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Inventory ManagementSmriti Sharma
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Highlights of the Session
Introduction of management, material management and inventory management
Aims of inventory management
Functions of inventory management
Types of inventory
Functional areas of inventory management
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Highlights of the Session
Demand estimation
Key terms in demand estimation
Procurement
Receipt and Inspection
Inventory Identification
Methods of Inventory management
Methods of ordering
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Highlights of the Session
Storage of materials
New trends in inventory management
Roles of nurses in inventory management
Issues in inventory management in nursing
Global efforts in inventory management
National efforts in inventory management
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Introduction
Health care institutions are complex organization providing large number of services to the patients, physician and staffs.
Health care technologies are essential for the functioning health system
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Introduction contd…
The global health care and supplies sector is valued $184 billion (Healthcare equipments and supplies, Global report 2011)
According to Gartner (2012), supply chain and management constitutes of 40 – 45 percentage of the total expenses of the health care system
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Introduction contd..
Quality management of health care technology helps ensure that these services are provided in a safe and effective way
The first step in managing health care technology is to determine what items are to be managed and to create the health care technology inventory.
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Introduction contd..
According to Gartner (2012), healthcare organizations have potential to reduce the expenses on supply chain and management by 5-15% through proper planning, better analysis, control and use of goods and supplies which could translate into profit increase of 2 to 4%.
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Introduction contd…
It was estimated that a hospital could reduce its total expenses by at least 2% through better inventory management and distribution of finished medical materials (Schneller, 2006)
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Management
Mobilizing , protecting and utilizing men, money, materials, machines and other resources
Healthcare delivery system thus includes the
Personnel Management
Material Management
Financial Management
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Material Management
Material management is;
integrated function
dealing with supply of materials and allied activities
to achieve the maximum co-ordination and optimum expenditure on materials
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Contd.. The importance of effective material
management was first felt by profit making business organizations
Gradually service organizations like educational organizations, hospitals realized the value of managing their materials and supplies in scientific lines
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Elements of Material Management
Demand estimation
Procurement
Receipt and inspection
Storage
Inventory management
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Contd…
Issue and use
Maintenance and repair
Value analysis and standardization
Condemnation
Disposal
Accounting and information system
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Inventory
Materials or goods on hand
Is an idle resource of any kind having an economic value
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Inventory Management
Is a tool of management
Used to maintain an economic minimum investment in materials and products
To obtain the maximum financial return
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Inventory Management contd..
Inventory management is a supervision of the supply and storage and accessibility of items in order to insure an adequate supply without excessive oversupply
Maintaining of stock at a level at which purchasing and stocking costs are at the lowest possible without interference with the supply.
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Inventory Control
High inventory level – high cost of inventories by:
1. Locking the finance
2. Large storage space
3. Large handling and administration charges
4. Obsolescence
5. Spoilage
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Inventory Control contd..
On the contrary, low inventory may lead to;
1. Frequent stock outs
2. Higher shortage costs
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Inventory Management contd..
Thus balancing the cost of carrying high inventories and the cost of shortages is done by system of scientific inventory control.
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Aims of Inventory Management
To attain,
The right quality of supplies
Right quantity of supplies
At the right time
At the right place
For the right cost
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Functions of Inventory Management
Primary Function:
To provide maximum supply service, consistent with maximum efficiency and optimum investment
To provide cushion between forecasted and actual demand for a material
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Other Functions
Avoid uncertainties in supplies
Permit to meet new demands
Allow continuous and smooth production system
Makes a rational production system possible. In hospital context this means patient care system
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Types of inventory
Consumable materials (also called expendable )
Non-consumable materials (also called non-expendable)
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Consumable Materials
Drugs
Surgical goods
Chemicals
Antiseptics
Stationeries
Linen
Food materials
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Non-consumable materials
A. Fixed
o Sterilizers
o Monitor
o Fixed diagnostic machines like MRI, CT Scan
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Non-consumable Materials contd..
