 2750 2750 0.000566951 0.9773168 C
178 SOCKET 16AM 50NO 55 2750 0.000566951 0.977883751 C
179 SODALIME
DRAGER 5KG
5NO 515 2575 0.000530872 0.978414623 C
180 DIS SYRINGE
10ML DISPO
800NO 3.15 2520 0.000519533 0.978934157 C
181 SBC JAR 10LTRR2 10LTR 247 2470 0.000509225 0.979443382 C
182 EEG PASTE 20NO 120 2400 0.000494794 0.979938176 C
183 BLOOD SUGAR
PAD
50PAD 48 2400 0.000494794 0.980432969 C
184 FILE COBRA 300NO 8 2400 0.000494794 0.980927763 C
185 INJ MORPHITROV
10MG
150MG 15 2250 0.000463869 0.981391632 C
186 WIPER 15NO 150 2250 0.000463869 0.981855501 C
187 CITRIC ACID
400GMS
40NO 55.5 2220 0.000457684 0.982313185 C
188 COPY 180PAGE 220NO 10 2200 0.000453561 0.982766746 C
189 SAVLONE 1LTR 20NO 105 2100 0.000432945 0.983199691 C
190 STEPLER PIN
SMALL
460NO 4.5 2070 0.00042676 0.983626451 C
191 TUBE LIGHT
28WATT
60NO 34 2040 0.000420575 0.984047025 C
192 CFL 9WATT 35NO 57.15 2000 0.000412328 0.984459353 C
193 ENEVELOP
WHITE SMALL
5000NO 0.4 2000 0.000412328 0.984871681 C
194 PHOSPORUS 3KIT 665 1995 0.000411297 0.985282979 C

M.B.A-2nd Year
36
195 CULTURE SWAB 4PKT 490 1960 0.000404082 0.98568706 C
196 OT BULB
24V250W
20NO 97 1940 0.000399958 0.986087019 C
197 INFORMED
CONSENT
40PAD 48 1920 0.000395835 0.986482854 C
198 CFL 26WATT 15NO 125 1875 0.000386558 0.986869411 C
199 L-FOLDER 450NO 4 1800 0.000371095 0.987240506 C
200 SAMPLE VIAL 13PKT 136 1768 0.000364498 0.987605005 C
201 PATIENT REG
FORM
50PAD 35 1750 0.000360787 0.987965792 C
202 OT BULB
24V150W
20NO 82 1640 0.000338109 0.988303901 C
203 ID CARD STRING 800NO 2 1600 0.000329862 0.988633763 C
204 BUTTON FOLDER 300NO 5 1500 0.000309246 0.988943009 C
205 BLOOD
TRANSFUSION
30PAD 48 1440 0.000296876 0.989239885 C
206 HIV PARIKSHAN
PAD
30PAD 48 1440 0.000296876 0.989536762 C
207 RUBBER BAND 12PKT 120 1440 0.000296876 0.989833638 C
208 ELECTROLYTE
ROLL
40ROLL 35 1400 0.00028863 0.990122268 C
209 GLASS CLEANER
5LTR
7NO 200 1400 0.00028863 0.990410897 C
210 HEMOSPOT 50
TEST CORAL
3KIT 460 1380 0.000284506 0.990695404 C
211 MARKER PEN 80NO 17 1360 0.000280383 0.990975787 C
212 HYDROGEN
PEROOXIDE
400ML
65 NO 20 1300 0.000268013 0.9912438 C
213 FAX ROLL 20NO 65 1300 0.000268013 0.991511813 C
214 ECG CLIP 8NO 157 1256 0.000258942 0.991770755 C
215 PAPER ROLL
110MM
10NO 125 1250 0.000257705 0.992028461 C

M.B.A-2nd Year
37
216 ESR TUBE 30NO 40 1200 0.000247397 0.992275857 C
217 WRRITING PAD 120NO 10 1200 0.000247397 0.992523254 C
218 CELL PENCIL
PEZOR
140NO 8.5 1190 0.000245335 0.99276859 C
219 GRAM STAIN 6KIT 190 1140 0.000235027 0.993003617 C
220 GAMA GT 2KIT 562 1124 0.000231728 0.993235345 C
221 MC PAINT 400ML 20NO 55 1100 0.00022678 0.993462125 C
222 DVD BLANK 100NO 10.5 1050 0.000216472 0.993678598 C
223 DIS SYRINGE
1ML BD
400NO 2.62 1048 0.00021606 0.993894658 C
224 SWICH 6AM 20NO 52 1040 0.000214411 0.994109068 C
225 NIRMA POWDER 35NO 29 1015 0.000209257 0.994318325 C
226 ACON
PREGNENCY
TEST 50TEST
4BOX 250 1000 0.000206164 0.994524489 C
227 REGISTRE BIG
SIZE 450PAGE
5NO 200 1000 0.000206164 0.994730653 C
228 STEPLER 40NO 25 1000 0.000206164 0.994936817 C
229 TAP ROLL 120NO 8 960 0.000197917 0.995134734 C
230 NURSE
ADMISSION
20PADS 48 960 0.000197917 0.995332652 C
231 ID CARD
ORIGINAL
320NO 3 960 0.000197917 0.995530569 C
232 CFL 13WATT 10NO 95 950 0.000195856 0.995726425 C
233 FORMALIN
TABLETS
20NO 47 940 0.000193794 0.995920219 C
234 GATE PASS
OUTER
90PADS 10 900 0.000185548 0.996105767 C
235 CELL PENCIL 180NO 5 900 0.000185548 0.996291315 C
236 ANESTHETIC
EITHER
8NO 110 880 0.000181424 0.996472739 C
237 LIQUID
DETERGENT
50LTR 15 750 0.000154623 0.996627362 C

