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AUM New Final Report Cost Effectivenes of Stores With Out Title PDF
AUM New Final Report Cost Effectivenes of Stores With Out Title PDF
by
SATAIN BHAT
2017HB28515
November 2019
1
COST CUTTING BY EFFECTIVE STOCK AND
SUPPLY MANAGEMENT IN ALL HOSPITAL
STORES
by
SATAIN BHAT
2017HB28515
November 2019
2
CERTIFICATE
This is to certify that the Project Work entitled “Cost Cutting by Effective
by MR. SATAIN BHAT having ID-No. 2017HB28515 for the partial fulfillment
supervision.
Place: Delhi
Name DR. AMIT PRAKASH
:
Date: 26/10/19
Designation: Purchase Officer
Organization Deep Chand BandhuHospital,
& Location: New Delhi
3
ACKNOWLEDGEMENTS
4
ABSTRACT
The project is to reduce Hospital expenses by eliminating inventory losses occur due to
negligence losses detritions, and pilferage, Prevention of wastage of labor resources by
reducing excess storage of stock, improper supply thus keep minimum stock in store for
minimum time according to consumption, Also keeping in view the shortage of medicines
which forces administration for Local purchases which increases cost as the order quantity
is less and rates cannot be negotiated. Thus, applying the strategic approach and use
formula of Quantities methods to forecast the minimum stock which is demanded in
specific period, which is to be calculated by analyzing trends in consumption pattern in past
2 to 3 years. However, with the Goal to Improve Inventory control and proper stock
analysis for procurement of stocks as per Forecasted Demand, strategies are to be
developed for maintain coordination between Stores and Purchase of the hospital.
The fundamental objectives of the Materials Management function, often called the famous
5 Rs of Materials Management, are acquisition of materials and services i.e. right quantity,
at right place, of right quality, from right source and at right price. The Inventory control
can be done by ABC Analysis, VED Analysis, SDE Analysis, HML Analysis, FSN Analysis and
EOQ analysis for better results.
The best way of procurement i.e. Tendering may be applied with best strategically formed
terms and conditions like Desired Quantity of stock in regular Intervals which helps to keep
required stock and regular periodic supplies in short intervals in stores and also Helps in
Nomenclature of stored items in alphanumeric coding which will be used for digital data
storage, bar code for easy access. (1),(5)
5
TABLE OF CONTENTS
INDEX
S.
S No Description Page No
1 Chapter 1: Introduction 8,9,10,11
2 Chapter 2: Observations 12,13
3 Chapter 3: Managerial Implications 14,15
4 Chapter 4: Methodology & Solutions 16,17,18
5 Chapter 5: Procurement 19,20,21
6 Chapter 6: Conclusion & Recommendation 22-28
7 Chapter 7:Effective Stock & Supply 29-32
Management
8 Chapter 8: Epilogue and Final Perspective 33
9 Chapter 9: References 34
10 Appendices 35
11 Checklist 36
6
List of Tables
S.
S No Description Page No
1 Table 1.1 Understanding Fore casting in Tabular Form 17
2 Table 1.2 Understanding ABC Analysis in Tabular Form 23
3 Table 1.3 Example for ABC Analysis 23
4 Table 1.4 Class Item 24
5 Table 1.5 showing ABC and VED Classification Matrix 23
List of Figures
S.
S No Description Page No
1 Figure 1: Pharmacy Inventory 8
2 Figure 2: Logistics Management 9
3 Figure 3: Inventory Shrinkage 11
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CHAPTER 1
INTRODUCTION
The major components of medical stores management are inventory and warehouse
management. For healthcare managers, monitoring of performance is essential and ground
realities dictate that effective communication within the hospital hierarchy and system
should be an integral part of logistics management initiatives.
▪ The function of effective stock and supply (material) management MM is the plan to
acquire, store/stock, move and control materials as and when required for the
Patient care.
▪ It attempts to get the right goods, at the right place, at the right price, at the right
time to maintain a desired patient care (service level) at minimum (affordable) cost.
▪ Materials of stores cost may vary from 30 to 40 percent of the total hospital cost
Thus, containment in the procedure of stores management may lead to huge losses.