B. Movables
o Furniture
o Instruments
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Functional Areas of Inventory Management
Central Institutional Stores
Departmental level/ Unit level
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Functional Areas of Inventory Management contd…
a. Surgical stores
b. Medical and Drug store
c. General store
d. Linen stores
e. Dietary stores
f. Stationary stores
g. Engineering and Maintenance stores
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Demand Estimation
Consumption method
o data about actual use or past consumption
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Demand Estimation contd..
Morbidity data method
o data about prevalence and incidence of disease and health problems and
o the standard treatments for these
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Demand Estimation contd..
Objectives of the organization
Changing trend in healthcare
Stock on hand
Losses expected
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Unique Feature of Healthcare Demand
No assumptions/forecast can be done
No stable pattern of demand
Change in trends and practices due to new inventions, scientific advancement
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Key Terms
Lead time
o Internal lead time
o External lead time
Buffer Stock
Maximum stock level
Minimum stock level
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Key Terms contd..
Re-order level
Inventory turnover
Average consumption
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Lead Time
Average duration of time in days between the placing of order and the receipt of materials.
Order should be placed at a time when the existing stocks are sufficient for the needs of the hospital during the lead time
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Lead Time contd..
Internal Lead Time Is the time required for organizational formalities
to be completed
External Lead Time: Is the time taken in placement of order and
receipt of goods.
Total Lead Time: Internal Lead Time + External Lead Time
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Buffer Stock (BS)
Quantity of stock set apart as a safeguard against the variations in demand and procurement period.
Safety stock/ Reserve stock
Is used only at the time of emergency for unforeseen demands
BS= (Maximum consumption-Average consumption) × Lead time
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Maximum Stock Level
It is the maximum amount of any item in stock at any time.
Maximum Stock level = Reserve stock level +
Order quantity for one supply period
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Minimum Stock Level
Is the stock level that indicates the need to place an order to avoid running short of supplies.
The minimum stock level can change over time, so check it regularly and make any necessary adjustments to the stock card and orders.
Minimum stock level = Reserve stock + Stock used during lead
time
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Re-order Level
Stock level at which fresh order has to be placed
Re-order level = Average Consumption/ day × Lead time + Buffer
stock
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Average monthly consumption (AMC)
It is the average quantity of an item that is issued each month over a period of months.
AMC = Quantities issued in the time period Number of months in the time
period
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Economic Order of Quantity (EOQ)
Quantity of materials for which an order is to be placed each time.
EOQ= Average Monthly Consumption × Lead Time (in months) +Buffer Stock - Stock on hand
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Cost Estimation Total Price = Unit price +No. of units
Also includes;
o Maintenance and carrying cost (5-7%)
o Transportation cost
o Insurance cost
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Procurement
Procedure of ordering
According to the organization rules and regulations
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Receipt and Inspection Inspection of incoming materials and supplies
Quality and Quantity inspection
Chemical Inspection
WHO GMP (Good Manufacturing Practice) certified medicines
Other good quality prescribed by concern stake holders
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Inventory Identification Each piece of equipment is assigned a
unique number to allow it to be identified from among all other pieces of equipment in the inventory.
Identification numbers are provided by the following methods:
o Sequential numbering
o Codification
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Inventory Identification contd..
o Barcodes
o Radio Frequency Identification (RFID)
The clinical engineering department determines the identification numbering and labeling system to be used within the organization.
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Inventory Records
Minimal information that should be collected
o Product name/ description
o Stock on hand/ beginning stock balance
o Receipts
o Issues
o Losses/adjustments
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Inventory Records contd…
Consumption data/ Average monthly consumption (AMC)
Lead time for ordering/ requisition
Maximum and minimum stock levels
Emergency order point
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Additional Records
o Special storage conditions
o Unit prices
o Bin locations
o Item codes
o Expiry dates
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Computerized system for inventory management (CMMS)
Ease inventory management
Especially larger inventories.