M.B.A-2nd Year
38
238 TUBE LIGHT
36WATT
20NO 37 740 0.000152561 0.996779924 C
239 TINTURE
BENZOIN
10NO 72 720 0.000148438 0.996928362 C
240 PPD 5TU
MANTOSE TEST
7KIT 100 700 0.000144315 0.997072677 C
241 SOCKET 6AM 30NO 23 690 0.000142253 0.99721493 C
242 HIGHLIGHTER 45NO 15 675 0.000139161 0.99735409 C
243 CFL 5WATT 24NO 25 600 0.000123698 0.997477789 C
244 MARKER PEN
RED
40NO 15 600 0.000123698 0.997601487 C
245 SCISSOR 20NO 30 600 0.000123698 0.997725186 C
246 RED MARK
PENCIL
115NO 5 575 0.000118544 0.99784373 C
247 PPD 10TU
MANTOSE TEST
5KIT 110 550 0.00011339 0.99795712 C
248 METHALYNE
BLUE
6BOTTL
E
90 540 0.000111329 0.998068449 C
249 CFL 36WATT 6NO 144 540 0.000111329 0.998179778 C
250 VOUCHER
YELLOW
40PADS 13.5 540 0.000111329 0.998291106 C
251 BULB 0WATT 45NO 11.5 518 0.000106793 0.998397899 C
252 TAP DISPENSOR 6NO 85 510 0.000105144 0.998503043 C
253 PENCIL 200NO 2.5 500 0.000103082 0.998606125 C
254 STAMP PAD 25NO 17 425 8.76197E-05 0.998693745 C
255 VOUCHER PINK 30PADS 13.5 405 8.34964E-05 0.998777241 C
256 GLYCERIN 400ML 10PKT 40 400 8.24656E-05 0.998859707 C
257 CARTRIGE
RIBBEN
20NO 20 400 8.24656E-05 0.998942172 C
258 VISITING CARD
ALBUM
4NO 100 400 8.24656E-05 0.999024638 C
259 ACON VDRL
STRIP 50TEST
1BOX 375 375 7.73115E-05 0.999101949 C

M.B.A-2nd Year
39
260 TISSUE PAPER
BOX
15NO 25 375 7.73115E-05 0.999179261 C
261 ECG BULB 12NO 25 300 6.18492E-05 0.99924111 C
262 BOTH SODE TAP 10NO 30 300 6.18492E-05 0.999302959 C
263 BROWN TAP 12NO 25 300 6.18492E-05 0.999364809 C
264 ID CARD
TEMPERIAL
600NO 0.5 300 6.18492E-05 0.999426658 C
265 PEN CELLO
GRIEP
60NO 5 300 6.18492E-05 0.999488507 C
266 RULE SHEET
LINING
30NO 10 300 6.18492E-05 0.999550356 C
267 BLADE
SUPERMAX
150NO 1.8 270 5.56643E-05 0.99960602 C
268 PUNCHING
MACHINE
6NO 40 240 4.94794E-05 0.9996555 C
269 CARBON FUSION 2BOTTL
E
110 220 4.53561E-05 0.999700856 C
270 ACETONE 500ML 1KIT 210 210 4.32945E-05 0.99974415 C
271 SCALE 20NO 10 200 4.12328E-05 0.999785383 C
272 WHITE BORAD
MARKER
10NO 20 200 4.12328E-05 0.999826616 C
273 SKECTH PEN 120NO 1.5 180 3.71095E-05 0.999863726 C
274 VEHICLE LOG
BOOK
3NO 45 135 2.78321E-05 0.999891558 C
275 PROTECT SHEET 15NO 80 120 2.47397E-05 0.999916297 C
276 FEVI QUICK 20NO 5 100 2.06164E-05 0.999936914 C
277 WHITENER PEN 48NO 20 96 1.97917E-05 0.999956706 C
278 ERRSER 40NO 2 80 1.64931E-05 0.999973199 C
279 SHAPNER 32NO 2.5 80 1.64931E-05 0.999989692 C
280 INK POT 5NO 10 50 1.03082E-05 1 C
485050
6

M.B.A-2nd Year
40
V.E.D ANYLYSIS:-
S.NO NAME OF ITEMS VITAL ESSENTIAN DESIRBLE
1 ELECTROLYTE REAGENT VITAL
2 HIV J MITRA 50 TEST VITAL
3 GAUZE THAN 90X16MTR VITAL
4 DENGUE NSI 10TEST VITAL
5 GLUCOMETER STRIP VITAL
6 HDL CHOLESTROL VITAL
7 DILLUENT 20LTR VITAL
8 LYSE 500ML VITAL
9 MALERIA KIT VITAL
10 MICROPORE 1 VITAL
11 COTTON ROLL 500GMS VITAL
12 BILLING RIM 90X12X3 VITAL
13 NANOLAB CUVETT VITAL
14 VACCUTE EDTA 1X50 VITAL
15 INJ TROFENTYL 10ML VITAL
16 VACCUTE PLAIN 1X50 VITAL
17
SURG GLOVES N.S
STERILE VITAL
18 ISOTROY 250ML VITAL
19 SBC JAR 10LTR R1 VITAL
20 VACCUTE NEEDLE 1X100 VITAL
21 MICROGEN -125 ESSENTIAL
22 SONOGRAPHY ROLL VITAL
23 LYSE H-18 VITAL
24 PAPER RIM ESSENTIAL
25 IPD FILE VITAL
26 SURG GLOVES STERILE ESSENTIAL

M.B.A-2nd Year
41
27 CRITICAL CARE CHART ESSENTIAL
28 LABLE A4 ST ESSENTIAL
29 HBS AG STRIP 50 TEST VITAL
30
ALK PHOSPATE
ACCUREX VITAL
31
ELECTROLYTE REAGENT
H-18 VITAL
32 LETTER HEAD LAB ESSENTIAL
33 ECG ELECTRODES VITAL
34 URISTIX VITAL
35 DIS MASK ESSENTIAL
36 MEDICIAN CARD ESSENTIAL
37 BILLURUBIN VITAL
38 MRD FILE ESSENTIAL
39 DILLUENT 20LTR H-18 VITAL
40 UREA KINETIC VITAL
41 AHD SPECIAL 500ML DESIRABLE
42 MICROPORE 3 VITAL
43 AMYLASE 4X10ML VITAL
44 CIDEX 5LTR ESSENTIAL
45 RINCE 20LTR VITAL
46 INJ TROFENTYL 2ML VITAL
47 URINE CONTAINERS ESSENTIAL
48 PLAIN TUBE SKREW CAP ESSENTIAL
49 BETADINE SCARB 747 VITAL
50 SGOT 2X150ML VITAL
51 SGPT 2X150ML VITAL
52 RINCE H-18 2LTR VITAL
53 UREA 160ML BIRTH LOD VITAL
54 DISCHARGES TICKET ESSENTIAL
55 EDTA VIAL TUBE VITAL
56 LETTER HEAD APEX ESSENTIAL

