MATERIALS

MANAGEMENT

DR. ( MAJ) P. KUMAR

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 OBJECTIVES

• Right material, at right time, at right

price in the right quality and cost:
CWG? Centres?
• Minimum inventory investment
• Focused Operation efficiency
 LOGISTICS IN THE
FORCES :
A Branch of military science concerned
with procurement transportation, ware
housing, maintenance and supply of troops
equipment & facilities used for war purpose
• Council of Logistics Management (1991) defined
that logistics is 'part of the supply chain process
that plans, implements, and controls the efficient,
effective forward and reverse flow and storage of
goods, services, and related information between
the point of origin and the point of consumption
in order to meet customers’ requirements
5 KEY RELATED TERMS

1. logistics,
2. Inbound logistics,
3. Materials management,
4. Physical distribution, and
5. Supply-chain management

Johnson and Wood’s definition (cited in Tilanus, 1997)

• Inbound logistics covers the movement of material received
from suppliers.
• Materials management describes the movement of materials
and components within the hospital.
• Physical distribution refers to the movement of goods
outward from the end of the assembly line to the customer.
• Supply-chain management is larger than logistics, and it links
logistics more directly with the user’s total communications
network and with the firm’s engineering staff
LOGISTICS IN HOSPITALS

• In Hospitals: Systems have been created

to carry out different functions in different
areas. For eg. Stores Section (D.O.),
Hospital Stores, Stores in Centres, Deptt.
etc
• Term Logistics & material management are
often used synonymously in hospital
context.
• Inventory control is part of material
management
HOSPITALS
COST HEADS

1.Purchase cost
2.Carrying cost
3.Shortage cost / Opportunity cost
4.Ordering cost
PURCHASE PRICE?
PURCHASE COST : ACTUAL COST
OF ITEM
How to minimize this cost ?
• Make functional specification
• Translate these into technical
specification
• Right Information
• Market survey for suppliers
• Bulk Buying
• Invite bids
• Healthy Competition
CARRYING COST :

• Cost of money used to buy item

• Cost of storing / safe keeping
• Cost of wastage because of
obsolescence / deterioration /
breakage
• Cost of Pilferage
• Insurance premium
CARRYING COST INVISIBLE BUT
NOT INVINCIBLE
• These costs are ‘Invisible’ as these costs
are incurred but not counted but by
proper management, we can reduce
these costs.

• These contribute to 25-36% of actual

inventory cost over a period of time.
CARRYING /HOLDING COST PIE
CHART
 STOCK OUT COSTS
• An invisible cost in hospitals but can very important ;
eg Vital items.. Oxygen!: Gorakhpur and Farrukhabad
• Some times it is possible to measure it, tragically so.
• There’s a trade off between holding cost and ordering
cost : bad out come– stock out costs

ORDERING COSTS: It includes

• Cost of Stationary
• Cost of Manpower & process
• How has it differed when things are now online?
ADDITIONAL MANAGERIAL
REQUIREMENT

• Efficient Purchase system

• Requisition & Distribution system
• Written Policies & Procedures
• Practical Receiving programme
ELEMENTS OF MATERIAL
MANAGEMENT
1. 2.
Demand Estimation Procurement

3.
Receipt & Inspection
8.
Disposal
4.
Storage

7. 6. 5.
Condemnation Maintenance Repair Issue & Use

Accounting & Information System

 DEMAND ESTIMATION :

• Trend of Consumption

• Common Diseases & Drug needed

• New Facilities to be added or New Medicines available

• Cyclic changes in Epidemiology of Disease

• Final Selection of items depends on resources

• Comprehensive Procurement meets prudent Planning &

Subsequent Management
PROCUREMENT STEPS: SIMPLIFIED!

After reconciliation of funds & demand

Choose procurement method
Select suppliers & finalize terms of contract
Place order
Monitor execution of supply orders
Receive & Inspect items
PROCUREMENT METHODS

• Open tender
• Restricted tender : 10 Supplier
• Negotiated procurement
• Direct procurement
• Proprietary items / single source item
• Low price items
• Small volume items
• Emergency purchases
 ORDERING SYSTEM

Purchase order / supply order

Once supply order is accepted by the
supplier, it becomes a binding contract
SUPPLY ORDER
DETAILS OF PURCHASE /
SUPPLY ORDER ARE :
• Order reference No
• Description of material including
specification
• Quantities, Packaging stamping etc.
• Delivery Schedules
• Price & Discounts
• Shipping / Transport instructions
• Location where material is to be
supplied
• Signature of authorized person
• Detail term & Conditions
PURCHASE ORDER COPIES :

1. Original – for Supplier

2. Acknowledgement copy to be signed & sent
back by supplier
3. Receiving store
4. Indenting Department
5. Finance / Accounts who make payment
RECEIPT & INSPECTION

Methodology:
1. Inspection committee
2. Sampling procedure
3. Facility for checking quality
4. Proper records of proceeding
5. Random check of supplies
STEPS :