The inventory may be integrated into a Computerized Maintenance Management System (CMMS),
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Some Medical Inventory Softwares
MedasPack Software
ArbiMed Inventory
Visual Inventory Control
BarCloud Online Inventory
Clinic Essentials
WebOps Logistics
AIMS. Net
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Methods of Inventory Management
ABC Analysis
VED Analysis
HML Analysis
X-Y-Z Analysis
FSN Analysis
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Methods of Inventory Management contd…
SDE Analysis
GOLF Analysis
SOS Analysis
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ABC ANALYSIS(ABC=Always Better Control)
Based on cost criteria
The monetary value of the annual consumption of all items of materials are classified roughly as:
About 10% of the materials consume 70% of resources (A)
About 20% of materials consume 20% of resources (B)
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ABC Analysis contd…
About 70% of materials consume 10% of resources (C)
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‘A’ Items
Small in number, but consume large amount of resources
Must have
o Tight control
o Rigid estimate of requirement
o Strict and close watch
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o Low safety stocks
o Managed by top management
Example:
Ventillator, Defibrillator, Incubators
Diagnostic machines- CT-scan, MRI machines, Ultrasound, X-ray machines
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‘C’ Items
Larger in number but consume lesser amount of resources
Must have
o Ordinary control measures
o Purchase based on usage estimates
o High safety stocks
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Example
Gauge, cotton
Betadine paint
Stationary items
Medicines- analgesics, vitamins
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‘B’ Items Intermediate
Must have
o Moderate control
o Purchase based on rigid requirements
o Reasonably strict watch and control
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o Moderately safety stocks
o Managed by middle level management
Example:
Surgical instruments
Medicines
65 200000500201995005001919900050018198500500171980005001619750050015197000500141965005001319600015001219450015001119300017501019125027509188500400081845004500718000050006175000750051675007500416000020000314000050000290000900001
CUMMULATIVE CUMMULATIVE COST COST [Rs.]
ANNUAL COST ANNUAL COST [Rs.]ITEMITEM COST %COST %ITEM %ITEM %
70 %70 %
20 %20 %
10 %10 %
10 %10 %
20 %20 %
70 %70 %
ABCANALYSIS
WORKSHEET
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VED Analysis
VED analysis is based on critical values and shortage costs of the Item.
Based on the; criticality, the items could be classified into three categories:
1. Vital
2. Essential and
3. Desirable
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Vital Items:
Items in the inventory of a hospital, which could make difference between life and death.
Shortage cannot be tolerated
Top management should control this group of items.
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Essential Items
The shortage of such items can be tolerated for a short period.
If these items are not available for a few days or a week, functioning of the hospital can be adversely affected (drugs like Antibiotics, surgical instruments etc.).
Top/middle level management should preferably control these items.
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Desirable Items:
The shortage of these items will not adversely affect the patient care or hospital functioning even if the shortage is prolonged (items like Vitamins).
Middle/lower level management should control desirable items.
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Combination Of A-B-C and V-E-D classification
V E D ITEM COST
A AV AE AD CATEGORY 1 10 70%
B BV BE BD CATEGORY 2 20 20%
C CV CE CD CATEGORY 3 70 10%
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Combination of ABC and VED Analysis
Category 1: Needs close monitoring and control
Category 2: Moderate Control
Category 3: No need for control
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Research Input
A study on ‘Drug Inventory Control at Thai International Hospital, Mahasarakhm on May, 2010, coupling of ABC and VED analysis was proved to be an efficient and effective tool to classify medicinal products was found. Further it was found that the combination of these methods can ease the inventory management by narrowing down number of items that need special attention and high level management.
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F-S-N Classification
Based on the consumption pattern or the movement of the items from the store.
Items are classified as fast moving, slow moving and nonmoving based on their consumption pattern.
F-S-N analysis is specially useful to control obsolescence, spillage and deterioration in all kinds of items.
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A thumb rule for F-S-N Classification
Fast moving : Items which have moved at least once in a year
Slow moving: Items which have moved at least once in a period of one or two years
Non-moving: Items which have not moved even once during a two- year duration
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X-Y-Z classification
Based on value of inventory available on a particular date in the store .
This classification is required to be done at least once in a year.
X items are those items whose stock value is high,
Z items are those whose stock values are low .