M.B.A-2nd Year
42
57 BILLING RIM 90X12X2 VITAL
58 MEDICIAN SLIP ESSENTIAL
59 DIS SHARP CONTAINERS DESIRABLE
60 SPIRIT 4.5 LTR VITAL
61 PHYNOIAL DESIRABLE
62 ECG PAPER TMT VITAL
63 CRETININE VITAL
64 ADA MTB 15 TEST TULIP VITAL
65 URIC ACID 160ML ACC VITAL
66 TREAT MENT SHEET ESSENTIAL
67 PT CUVETT VITAL
68 RENOGRAPH 1LTR VITAL
69 ECG ROLL 6108 BPL VITAL
70 OMNIPAQUE 100ML VITAL
71 SODALIME PLUS 5KG VITAL
72 EEG ELECTRODES ESSENTIAL
73 PAPER ECG RECORDING VITAL
74
TRIGLYCIRIDES 125ML
ACC VITAL
75 GLOVES EXAMINITION VITAL
76 HAND WASH 5LTR DESIRABLE
77 CHIKUNGUNIYA 25 TEST VITAL
78 DIS CAP ESSENTIAL
79 DISTILEED WATER VITAL
80 SEVERANE 250 ESSENTIAL
81 PLAIN TUBE VITAL
82 PT REAGENT VITAL
83 E Z CLEANING SOL VITAL
84 BETADINE SOL 2LTR 5% VITAL
85 PRESCRIPTION PAD VITAL
86 SOAP LIFEBOUY DESIRABLE
87 BLUE TIP VITAL

M.B.A-2nd Year
43
88 WIDAL KIT VITAL
89 ECG FOLDER ESSENTIAL
90 CFL 11WATT DESIRABLE
91 ACETIK ACID 2.5LTR ESSENTIAL
92 PROBE CLEANER VITAL
93 CHOLESTROL ACC VITAL
94 CALSIUM CHL.15ML VITAL
95 CIDEZYME 1LTR ESSENTIAL
96 DIS.GLASS DESIRABLE
97 ETO CARTRIGE VITAL
98 GLUCOSE 1000ML VITAL
99 C,K MB 2X10ML CORAL VITAL
100 TISSUE PAPER ROLL DESIRABLE
101 AIR FRESNERS 5LTR DESIRABLE
102 DUSTBIN SMALL SIZE DESIRABLE
103 ANTI ABD VITAL
104 YELLOW TIP VITAL
105 VACCUTE PT VITAL
106 SOAP HAMAM DESIRABLE
107 VACCUTE ESR VITAL
108 REQUISITION SLIP DESIRABLE DESIRABLE
109 FORMALIN SOL 5LTR ESSENTIAL
110 REGISTER 300PAGE DESIRABLE DESIRABLE
110 CRP OMEGA VITAL
111 COVER SLIP ESSENTIAL
112 ALBUMIN 1X150ML VITAL
113
HARPIC TOILET
CLEANER DESIRABLE DESIRABLE
114
INVESTGATION
SUMMARY ESSENTIAL
115 C,K NAC 2X10ML CORAL VITAL
116 TOTAL PROTEIN VITAL

M.B.A-2nd Year
44
2X150ML
117 SODIUM HYPOCLORIDE ESSENTIAL
118 HISTORY SHEET ESSENTIAL
119
NURSING ASSESMENT
PAD ESSENTIAL
120
MEDICIAN SLIP
EMERGENCY ESSENTIAL
121 SONOGARPHY FOLDER VITAL
122 INJ MORPHITROV 15MG VITAL
123 JHALAK POWDER 2.5KG DESIRABLE
124 GATE PASS YELLOW ESSENTIAL
125 MICRO PROTEIN VITAL
126 ID BAND WHITE DESIRABLE
127 VACCUTE GLUCOSE VITAL
129 AUTOCLAVE TAP ESSENTIAL
130 MICROSHIELD 500ML 636 ESSENTIAL
131 COUNSELLING PAD ESSENTIAL
132 NURSING REASSESMENT ESSENTIAL
133 REGISTER 180PAGE DESIRABLE
134 SPONG 11X11 ESSENTIAL
135 ECG GLOSSY PAPER VITAL
136 AMBO BAG ESSENTIAL
137 SURGERY REPORTS ESSENTIAL
138 FILE INDEX DESIRABLE
139 CHARGES SHEET ESSENTIAL
140 RING FILE DESIRABLE
141 PEN DRIVE 4GB DESIRABLE
142 SOAP ROSE MINI DESIRABLE
143 STEPLER PIN BIG DESIRABLE
144 R FACTOR VITAL
145 DIS SYRINGE 5ML DISPO ESSENTIAL

M.B.A-2nd Year
45
146 BANDAGE 6 VITAL
147
SODIUM HYPO 5LTR
RANBAXY ESSENTIAL
149 ID BAND PINK ESSENTIAL
150 GLASS SLIDE VITAL
151 OT BULB 12V50W ESSENTIAL
152 CBC MACHINE ROLL VITAL
153
SONOGRPAHY JELLY
250ML VITAL
154 ECG JELLY 250ML VITAL
155 SWICH 16AM DESIRABLE
156 HCV J MITRA 50TEST VITAL
157 BANDAGE 4 VITAL
158 CARBOLIC ACID ESSENTIAL
159 PEN DESIRABLE
160 ODONIL DESIRABLE
161 FEVI STICKS DESIRABLE
162 C.K PREST 2X6ML VITAL
163 SOCKET 16AM DESIRABLE
164 SODALIME DRAGER 5KG VITAL
166 SBC JAR 10LTRR2 VITAL
167 EEG PASTE VITAL
168 BLOOD SUGAR PAD ESSENTIAL
169 FILE COBRA ESSENTIAL
170 INJ MORPHITROV 10MG VITAL
171 WIPER DESIRABLE
172 CITRIC ACID 400GMS VITAL
173 COPY 180PAGE DESIRABLE
174 SAVLONE 1LTR ESSENTIAL
175 STEPLER PIN SMALL DESIRABLE