Unload & check supplies

Unpack & inspect supplies

Sign inspection note

Receipt Note

Delivery of material
STORAGE

• Refrigerators
• Grouping of drug
• First in first out( FIFO)
• Temperature control
• Monitoring of expiry Drug
• Two bin / Double shelf system
ISSUE :

• Centralized / decentralized
• Fixed schedule of issue Timings
• Control of intermediate stores i.e.
surprise check / audit
• The store module implementation.. How
has it changed the system?
INVENTORY

• ‘It is sum total & cost of all supplies official

and non official, wherever these may be
stored & have not been used’
• Types : Official
Unofficial
• what is inventory control?
INVENTORY CONTROL

• A tool of management which is used to

• Maintain economic minimum investment

• Ensure availability of items at all times

IMPORTANT TERMS USED IN
INVENTORY CONTROL :

1. Lead time
2. Buffer stock
3. Reorder level
4. Optimum safety stock
5. Economic order quantity
LEAD TIME

Lead Time - Internal

External
(A) Time taken from demand generation to placement of
order

(B) Time taken from the date of supply order to actual

delivery of item

(C) Time taken from receipt of material to actually issue it

to users

• Lead Time = A + B + C
A & C = INT, B = Ext
BASICS

• Average Daily Consumption = x

• Peak daily Consumption = y
• Buffer stock = (y - x) x lead time
• Reorder level = Buffer stock + (x  Lead Time)
• Working stock : To be calculated by economic
order quantity

• EOQ = Q = 2AO
C
Q = Quantity to be ordered
A = Annual Consumption of items in units
O = Ordering cost per unit
C = Carrying cost per unit
EOQ
INVENTORY CONTROL
TECHNIQUES
 TECHNIQUES OF INVENTORY
CONTROL
1. ABC Technique
This technique is based on observation of inventory that if we
calculate

(I) Annual Consumption cost of all item i.e. no of units consumed

over the year X price / unit
(II) Calculate relative annual consumption cost of different items
w.r.t. percentage of items contributing to total cost
A: 10% of items cost 70% of total expenditure on material
2. B: 20% of items cost 20%
3. C: 70% of items cost 10%
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VED ANALYSIS :

• Here all item are classified in three groups based

on criticality & consequence of shortage

1.Vital V Group
2. Essential E Group
3. Desirable D Group

• Others, FSN, HML etc

COMBINING ABC & VED
V E D

A AV AE AD

B BE BD
BV

C CV CE CD

V E D

A AV AE AD

B BV
BE BD

CV CD
C CE
WHAT ELSE YOU SHOULD KNOW!
 GFR

• General Financial Rules (GFRs) are a compilation of rules and orders of

Government of India to be followed by all while dealing with matters
involving public finances

• These are treated as executive instructions to be observed by all

Departments and Organisations under the Government

• Deemed to be applicable to Autonomous Bodies except to the extent

the bye-laws of an Autonomous Body provides for separate Financial
Rules which have been approved by the Government.
RATE CONTRACTS

Rule 148 (2017)

DGS&D shall conclude rate contracts with the registered
suppliers for such goods, which are not available on GeM,
and are identified as common use items and are needed on
recurring basis by various Central Government Ministries or
Departments. The Ministries or Departments shall follow
those rate contracts to the maximum extent possible.
 GOVERNMENT E-MARKET PLACE (GEM)

• DGS&D or any other agency authorized by the Government will host

an online Government e-Marketplace (GeM) for common use Goods
and Services
• The Procurement of Goods and Services by Ministries or
Departments will be mandatory for Goods or Services available on
GeM.
• The credentials of suppliers on GeM shall be certified by DGS&D.
• The procuring authorities will certify the reasonability of rates.
• The GeM portal shall be utilized by the Government buyers for direct
on-line purchases
iii. Above Rs.30,00,000/- through the supplier having lowest
price meeting the requisite quality, specification and
delivery period after mandatorily obtaining bids, using
online bidding or reverse auction tool provided on GeM
iv. The invitation for the online e- bidding/reverse auction
will be available to all the existing Sellers or other Sellers
registered on the portal and who have offered their
goods/services under the particular product/service
category, as per terms and conditions of GeM.
(vii) The Government Buyers may ascertain the reasonability of
prices before placement of order using the Business Analytics (BA)
tools available on GeM including the Last Purchase Price on GeM,
Department’s own Last Purchase Price etc.

(viii) A demand for goods shall not be divided into small

quantities to make piecemeal purchases to avoid procurement
through L-1 Buying / bidding / reverse auction on GeM or the
necessity of obtaining the sanction of higher authorities required
with reference to the estimated value of the total demand.
TROUBLE WITH A CLASS ON
BASICS!
IN CONCLUSION

• ITS IMMATERIAL WHETHER YOUR KNOWLEDGE IS

TENDER,
• WHAT IS IMPORTANT IS YOU MUST NOT BE A
PRETENDER,
• GET AN IDEA BY AN EXAMINATION CURSORY,
• RATHER THAN HOPING TO KNOW THE ENTIRE
INVENTORY!!