Y falls between the two category
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Combination or X-Y-Z and F-S-N Classification
The combination of X-Y-Z and F-S-N classification can be more successfully applied to control the piling up of obsolete items.
Disposal of obsolete items becomes important to prevent building up of the inventory over the years. The X-Y-Z and F-S-N classification exercise will help in timely prevention of obsolescence.
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SDE Analysis This is based on the availability of items in the
market.
S - items are scarce,
D - items are difficult to procure and
E - items are easily available in the market.
Such an analysis may be handy when there is a lot of uncertainty or vagaries in the availability/procurement of the items.
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HML analysis
Based only on cost i.e., High, Medium, Low cost items.
Commonly used for management of consumable items.
Based on unit price
Does not depend on consumption
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G-O-L-F Analysis
Based on the availability and nature of the suppliers
‘G’ stands for ‘Government Suppliers’
‘O’ stands for ‘Ordinary Suppliers’
‘L’ stands for ‘Local Suppliers’
‘F’ stands for ‘ Foreign Suppliers’
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SOS
Based on seasonal availability
S stands for seasonal
Os stands for of seasonal
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Methods of Ordering
Two bin method
Cyclical Method
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Two-Bin Method
Separates the stock of each item into two bins (boxes)
One bin consists the main stock
The second consists of enough stock to satisfy demand during the period necessary for replenishment
When the first bin is exhausted, an order for replishment is immediately placed
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Two-Bin Method contd…
In the mean time stock in the second bin is used to satisfy demand until the replishment stock arrives
Part of the new supply when arrives is used to fill the second bin as reserve
The remainder of the replenishment stock is placed in the first bin available for issuing and use.
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Cyclical Method
Stocks of various items are checked with certain periodicity
Find out the consumption pattern and balance in hand
Then, place an order to bring up the stock to the desired level
The period between the order remains the same
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Storage of The Materials
WHO guidelines
USAID guidelines
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WHO Guidelines Follow the manufacturer or shipper’s
directions when stacking, and follow labels for storage conditions.
Place liquid products on the lower shelves or on bottom of stacks.
Store products that require cold storage in appropriate temperature controlled zones.
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WHO Guidelines contd…
Store high security/high value products in appropriate security zones.
Separate damaged or expired products from the usable stock without delay, and dispose of using established disposal procedures.
Always store all commodities in a manner that facilitates FEFO policy for stock management.
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WHO Guidelines contd…
Arrange medicines orderly either by generic name, pharmacological category, dosage or frequency of usage.
Special storage condition for flammables, corrosives and drugs like narcotics, strong analgesics, psychotropic drugs, Antiretrovirals.
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Store Drugs and commodities in rack, cupboards and palettes.Store Drugs and commodities in dry and well ventilated spaceStore Drugs and commodities raised from ground and not touching the wallsStore Drugs and commodities away from direct sunlightStore Drugs and commodities away from office equipments, insecticides and chemical.Prevent Drugs and commodities from dampness and water
USAID Guidelines for Storage of Essential Health Commodities and Vaccine
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Store Condom and rubber items away from electric motors and extremely bright lights.Available of Fire extinguisher tool in the storeAssure Security (using grills, locks)
Prevent Store from rats and insects
Store Items according to FEFO system
Store The drugs and commodities in carton and racks with properly visible label and expiry dateSeparate Damages and expired drugs
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PROCEDURE OF ISSUE
A) direct supply to the wards, OPD and dispensary from the main stores of indents.
B) one more step in distribution is to include a Floor pharmacy or a Sub store.
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New Trends in Inventory Management
Just In Time (JIT) System
Radio Frequency Identification (RFID)
Two Bin Methods (Kanban Method)
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Just In Time System
Originated from Toyota of Japan
Method of industrial organization aimed at only producing what is needed, when it is needed.
A process capable of instant response to the demand without the need for excess of inventories
Inventories should not be overstocked and should be delivered to the right place at the right time
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JIT contd..
Guaranteeing great service and right products at the right time is very essential in healthcare operation.
Contractor provided reprocessing and sterilization of surgical equipments is one of the version of JIT.