M.B.A-2nd Year
46
176 TUBE LIGHT 28WATT DESIRABLE
178
ENEVELOP WHITE
SMALL DESIRABLE
179 PHOSPORUS VITAL
180 CULTURE SWAB VITAL
182 INFORMED CONSENT ESSENTIAL
184 L-FOLDER ESSENTIAL
185 SAMPLE VIAL VITAL
186 PATIENT REG FORM ESSENTIAL
188 ID CARD STRING DESIRABLE
189 BUTTON FOLDER DESIRABLE
190 BLOOD TRANSFUSION ESSENTIAL
191 HIV PARIKSHAN PAD ESSENTIAL
192 RUBBER BAND DESIRABLE
193 ELECTROLYTE ROLL VITAL
194 GLASS CLEANER 5LTR DESIRABLE
195
HEMOSPOT 50 TEST
CORAL VITAL
196 MARKER PEN DESIRABLE
197
HYDROGEN PEROOXIDE
400ML ESSENTIAL
198 FAX ROLL ESSENTIAL
199 ECG CLIP ESSENTIAL
200 PAPER ROLL 110MM VITAL
201 ESR TUBE VITAL
202 WRRITING PAD DESIRABLE DESIRABLE
203 CELL PENCIL PEZOR ESSENTIAL
204 GRAM STAIN VITAL

M.B.A-2nd Year
47
205 GAMA GT VITAL
206 MC PAINT 400ML ESSENTIAL
207 DVD BLANK DESIRABLE
208 DIS SYRINGE 1ML BD ESSENTIAL
209 SWICH 6AM DESIRABLE
210 NIRMA POWDER DESIRABLE
211
ACON PREGNENCY TEST
50TEST VITAL
212
REGISTRE BIG SIZE
450PAGE DESIRABLE
213 STEPLER DESIRABLE
214 TAP ROLL DESIRABLE
215 NURSE ADMISSION ESSENTIAL
216 ID CARD ORIGINAL ESSENTIAL
218 FORMALIN TABLETS ESSENTIAL
219 GATE PASS OUTER ESSENTIAL
220 CELL PENCIL ESSENTIAL
221 ANESTHETIC EITHER ESSENTIAL
222 LIQUID DETERGENT DESIRABLE
223 TUBE LIGHT 36WATT DESIRABLE
224 TINTURE BENZOIN ESSENTIAL
225 PPD 5TU MANTOSE TEST VITAL
226 SOCKET 6AM DESIRABLE
227 HIGHLIGHTER DESIRABLE
229 MARKER PEN RED DESIRABLE
230 SCISSOR DESIRABLE
231 RED MARK PENCIL DESIRABLE
232 PPD 10TU MANTOSE TEST VITAL
232 METHALYNE BLUE VITAL

M.B.A-2nd Year
48
234 VOUCHER YELLOW ESSENTIAL
235 BULB 0WATT DESIRABLE
236 TAP DISPENSOR DESIRABLE
237 PENCIL DESIRABLE
238 STAMP PAD DESIRABLE
239 VOUCHER PINK ESSENTIAL
240 GLYCERIN 400ML ESSENTIAL
241 CARTRIGE RIBBEN ESSENTIAL
242 VISITING CARD ALBUM DESIRABLE
243
ACON VDRL STRIP
50TEST VITAL
244 TISSUE PAPER BOX DESIRABLE
245 ECG BULB ESSENTIAL
246 BOTH SODE TAP DESIRABLE
247 BROWN TAP DESIRABLE
248 ID CARD TEMPERIAL DESIRABLE
249 PEN CELLO GRIEP DESIRABLE
250 RULE SHEET LINING DESIRABLE
251 BLADE SUPERMAX DESIRABLE
252 PUNCHING MACHINE DESIRABLE
253 CARBON FUSION VITAL
254 ACETONE 500ML VITAL
255 SCALE DESIRABLE
256 WHITE BORAD MARKER DESIRABLE
257 SKECTH PEN DESIRABLE
258 VEHICLE LOG BOOK DESIRABLE
259 PROTECT SHEET ESSENTIAL
260 FEVI QUICK DESIRABLE
261 WHITENER PEN DESIRABLE
262 ERRSER DESIRABLE
263 SHAPNER DESIRABLE
264 INK POT DESIRABLE

M.B.A-2nd Year
49
265 BIO BAG 20X24 BLACK ESSENTIAL
266 BIO BAG 20X24 YELLOW ESSENTIAL
267 BIO BAG 20X24 RED ESSENTIAL
268 BIO BAG 20X24 BLUE ESSENTIAL
270 BIO BAG 18X18 RED ESSENTIAL
271 BIO BAG 18X18 YELLOW ESSENTIAL
272 BIO BAG 18X18 BLUE ESSENTIAL
274 REGISTRATION FILE VITAL