▪ The Failure in effective stock and supply (Logistics) management is mainly due to
only lip service being paid to this function with little planning than desire.(1)(7)
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1.1 Operative Goals of Stock and supply Management
Materials management van also be well defined by the flow of materials from the start of
demand to the supply of goods in time. Objectivesof Logistic Managementcan be
summarized by the primary and secondary activity. (1)
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• Primary Activity
▪ Ordering process or Reordering Process
▪ Inventory Control Management
▪ Transportation
• Secondary Activity
▪ Ware Housing
▪ Protection, House Keeping Rodent Control
▪ Stocking
▪ Inventory Control Analysis
The system of issues and distribution must cater to economical holdings at the point of
Wastage and pilferage should be controlled by a system of internal audit or external audit
planning for materials, its demand, estimation, procurement, stocking and issue to ensure
availability of
✓ Right Material, in
✓ Right quantities, at
✓ Right time, at
✓ Right Place, at
✓ Right cost
(1),(5),(7)
10
Figure 3: Inventory Shrinkage
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CHAPTER 2
▪ Inadequate, Congested or less space for storage of Hospital materials with lack of
ventilation, Cold storage room, Trained Employees etc. which result in difficulty in
control and monitoring hence, loss and pilferage to hospital.
▪ Utilization of manual record keeping in store which results in loss of time andlabour
hencemakes tedious for officers to Monitor, Control, Analyse the demand and supply
of goods.
▪ To maintain stock in stores to cater or provide medicines, surgical items etc for
unpredictable number of patients coming to Hospital Hence results in shortage of
medicines, surgical items etc and forces administration to go for emergency
purchases which result in high cost, hence loss for the Hospital.
▪ Lack of computer systems and computer Literate employees in Stores and user
departments which leads to Lack of Information, communication and hence makes it
difficult to forecast demands of to maintain minimum stock for a period and Hence
stores for three or more months which results in waste/expiry and high storage cost
in labour and storage
▪ Lack of uniform sequence of protocol for employees which lead to confusion and
makes difficult to manage perfectly.(8),(1),(5)
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CHAPTER 3
MANAGERIAL IMPLICATIONS
▪ Are the written policies and procedures for material Managements function?
▪ Does the manager stay abreast of the trends in health care materials management?
The Stockholders are responsible for the concerned Store office for the following
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a) General Tidiness clean sort and shine
Strength:
▪ Hospital is runs through Govt. expenses
▪ Govt. officers in staff Experienced Managers, Superintendent Engineers etc.
Weakness
▪ Requirement for Investment for purchase of computers and Inventory
Software's.
▪ Untrained or less computer literate Staff.
Opportunity
▪ It will cut expenses of hospital and invest in other projects.
▪ Save time, money of patients by availability of all required Stock.
▪ Use of Digital unused software Nirantar for record keeping.
▪ Brings good Name to Hospital for its services
Threats
▪ Resistance of employees for the change.
▪ Resistance should be handled with Patience.
14
3.6 Strategy Management
The manager’s officers will direct concerned stores officer to calculate previous
year’s consumption pattern in order to forecast Demand and coordinate with
purchase department to keep minimum stock of items as per forecast, the store
officer will also submit stock status to concerned officer or manager regularly to
have check on present available goods in stores.
The hospital must utilise Digital mode of store keeping for record maintenance, for
this ‘Nirantar’ software ,Installation of Bar code machine with RFID Radio frequency
Identification tool to save entries directly to computers thus will make it easier for
employees to maintain record and officers can monitor and control easilyloss due to
expiry and pilferage.
The hospital staff should invest to purchase computer systems for all stores and
user department and they should be provided with regular training for using Digital
tools of record keeping.
15
CHAPTER 4
4.1Administrative Decision:
▪ The Hospital administration has decided to relocate space for all Hospital stores to
get sufficient space, with proper location which will be carefully considered in terms
of ensuring maximum efficiency with following.
▪ The store location should minimize the cost involved in carrying of inventories and
other stores operation.
▪ Stores location will depend upon the nature and value of materials and increased
frequency of consumption of material.
▪ Stores location should depend upon the nature and value of materials and frequency
of consumption of material.
▪ Stores should be easily accessible to all user departments and there by material
handling should be reduced to minimum.
▪ Stores should be well ventilated and equipped with air conditioning facilities,
refrigerator and cold storage in order to avoid damage of stocks due to
environmental effects like humidity, high temperature etc.
Naïve forecasting assumes that demand in the next time period will be the same as
demand in the last time period. -For example, if a retailer sells 600 BP Machines in
February, the naïve forecast would be for demand of 600 BP Machines in March.
16
This approach rules out all the types of fluctuation – trends, seasonality, random variation
and cycles.
This method simply takes the average of all past demand in arriving at forecast. The
arithmetic average works well in a stable situation where the level of demand does not
change. It will not adequately respond to changing trends in demand and neglects seasonal
fluctuations.
(1),(8)
Table 1.1
17
4.3 Standardization of Demand
It ensures: -
▪ Non-duplication of inventory
▪ Variety reduction
▪ Economical purchase cost
▪ Efficient use of materials (7)
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CHAPTER 5
PROCUREMENT
The Process of acquiring supplies. The purchase section should work in coordination.