JIT similarly can be applied for hospitals daily supplies of stationery items, forms and folders which occupies space
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Research Input A study by Brandt (2011), on how JIT was applied
in a surgical room After applying JIT analysis, it was realized equipments were placed in different locations which led the nurses running all over the place in the middle of the surgery. Application of strict organizational structure allowed for inventory to go down making easier to see inventory and replenish them before stock out and also minimize waste due to spoilage of perishable goods.
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Advantages
Reduces,
Carrying cost
Storage cost
Insurance cost
Space
Risk of damage
Risk of obsolescence
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Controversy/ Discussion
Healthcare provider cannot stock their services and provide limited services
Hard to forecast demand
Inventories held for assisting the care of the patient and in many cases saving the lives.
Anticipating unknown having direct effect on life- can’t afford to have empty shelves
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Radio Frequency Identification (RFID)
RFID is a technology that connects objects to the Internet, so that they can be traced, and companies can share data about them.
In contrast to bar codes application, RFID tags are robust and do not require line-of-sight identification,
No need for human intervention.
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Advantages
Improved tracking of high-value items/assets
Reduced shrinkage and shipping errors in the supply chain
Inventory visibility, accuracy, and efficiency at each stage
Improved production planning and smart recalls for effective scheduling, and
Technology standards to drive down costs
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Limitations
Technical issues
Cost
Privacy concerns
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Roles of Nurses in Inventory Management
Nurses as a important part of the health care delivery, essential is to understand the system to effectively deliver quality care.
The success of health care business depends on nursing participation in changing the system for delivering cost effective care ensuring quality.
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Roles of Nurses in Inventory Management
Planning
Organizing
Leading and Delegating
Controlling
Supervising
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Roles of Top Level Management
Advising on the purchase of hospital supplies and equipments used for nursing services according to the need
Supervising the maintenance of inventory records by nursing staffs
Facilitate in supplying adequate supplies for carrying out nursing services
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Role of Middle Level Management
Responsible for keeping an adequate amount of equipment and supplies in the ward
Make sure that equipments and supplies are in good conditions
Put in a requisition for necessary equipment for repair and maintenance when needed.
Make sure that equipments and supplies are conveniently located
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Contd… Make sure that all the personnel in the ward
should clearly know who may use ward articles and equipments and who assumes responsibility for it .
Prevent waste or misuse by educating the staff in the economical and appropriate use of all equipments and materials.
Arrange a ward class to enable the staff to know the cost of the equipment and materials when necessary
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Contd…
Set a standard for the quantity of each item to be maintained in the ward all the time.
Have a satisfactory system for replacement of broken or worn out equipment.
Make regular inventories of all the items.
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Responsibilities of the staff nurse
Assist in taking inventories
Checking for misuse and minimize it.
Keep materials in good working conditions.
Orders necessary supplies and equipments for daily and weekly use.
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Issues in Inventory Management in Nursing
Less accountability
Less authority and control power
Poor inventory visibility due to lack of data systems
Manually driven processes
Lack of tools and standard work processes
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Issues contd.. Conflicting goals
Lack of proper delegation
Constantly evolving technologies
Lack of skills and knowledge on inventory control
Physicians preferences
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According to John Freund, (2015) between 20 and 30 percent of the clinicians including nurse’s time is spent managing supply chain related activities and nearly one third of their day is spent away from patients, managing supplies and equipments.
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Research Input
A descriptive study by Enferm B. (1998) conducted on the nurses of four Intensive care unit of Bahia, Brazil revealed that only three out of four, there was presence of nurses in the commission of material purchase and selection. Study also revealed that nursing performance was restricted only for reposition of consumed materials without effective and efficient prevision, selection, purchasing and controlling.
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Research Input
A study conducted on 2014 in Vanderbilt Hospital, USA to observe the factors that could lead to wastage of time of nurses in the departments. 320 specific observations of wastage were found, among them 32 percent of all the waste related to supplies, equipments and medication were found.
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Global Efforts on Inventory Management
Recognizing the important role of health technologies, the World Health Assembly adopted resolution WHA60.29 in May 2007.