M.B.A-2nd Year
50
CHAPTER- III
Literature review

M.B.A-2nd Year
51
LITERATURE REVIEW:-
I. Introduction
This chapter explains the theoretical and empirical evidence about inventory management. In
theory, features of effective inventory management systems are explained, how the use of
computers affects the organizations use of inventory management systems, the need for
controls and how to much demand with supply. In practice the chapter tries to look at
previous studies done on the inventory management. It also establishes the knowledge gap.
Successful inventory management involves balancing the costs of inventory with the benefits
of inventory. Many small business owners fail to appreciate fully the true costs of carrying
inventory, which include not only direct costs of storage, insurance and taxes, but also the
cost of money tied up in inventory.
Literature related to our study spans theoretical and empirical inventory research in
operations management and empirical studies in economics, as well as finance/accounting
literature that aims to explain the profitability of firms. Thus, we will provide a concise
summary of only the most relevant papers while emphasizing work that specifically deals
with international data at the firm level. Inventory modeling has been an area of intensive
inquiry in operations management and operations research. Some classical texts describing
the variables that are widely used in classical inventory models are Silver et al. (1998) and
Cachon and Terwiesch (2005). At the same time, only a few recent papers in operations
management analyze inventories at the firm level empirically and try to reconcile inventory
behavior observed in practice with the behavior predicted by the models. Most of these
papers look at US firms, and some of them analyze the link between inventory management
and financial performance. Gaur et al. (2005) examine firm-level inventory behavior among
retailing companies. They propose a model explaining differences in inventory turns across
companies and create an adjusted measure of inventory turns that is better suited to gauge the
operational metrics of retailers. Gaur et al. (2005) also find that inventory turnover for
retailing firms is positively associated with both capital intensity 5and sales surprise, and is
negatively associated with gross margins. Gore and Kesavan (2006) extend this work by

M.B.A-2nd Year
52
Studying effects of firm size and sales growth on inventories. Gauretal. (1999) demonstrate
that the financial excellence of retailing companies comes from various operational strategies
that may involve low or high product margins and low or high inventory turns in different
retailing segments. Rajagopalan and Malhotra (2001) study trends in inventory levels at US
firms over time to test the widely held belief that inventory management has improved due to
the introduction of just-in-time (JIT) practices and information technology (IT) system
implementations. Using a large sample of firms from the US Census Bureau that includes
both private and public companies, they find that material and work in process inventories
decreased in most of the two-digit Standard Industrial Classification (SIC) industries from
1961 to 1994. Furthermore, in some segments there were greater improvements in the post-
1980 period when JIT practices were adopted. Continuing this line of work, Chen et al.
(2005, 2007) find decreasing trends for relative inventories (inventory as days of sales), in
both the manufacturing and the wholesaling sectors for the period 1981-2003. They also find
somewhat mixed evidence in the retailing sectors, with a downward trend starting only in
1995.
Using an event study approach, they show that firms with abnormally high inventories have
abnormally poor long-term stock returns. They also find that the relationship between
Tobin’s q and abnormal inventory (which is a standardized deviation from the sector-wide
inventory mean) is weak in cross-section for all sectors. Lai (2005) provides empirical
evidence that (i) markets cannot differentiate between “good” and “bad” inventory, (ii)
markets punish firms when they can tell that inventory decisions are “bad” (e.g., write-offs)
and (iii) inventory levels do not statistically explain firm value. Roumiantsev and Netessine
(2005a) propose an econometric model that explains firm-level inventories using mean sales,
sales uncertainty, accounts payable, 6inventory holding costs and product margins.
Hendricks and Singhal (2005) show that supply chain disruptions are very costly to public
companies, since they cause a substantial loss in market value. Singhal (2005) analyzes the
long-run stock price effects of excess inventories. He finds that the stock market partially
anticipates excess inventory situations, and the negative effect of excess inventory is
significant: mean abnormal returns due to excess inventory are -37.22% in the sample.
Roumiantsev and Netessine (2005b) do not find a relationship between the return on assets
and inventory levels but instead find that superior earnings are associated with the speed of
change/responsiveness in inventory management. Research on inventories in the international
context is scarce. Lieberman and Asaba (1997) and Lieberman and Demeester (1999)

M.B.A-2nd Year
53
compare inventory management and JIT practices in the Japanese automotive industry with
those in the US automotive segment. They find that
Japanese companies are leaner on average and that the introduction of JIT systems among US
companies has helped them to become leaner as well. Lieberman et al. (1999) study the
dynamics of inventory levels for automotive suppliers in North America. They combine a
survey and secondary plant-level data to show that inventory levels are affected by both
technological and managerial factors in a manner consistent with classical inventory theory.
Namely, they show that inventory levels at selected plants increase with setup costs, item
costs per unit and production lead times, and that inventory are lower for plants in which the
workforce engages in making process improvements. Surprisingly, the plants of Japanese
Companies in North America hold no less inventory than plants of American companies. Lai
(2006a, 2006b) studies inventory behavior for publicly held retailing companies across
different countries, using a combination of three databases – Edgar, COMPUSTAT and
Bureau van Dijk. He finds that public infrastructure impacts inventory management, that
country effects do help to 7explain inventory heterogeneity and that the “global determinism”
hypothesis that is popular in the strategic management literature is not supported. Finally
Prasad and Babbar (2000) provide a summary of empirical research on international
operations management and note that the statistical evidence for foreign countries is not
broad and is largely survey-based.
Inventory has also long been a focus of research in the field of macroeconomics, but mostly
from the standpoint of aggregate dynamics across the US economy. (In contrast, our study
and most previously mentioned studies operate at the firm level.) As summarized in
Ramey and West (1999), economists have proposed models based on stock-adjustment and
production-smoothing to link inventory with production, sales and GDP so as to show the
two main stylized facts about inventory behavior: (i) that aggregate economy-level inventory
dynamics have a pro-cyclical nature and (ii) that there is a persistent relationship between
sales, production and inventory in the form of production smoothing (i.e., reduced variability
of production as compared to variability of sales). To date, researchers have found little
evidence consistent with these models and instead have discovered that (i) historically, based
on seasonal data, production in the US has been more volatile than sales (thus contradicting
the linear quadratic stock-adjustment model) and (ii) the imputed speed of inventory
adjustment based on linear-quadratic model assumptions is unrealistically low. Kahn et al.
(2002) report evidence that economy-wide supply-demand matching has significantly
improved over time but at the same time Comin and Mulani (2004) find that firm-level sales