Objective of well procurement system
Distribute the procurement workload to avoid period to idleness & over work.
5.1Tender Procurement
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5.2 Conditions for Tender
The conditions for tender help Tenderer to control, maintain the quality of the vendors
performing in the tender Procedure:
▪ The vendor must have experience of at least three years working with a reputed
Hospitals.
▪ The vendor should have turnover of above 1crore.
▪ The vendor should deposit past three years Income tax return certificate.
▪ The vendor should have GST registration.
▪ The vendor should have desired transportation and readily available stocks for the
whole tender but supply of these Stocks should be donefortnightly or in case of
emergency as and when required by the hospital on demand.
▪ The vendor should deposit earnest money deposition of Rs30000.
▪ All the Damaged stocks should be replaced in every 30 days.
▪ The stock suppled should have at least two years of expiry.
▪ The stock near expiry or expired should be replaced by the vendor.
▪ All the payments would be made quarterly after observing performance of the
vendor.
2 % of the tender amount or as decided has to be paid along with all quotations. In
case of default 1/5 is withheld
20
▪ Better quality.
▪ Negotiated procurement
Direct procurement
Purchased from single supplier, at his quoted price - Prices may be high - Reserved for low
priced, small quantity and emergency purchases.
Rate contract
Firms are asked to supply stores at specified rates during the period covered by the
contract.
Spot Contract
Risk purchase
If supplier fails, the item is purchased from other agencies and the difference in cost is
recovered from the first supplier. (8),(1)
21
CHAPTER6
What is 'Inventory' Inventory is the raw materials, work-in-process products and finished
goods that are considered to be the portion of a business's assets that are ready or will be
ready for use. Process of ensuring that appropriate amounts of stock are maintained by a
business, so as to be able to meet customer demand without delay, while keeping the costs
associated with holding stock to a minimum.
22
6.3 Control of Inventories
This is based on cost criteria. -It helps to exercise selective control when confronted with
large number of items -It rationalizes the number of orders, number of items and reduces
the inventory.
House-Keeping 60 20 4500,000 20 B
Supplies
23
Table 1.4 Class Items
▪ Based on Availability
▪ Scarce
▪ Managed by Top level management
▪ Maintain big safety stocks
▪ Difficult
▪ Maintain sufficient safety stocks
▪ Easily available
▪ Minimum Safety stocks.
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Table 1.5 showing ABC and VED Classification Matrix
A AV AE AD Category 1 10 70%
B BV BE BD Category 2 20 20%
C CV CE CD Category 3 70 10%
6.3.4HML ANALYSIS
Lead Time: It donates the average duration of time between placing an order to supplier
and receipt of materials in the medical stores Ideally 2-6 weeks.
Internal Lead Time: Duration between the moment at which someone is aware of the
need for the additional stock and order is placed.
External Lead Time: Taken by the supplier to supply the materials after it receives the
supply order from an organisation.
25
Periodic Inventory Systems: In a periodic inventory system (also referred to as a fixed-
time period system or a periodic review system), the inventory on hand is counted at
specific time intervals; for example, every week or at the end of each month. After the
inventory in stock is determined, an order is placed for an amount that will bring inventory
back up to a desired level. The disadvantage is less direct control. Such a system also
requires that a new order quantity be determined each time a periodic order is made.
Lead Time:
▪ Minimum Stock Holding: –
▪ High value items should have very low stock
▪ Low value items can have high quantum of stock
▪ Medium value items fall in between –
▪ In case of short life items, the quantity held can be very small.
▪ Shelf life effects the minimum stock holding of an item to a great degree.
It is the level at which fresh supply should normally arrive. – Quantity of stores that one
must set apart as an insurance against the variations in demand and procurement period,
and to avoid stock-out. – Calculated by multiplying the difference between maximum and
average consumption rate per day/week/month with the lead time for the item.
Economic order quantity (EOQ) is the order quantity of inventory that minimizes the
total cost of inventory management is the order quantity of inventory that minimizes the
Ordering cost: – Salaries and wages of involved persons – Postal, telex, telephone and
other similar bills – Advertisements – Stationary – Entertaining the vendors/suppliers –
Travel of store personnel
26
Holding Cost (Inventory carrying cost): –
▪ Cost of storage
▪ Insurance
Example
• Hospital purchases 1,600 pairs of surgical gloves each year at a unit cost (P) of Tk.