The resolution covers issues:
o arising from the inappropriate deployment and use of health technologies and
o the need to establish priorities in the selection and management of health technologies, specifically medical devices.
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Global Efforts contd…
Together with the World Health Assembly resolution, the Global Initiative on Health Technologies (GIHT), with funding from the Bill & Melinda Gates Foundation was formed with 2 objectives:
o to challenge the international community to establish a framework for the development of national essential health technology programmes
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Global efforts contd..
o To challenge the business and scientific communities to identify and adapt innovative technologies that can have a significant impact on public health.
Three documents in this technical series have been developed specifically to aid a health facility or a national ministry of health to establish or improve a medical equipment maintenance programme.
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Global Efforts contd..
The documents address
1. Medical equipment inventory management
2. Maintenance and
3. Computerized maintenance management systems.
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National Efforts in Inventory Management
Logistic Management Division
Healthcare Technology Policy 2006
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Logistic Management Division (LMD)
Established under the Department of Health Services in 2050/51 (1993, with a network of central and five regional medical stores as well as district level stores.
The major function of LMD is to procure, store and distribute health commodities for the health facilities of government of Nepal.
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Activities to Strengthen Health Care Services
Procurement
o District procurement plan
o Setting up of procurement committee in the district
o Forecasting and quantification
o Cost Estimation
o Timely procurement
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Activities to Strengthen Health Care Services
Annual Consensus Forecast Meeting
Quarterly national pipeline review meetings
o Started since 1997/98
o Review the supplies and commodities of family planning, EPI vaccines, syringes, essential drugs, maternal and child health, and HIV/AIDS
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Activities to Strengthen Health Care Services
Strengthen storage capacity
o 54 district warehouse constructed
o 1 cold chain warehouse built in Pathalaya transit
o Increased total storage space from 21,223 sq. ft from 1999 to 86,400 sq. ft in 2011
o Safe storage of valuable health commodities maintaining storage standards
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Capacity Building
Web based LMIS and inventory management system was started since 2008
Training and orientation program are conducted at different levels
175 person were provided training on web based LMIS and inventory management in the year 2070/71
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Capacity Building(1994-2012)
Types of training PersonBasic health logistic training for newly transferred staffs
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Basic health logistics training for MCHW/FCHV 2,459Sub district level logistic review and orientation program
2,996
District level public procurement training 434Training on web based LMIS and Inventory management
508
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National Health Care Technology Policy
With the aim of providing access to quality health service to all in the country, the Ministry of Health and Population has given priority to preparing and reviewing relevant health policies and guidelines as when they are necessary.
Realizing the need for a Health Care Technology Policy as utmost importance to implement the health services in an effective way, the Ministry of Health and Population submitted a policy document to the cabinet for its approval.
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National Healthcare Technology Policy contd..
The policy was approved on 2060/11/11 and brought into action. The policy was developed in line with the basic principles of the WHO and adopted in accordance to our national need.
To address the problem Ministry Of Health has formulated 11 policies.
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Conclusion
Inventory management is the important element of material management and management which ensures the regular flow of supplies and equipments in an healthcare system in a optimum investment possible.
For the effective management of materials the approach of various bodies are essential like administrators, physicians and nurses
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Conclusion contd…
Because of the change in the trends in healthcare system managerial responsibilities of the nurses have been challenged to ensure effective and quality patient care with due consideration in the optimum expenditure.
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Reference contd…USAID, (2006). Guidelines for Implementing Computerized System for
Logistic Management
Wang B et al.(2006). Medical equipment management strategies. Biomedical Instrumentation and Technology
Waters, C. J., (2003). Inventory Control and Management, 2nd edition, John Wiley & Sons.
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WHO (2003). Guidelines for the storage of medicines and other health commodities
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Reference contd..WHO (2009). Guidelines for procurement and management of supplies
and goods
Wolper, L.F., (2004). Health Care Administration, Jones and Bartlett Publishers, 3rd edition
Woods, E.D.,(2014). Nursing and Healthcare Supply Chain: At the Intersection of Labor and Supply Expenses
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