M.B.A-2nd Year
54
volatility has increased due to higher product variety, shorter product life cycles and other
microeconomic factors.
In the accounting/finance domain, Kothari (2001) provides a detailed summary of research on
capital markets and notes that inventory issues have been addressed in just a few papers. The
most relevant among these is the work of Thomas and Zhang (2002), which 8analyzes
various ways in which changes in balance sheet items impact stock returns.
Interestingly, they find that the negative relationship between accruals and future abnormal
returns is mainly due to inventory changes. Thomas and Zhang (2002) propose three
explanations for this phenomenon that are related to the mis-pricing of accruals but cannot
find statistical support for them in the data. They state that it is not enough to look at balance
sheet items and accounting identities alone – operational understanding of such issues in the
context of expected versus unexpected demand shifts is required.
To summarize, empirical studies of inventories have been largely limited to the US economy
(with the exception of papers by Lai 2006a, 2006b), and even these studies (with the
exception of Rajagopalan and Malhotra 2001) do not analyze the three different types of
inventories. Moreover, evidence for the relationship between inventory management and
financial performance is quite limited and pertains only to the US economy.
II. Review of Theories
Inventory control is not a Science, more nearly it is a set of methods for figuring out how
much stock to order, when and how to receive it (Tibur, 2008). It is one of the roles that
management has to play by putting a system of keeping track of items in inventory. A
powerful inventory management system is the base of the every good retail software package.
An inventory management system lets you know what our important needs, with inventory
management systems are, you can get minors to majors report on what you have in stock, on
order transit. Retailer’s software with an inventory management system eliminates the
guesswork from running your retail business. The system can be set up to automatically
notify you when it is time to order more inventories such as when stock falls below a
prearranged level. By always having your hottest items in stock, you will be sure to not sell
due to out-of- stock items. Many retail software packages will even generate purchase orders,
further streamlining inventory management. In addition to increasing your sales, retail
software with an inventory management system drastically reduce your operating costs by
reducing the time spent manually counting inventory and creating purchases. It will also track

M.B.A-2nd Year
55
which items are selling and which are not. By identifying your less moving items you can
adjust their position, pricing or other issues earlier. You can also see which items are often
purchased in pairs and can group them consequently in the store. Keeping inventory cost low
is vital to competitive benefits.
In a hospital, materials management has become a distinct function. Depending on the size of
the hospital it could be a separate department or in a smaller set up it could be under the care
of the Manager. Materials in a hospital range from consumables, stationery to even
equipments besides the pharmaceuticals and optical goods. The first broad section inventory
management which is delineated into the following parts: Purchasing, Storage, Issue, and
Inventory
MODELS FOR INVENTORY MANAGEMENT
I. Economic order quantity
Economic order quantity is the order quantity that minimizes total inventory holding costs
and ordering costs. It is one of the oldest classical production scheduling models. The
framework used to determine this order quantity is also known as Barabas EOQ
Model or Barabas Formula. The model was developed by Ford W. Harris in 1913, but R. H.
Wilson, a consultant who applied it extensively, is given credit for his in-depth analysis.
EOQ applies only when demand for a product is constant over the year and each new order is
delivered in full when inventory reaches zero. There is a fixed cost for each order placed,
regardless of the number of units ordered. There is also a cost for each unit held in storage,
sometimes expressed as a percentage of the purchase cost of the item.
We want to determine the optimal number of units to order so that we minimize the total cost
associated with the purchase, delivery and storage of the product.

M.B.A-2nd Year
56
The required parameters to the solution are the total demand for the year, the purchase cost
for each item, the fixed cost to place the order and the storage cost for each item per year.
Note that the number of times an order is placed will also affect the total cost, though this
number can be determined from the other parameters.
Underlying assumptions
1. The ordering cost is constant.
2. The rate of demand is known, and spread evenly throughout the year.
3. The lead time is fixed.
4. The purchase price of the item is constant i.e. no discount is available
5. The replenishment is made instantaneously; the whole batch is delivered at once.
6. Only one product is involved.
EOQ is the quantity to order, so that ordering cost + carrying cost finds its minimum. (A
common misunderstanding is that the formula tries to find when these are equal.)
Observations about EOQ Models
1. If it is assumed that the unit cost of an item is constant throughout time independent of the
batch size (as with the first two EOQ models), the unit cost does not appear in the optimal
solution for the batch size. This result occurs because no matter what inventory policy is
used, the same number of units is required per unit time, so this cost per unit time is fixed.
2. The analysis of the EOQ models assumed that the batch size Q is constant from cycle to
cycle. The resulting optimal batch size Q* actually minimizes the total cost per unit time for
any cycle, so the analysis shows that this constant batch size should be used from cycle to
cycle even if a constant batch size is not assumed.
3. The optimal inventory level at which inventory should be replenished can never be greater
than zero under these models. Waiting until the inventory level drops to zero (or less than
zero when planned shortages are permitted) reduces both holding costs and the frequency of
incurring the setup cost K. However, if the assumptions of a known constant demand rate and
the order quantity will arrive just when desired (because of a constant lead time) are not
completely satisfied, it may become prudent to plan to have some “safety stock” left when the

M.B.A-2nd Year
57
inventory is scheduled to be replenished. This is accomplished by increasing the reorder point
above that implied by the model.
4. The basic assumptions of the EOQ models are rather demanding ones. They seldom are
satisfied completely in practice. For example, even when a constant demand rate is planned
(as with the production line in the TV speaker’s example in Sec. 19.1), interruptions and
variations in the demand rate still are likely to occur. It also is very difficult to satisfy the
assumption that the order quantity to replenish inventory arrives just when desired. Although
the schedule may call for a constant lead time, variations in the actual lead times often will
occur. Fortunately, the EOQ models have been found to be robust in the sense that they
generally still provide nearly optimal results even when their assumptions are only rough
approximations of reality. This is a key reason why these models are so widely used in
practice. However, in those cases where the assumptions are significantly violated, it is
important to do some preliminary analysis to evaluate the adequacy of an EOQ model before
it is used. This preliminary analysis should focus on calculating the total cost per unit time
provided by the model for various order quantities and then assessing how this cost curve
would change under more realistic assumptions.
II. Fixed order quantity model
Fixed–order quantity models attempt to determine the specii c point, R , at which an order
Will be placed and the size of that order, Q . The order point, R , is always a specified
number of units. An order of size Q is placed when the inventory available (currently in stock
and on order) reaches the point R. Inventory position is dei ned as the on-hand plus on-
order minus backordered quantities. The solution to a i xed–order quantity model may
stipulate something like this: When the inventory position drops to 36, place an order for 57
more units.
The simplest models in this category occur when all aspects of the situation are known with
certainty. If the annual demand for a product is 1,000 units, it is precisely 1,000—not 1,000
plus or minus 10 percent. The same is true for setup costs and holding costs. Although the
assumption of complete certainty is rarely valid, it provides a good basis for our coverage of
inventory models.