15.00. the order cost © is Tk. 100.00 per order, and the holding cost (H) per unit
per year is computed at Tk. 8.00. The EOQ (Q) will be:
Q = √2CR/H = √2*100*1600/8 = 200 units
TC(Q)=PR+CR/Q+PFQ/2
27
Example
Actual demand 5200 cases of suture. Fixed Ordering Cost Rs 10 per orderCost per case
Rs2. Holding Cost 20% of value of Inventory per year
Examples
• R=5200
• Q*=√2CR/PF= √ 2CR/H
• C= Rs10 per order
• P= Rs 2
• F=20% of value inventory per year
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CHAPTER7
The Hospital is having number of service units and each one is located far from the
central office; decentralized storage system should be followed.
Upon receipt of the goods at Central Receiving (CR), the unit will make a visual inspection
where possible to determine any damages to the items. Where there is visual damage CR
will notify first the Purchasing Department, then the Purchasing Department will notify both
the Vendor and the requesting Department of the damages. At the direction of the
Purchasing Department, the damage to the goods will not be accepted by CR. If there is no
visible damage to the goods, CR will then match the packing slip with their copy of the
purchase order, to determine whether the order is complete.
7.2 Inspection:
All materials, equipment, supplies, and services are subject to inspection and test. Items or
services that do not meet specifications may be rejected. Failure to reject upon receipt,
however, does not relieve the vendor of liability for latent or hidden defects subsequently
revealed when goods are put to use or tested.
29
If latent defects are found, the vendor is responsible for replacing the defective goods
within the delivery time originally stated in the solicitation and is liable for any resulting
expenses the institution incurs.
The following are the factors to be considered while planning the Layout of storage area: -
▪ Store Lay out should be such that the store keeper is not compelled to put the
newly arrived material on the top of the old. As a –roll the old stock should be
concerned first before suing the new one.
▪ The stores racking should not prevent the normal movement of air and temperature.
The height of the rooms should be such as to give an air space of at least 500 c. ft
per capita, preferably 1000 Cubic. Ft.
▪ In vertical stacking (Loading one over other) the load should not touch the ceiling
heights, otherwise it will prove hindrance in case of firefighting.
▪ Walls of the medical stores should be 9-inch bricks wall, with smooth plaster, should
be white coloured.
▪ The height of the roof should not be less than 10 feet, in the absence of air
conditioner for comfort.
▪ Floor area should be at least 120 sq. Ft. For the occupancy by more than one person
and 100 sq. Ft. for the occupancy by a single person
30
7.3 Digitization & Nomenclature in Alpha Numeric Codification in
Stores
• Background
• Hospital stores a large number of items, often running in to lakhs. There should,
therefore, be some means of identifying all the articles fast and with no error.
• A common practice is to describe them by individual names. Since several
departments use the same item, they call the same item by different names and
store them in different places
• Process of Nomenclature of all articles with Alpha Numeric Codification is
implemented:
• Alpha Numeric Codification is a process of representing each item stored in hospital
medical store by numerical digits and by a combination of English Letters and
numerical, each one of which indicate the group, the subgroup, the type and the
dimension of the item.
• Re Use of Store record Maintenance Software to Digitize entries for effective
Management
• RFID Radio Frequency identification using Bar code machines to put stock entries
directly into computer.
• Training to Hospital staff to use computers.
▪ The stores area should be air conditioned and well equipped with refrigerators and
cold storage for prevention of stock from environmental factors and to store
temperature sensitive materials.
▪ The stores area should be provided with regular services of Housekeeping to keep it
Hygienic, clean and sanitised.
▪ The stores area should be provided with regular services of rodent and pest control
to prevent damage of stock through rodent and pest control.(1),(5),(8)
31
7.5 Condemnation & Disposal
7.6 Condemnation:
32
CHAPTER 8
6. Strict policies and procedures guiding purchase, receipt, storage and distribution
33
CHAPTER 9
REFERENCES
2.Tersine RJ Materials Management and Inventory Systems Eleviser North Holland: New
York, Inc,1980.
3.Varma MM: Material Management. Sultan Chand and sons New Delhi 1984
4.Francis CM, DeSouza, Mario CeTal: Hospital Administration Jaypee Brothers Medical
Professionals: New Delhi 1993
5.Hospital Planning and Facilities Management GD KUNDERS, Page n0 50-58, Chapter 9.5
pg. 358 -370
8: Store management guideline DRDO, Ministry of Defense, Government of India page 1-20
9. Data Analysis of the Hospital Records Government files Inventory, Log Books, and
Consumption pattern trend line.
F (32) Stores Stock & Supply 2016-17-18-19, Correspondence sheets
F(32) Procurement & Local purchases 2016-17-18-19, Correspondence sheets
Log books for Indent of Materials by user departments
Essential Drug List & NON Essential Drug List
34
Appendices.
35
Checklist of items for the Final Project Work Report
Declaration by Student:
I certify that I have properly verified all the items in this checklist and ensure that the report is in
proper format as specified in the course handout.
ID No.: 2017HB28515
36