M.B.A-2nd Year
58
The discussion about deriving the optimal order quantity are based on the following
characteristics of the model. These assumptions are unrealistic, but they represent a starting
point and allow us to use a simple example.
• Demand for the product is constant and uniform throughout the period.
• Lead time (time from ordering to receipt) is constant.
• Price per unit of product is constant.
• Inventory holding cost is based on average inventory.
• Ordering or setup costs are constant.
• All demands for the product will be satisfied. (No backorders are allowed.)
The “saw tooth effect” relating Q and R in Exhibit figure-1 shows that when the inventory
position drops to point R, a reorder is placed. This order is received at the end of time period
L, which does not vary in this model.
In constructing any inventory model, the i rst step is to develop a functional relationship
between the variables of interest and the measure of effectiveness. In this case, because we
are concerned with cost, the following equation pertains:
Total annual cost= Annual purchase cost + Annual ordering cost + Annual holding cost
OR
TC = DC + D/Q* S + Q/2 *H
Fig-1

M.B.A-2nd Year
59
TC = Total annual cost
D = Demand (annual)
C = Cost per unit
Q = Quantity to be ordered (the optimal amount is termed the economic order quantity —
EOQ—or Opt)
S = Setup cost or cost of placing an order
R = Reorder point
L = Lead time
H = Annual holding and storage cost per unit of average inventory (often holding cost
is taken as a percentage of the cost of the item, such as H = iC , where i is the percent
carrying cost)
On the right side of the equation, DC is the annual purchase cost for the units, ( DQ ) S is
the annual ordering cost (the actual number of orders placed, DQ , times the cost of each
order, S ), and ( Q2) H is the annual holding cost (the average inventory, Q2, times the cost
per unit for holding and storage, H ). The second step in model development is to i nd that
order quantity Q opt at which total cost is a minimum. In Exhibit 11.5, the total cost is
minimal at the point where the slope of the curve is zero. Using calculus, we take the
derivative of total cost with respect to Q and set this equal to zero. For the basic model
considered here, the calculations are

M.B.A-2nd Year
60
TC = DC + D/Q*S + Q/2*H
dTCdQ = 0 + ( −DS/Q2) +H/2= 0
Qopt= √ 2DS/H
Because this simple model assumes constant demand and lead time, neither safety stock
Nor stock-out cost is necessary, and the reorder point, R , is simply
R = d L
Where
d = Average daily demand (constant)
L = Lead time in days (constant)
III. Fixed time period model
In a fixed–time period system, inventory is counted only at particular times, such as every
week or every month. Counting inventory and placing orders periodically are desirable in
situations such as when vendors make routine visits to customers and take orders for their
complete line of products, or when buyers want to combine orders to save transportation
costs. Other i rms operate on a fixed time period to facilitate planning their inventory count;
for example, Distributor X calls every two weeks and employees know that all Distributor
X’s product must be counted.
Fixed–time period models generate order quantities that vary from period to period,
depending on the usage rates. These generally require a higher level of safety stock than a
fixed–order quantity system. The fixed–order quantity system assumes continual tracking of
inventory on hand, with an order immediately placed when the reorder point is reached.
In contrast, the standard fixed–time period models assume that inventory is counted only at
the time specified for review. It is possible that some large demand will draw the stock down
to zero right after an order is placed. This condition could go unnoticed until the
next review period. Then the new order, when placed, still takes time to arrive. Thus, it is
possible to be out of stock throughout the entire review period, T , and order lead time, L .
Safety stock, therefore, must protect against stock outs during the review period itself as well
as during the lead time from order placement to order receipt.

M.B.A-2nd Year
61
Fixed time period model with safety stock
In a fixed–time period system, reorders are placed at the time of review ( T ), and the safety
stock that must be reordered is
Safety stock = z
T+L
Exhibit 2 shows a fixed–time period system with a review cycle of T and a constant
Lead time of L. In this case, demand is randomly distributed about a mean d . The quantity to
order, q , is
Order quantity= Average demand over the vulnerable period+ Safety stock−Inventory
currently on hand (plus on order, if any)
Where
q = Quantity to be ordered
T =The number of days between reviews
L = Lead time in days (time between placing an order and receiving it)
d = Forecast average daily demand
z = Number of standard deviations for a specified service probability
T+ L= Standard deviation of demand over the review and lead time
I = Current inventory level (includes items on order)

M.B.A-2nd Year
62
Empirical studies
Strategy for resolving maximum profit for inventory minimization:-
Green and MischaDick (2001) found out that just like any investment in business; inventory
needs to serve the purpose of maximizing profit. However, in many cases inventory has
turned into a major cash flow constraint thus making it necessary to optimize inventory using
analytical and statistical methods in an integrated approach.
One of the biggest challenges in optimizing inventory is the fact that it is merely an output of
many inter-organizational processes, all too often organization attempt to lower inventory
using non-analytical approaches which lower service levels. The study was conducted
through a case study of a major US corporation, where Green and MischaDick identified two-
step approach of significant value; optimizing inventory levels while viewing the existing
order fulfillment process as a given constraint and changing the fundamental order fulfillment
process across the entire system. The first step was used to make quick and successful cash
availability. The second step was used to generate breakthrough business results and provide
a robust order fulfillment process that was to perform at lower inventory levels while
providing extraordinary service levels. The real world constraint is taken into account prior to

M.B.A-2nd Year
63
deciding on the appropriate changes. Simulations are conducted to verify the appropriateness
of the analytical models using actual process data.
Cash flow problem is identified, further analysis reveals that inventory levels are high and
turns are below most major competition.
This study has not focused on the systems necessary for inventory management; they have
only taken into consideration inventory level as a strategy for maximizing profit.
Inventory value using six- sigma:-
Green and MischaDick (2002) found out that old equipment are viewed as not worth
understanding and improving for the operations, however, replacement cost can be
staggering. Certainty purchasing new equipment is necessary at times. However, frequently it
is possible to produce good product with existing equipment. Properly characterizing existing
equipment using statistical methods can yield significant improvements. The research was
carried out through a case study to a major US manufacturer, made the decision to stop
providing critical components. The supplier made the decision because the equipment was
the 30-40 years old, yields had traditionally run at 60% and the margins were low, a baseline
of the extrusion process was performed and a vast list of potential factors was identified
during process mapping. It was also determined through measurement system studies that the
measurement systems were not capable of measuring the parts. The measurement systems
were improved and several screening designed experiments were conducted. Results showed
a few key factors to be important. Follow-up optimization experiments were run. The process
was producing 100% yield within 3 months on existing numbers. The next step was to
produce parts that had not been previously produced. The first parts off of the new die met
the desired specification, although slightly off target.
This study has only considered the value addition or utilization of existing equipment
considered outdated to produce high quality product efficiently, therefore it did not consider
the systems necessary for inventory management

M.B.A-2nd Year
64
THE RELATIONSHIP OF FINANCIAL AND INVENTORY PERFORMANCE OF
MANUFACTURING FIRMS IN INDIAN CONTEXT:-
The extant literature on supply chain performance identifies two contradictory views about
the relationship between inventory performance and financial performance of supply chains.
While there are studies that suggest a positive association between inventory turnover and
financial performance, few studies {Tunc & Gupta (1993), Vastag & Whybark (2005)} found
that inventory turnover has no relation with financial performance. In addition, most of the
studies considered total inventory value as a proxy of inventory performance. Capkun et al.
(2009) suggested that inventory performance can be divided into its discrete components such
as Raw material inventory (RMI), Work-in-progress inventory (WIPI), and Finished goods
inventory (FGI). India is fourth largest economy, by Purchasing power parity, of the world
and almost all global firms have started their operations in India. Hence, it is important to
study about Indian firms’ performance. It is noteworthy that there is not a single study, with
respect to relationship between inventory performance and financial performance of supply
chains, has been conducted for Indian firms. This paper is an attempt to study the relationship
between the performance of the discrete components of inventory (RMI, WIPI, and FGI), and
financial performance of Indian manufacturing firms.
In the literature, relationship between inventory performance and financial performance has
been investigated from two distinct viewpoints, namely, direct and indirect. In the indirect
paradigm, researchers analyzed that inventory performance affects other related indicators
like IT performance etc., which in turn affect financial performance of the firm. However, in
direct effects researchers tried to investigate the direct relationship between inventory
performance and financial performance.
Evidence on Indirect effects
Dehning et al. (2007) observed that ‘gross margin, RMI turnover, asset turnover, and WIP
inventory turnover, market share, FGI turnover, total inventory turnover, ROA, ROS’ are
performance measures of a value chain. A careful analysis of all these measures suggests that
several benefits accrue to manufacturing firms ‘adopting IT based supply chain
management’, the most important being increase in inventory turnover and reduction in
expenses. A study by Rajagopalan & Malhotra (2001) on the trends in inventory levels (RMI,
WIPI, and FGI) of US manufacturing firms for the period of 34 years (1961-1994) reported
that total inventory ratio at all three levels have decreased from 1961 to 1994. They reported

M.B.A-2nd Year
65
in detail that RMI and WIP decreased in majority of sectors, but FGI decreased in some
industry sectors while increased in others. Frolich et al (2001) defined arc of integration as
level of integration a firm has, with its suppliers and customers. Inward facing strategy is
defined as no integration with suppliers or customers; and Outward facing is defined as
extensive integration with both suppliers and customers. In between inward and outward
strategies three more strategies exist, namely periphery, supplier facing, and customer facing
strategies. Periphery strategy is the one in which there is little integration with suppliers and
customers. Supplier facing strategy is defined as extensive integration with suppliers and
little integration with customers. In customer facing strategy there is an extensive integration
with customers and little integration with suppliers. Firms which are outward facing gain
more financial benefits than inward, periphery, supplier, and customer facing ones. This gain
in financial benefits can be shown in more inventory turnover, decrease in several costs,
decrease in lead time, and subsequently increase in customer satisfaction (Frohlich et al.
2001).
In an attempt to study the link between Inventory and long-term stock returns of US
manufacturing firms Chen et al. (2005) conducted an analysis on the 20 years (1981-2000)
data. The findings suggested that, while firms with abnormally high inventory levels1 have
poor long-term stock returns, firms with slightly lower than average inventory do better than
firms with extremely low Inventory. . Chen et al. (2005) also found that the rate of reduction
in inventory was about 2% and the largest reduction was in WIP (about 6%) while FGI did
not decline. In sync with the results of Chen et al. (2005) to showcase the indirect effects,
Shah and Shin (2007) used publicly available sector data from 1960-1999 of manufacturing,
retail, and wholesale sectors to show a link between information technologies (IT), inventory,
and profitability. Their findings suggested that IT does not impact financial performance
directly, Abnormal level of inventory is defined as normalized deviation from the industry
norm i.e. ‘if the normalized value of inventory of any specific firm is greater than zero; then
it is said to have abnormally high inventory’, ‘if it is less than zero; then it is having low
inventory’; and ‘if it is equal to zero; then it is said to have average inventory.’’
but rather mediates through inventory performance i.e. increase in investment in IT leads to
an improvement in inventory performance which in turn leads to an improvement in financial
performance for manufacturing firms.
Cachon & Fischer (2000) used simulation techniques to investigate the impact of information
technology on supply chain management by comparing the supply chain costs with traditional
no-information sharing, and full information revealed (that provides and exploits shared

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