Literature Review

Introduction

This section covers the conceptual review, theoretical review, empirical review of

inventory management and, the conceptual framework of inventory management

practices in Cape Coast Teaching Hospital.

Conceptual Review

Inventory management

According to Toomey (2000) inventory management explains the

dynamics of inventory management’s principles, concept and techniques as they

relate to the entire supply chain (customer demand, distribution and product

transformation processes). He further explained that, in today’s competitive

business environment, inventory management has proven to be the most critical

and has impacted almost all functions such as sales, engineering and accounting

for controlling inventories, thereby assisting in reducing cost, improving customer

service and maximizing capacity. With this cognizance, it is also necessary to

consider other situational parameters such as demand and lead times for optimal

operation of inventory management in a firm (Vrat, 2014). Wisner & Leong

(2011) also mentioned that, organizations that maintain proper inventory of raw

materials is more likely to complete their production on time. Inventory

management control is part of the inventory management that helps to maintain

continuity of production operations by maintaining a smooth flow of raw

materials without shortages (Shapiro, 2009).

 According to Njoroge (2015) public hospitals have a procurement

department that is responsible for the provision of goods and services to the

hospitals with the aim of providing quality health care services in order to achieve

customer satisfaction. She further mentioned that, inventory management system

should be maintained to ensure that facilities and equipment are supplied and

delivered at the right time. Thus the practice of inventory management has the

impact of reducing costs and improving supply chain performance (Rachmania &

Basri, 2013), and have positive effect on the reduction of mortality to the patients

especially responding to emergency cases (Njoroge, 2015).

Rachmania & Basri (2013), explained that pharmaceutical inventory

management in hospitals has three major issues which include overstocking,

unjustified forecasting technique and lack of IT support. To this effect, Brigham

& Gapenski (2013), posit that the firm should design and develop an inventory

management system that balances the demand and supply. This is intended to

reduce overstocking, unjustified forecasting technique, inventory costs, the cycle

time and improve sharing of information.

Mungu (2013) states that in hospitals, inventory management is set up to

ensure an optimal stock level of medicine in general and essential medicine to

enable satisfactory service that touches on human life unlike procurement in other

sectors. Thus, inventory management is the heart of pharmaceutical system and

poor management will lead to wastage of financial resources, shortages of

essential medicines, average of others resulting in expiration and deadline in

quality health care (USAID, 2012). To undertake this critical role, the Health
Policy orientation on health products and technologies must stress on the need for

effective and reliable inventory management systems that will enhance public and

private investment to advance patients access to essential health products and

technologies and ensure value for money across the system (Njoroge, 2015).

Theoretical Review

Lean system provides the organization with a well-defined system to

manage inventory effectively and efficiently. Fawcette et al. (2008) notes that

firms that use the lean inventory management systems benefit from improved

productivity that allow employees to spend more time on value adding activities.

Lyson et al (2003) posit that marginal analysis is a technique used to control the

optimal levels of perishable goods whose value declines with time. Marginal

analysis is used by firms to allocate their scarce resources to minimize output. For

instance, organizations ensure that the perishable goods are sold within their

expiry period to prevent loss (Ercket, 2012). The periodic demand for the items is

uncertain. Too much supplies result in wastage while too little leads to shortages.

According to Duclos (1993), inventory management is receiving increased

emphasis in a variety of organizations. One important area is inventory that is

subjected to emergency demand situations. He continued to explained that, a

hospital materials manager, for example, must establish efficient inventory system

policies for normal operating conditions that ensure the hospital’s ability to meet

emergency demand conditions. Duclos therefore developed a simulation model

inventory system to determine the relative significance of several common

inventory system variations on a hospital’s ability to operate successfully under

normal and emergency demand conditions. Results of the simulation reveal that,

review frequency plays a major role in the success of operations understock

demand conditions. The simulation also suggests that generalizing from the

results of an inventory system under normal conditions is inappropriate. Several

common assumptions flowing from these generalizations were challenged by the

results of the study.

Little & Coughlan (2008), posit that the materials management group at any

hospital is responsible for ensuring that their inventory policies provide a good

service in delivering products. They further explained that, with the likelihood of

future changes to the hospital’s infrastructure, function and size, the group needs

to be aware of their costs for distribution in terms of the frequency of delivery and

this requires that, the policies of the group are reviewed and prepared for the

changes taking place. Thus, developed an inventory model policy and used it to

anticipate the effect of these changes. But there are often space and delivery

constraints, limiting the amount of stock which can be held and delivered at each

location. Little & Coughlan (2008), therefore presented in their paper, a new

constraint-based model. The model was validated on sterile and bulk items in

real-life setting of an intensive care unit within Cork University Hospital, Ireland.

The model is meant to determine optimal stock level for all products at a storage

location, with restrictions on space, delivery and criticality of items taken into

account.
Empirical Review

Inventory is a term for goods available for sale and raw materials used to

produce goods for sale. Inventory represent one of the most important assets of a

business because the turnover of inventory represents one of the primary sources

of revenue generation and subsequent earnings for the company’s shareholders.

Inventory management relates to the tracking and management of commodities

which include the monitoring of commodities moved into and out of stockroom

locations and the reconciling of the inventory balances. Some of the techniques

used in managing inventories are discussed below:

1. ABC Analysis

This technique assigns items to three groups according to the relative

impact or values of the items that makes up the group. Those thought to have the

greatest impact, or value, for example, constituted the ‘A’ group, while those

items thought to have a lesser impact or value were contained in the ‘B ‘and ‘C’

groups respectively. (Coyle et al., 2003). In many ABC analysis, a common

mistake is to think of the ‘B’ and ‘C’ items as being for less important than the

‘A’ items and, subsequently, to focus most or all of management’s attention on

the ‘A’ items. A decision might be made to assume very high in-stock levels for

the ‘A’ items and little or no availability for the ‘B’ and ‘C ‘items.

The fallacy here relates to the fact that all items in the A, B and C categories are

important to some extent and that strategy to assure availability at an appropriate

level of cost.
The purpose of this classification is to ensure that purchasing staff use resources

to maximum efficiency by concentrating on those items that have the greatest

potential savings. Selective control will be more effective than an approach that

treats all items identically. (Lysons et al., 2003). The relevance of this theory to

this study is that it suggests that though all categories of inventory is important,

inventory must be categorized or classified in accordance to the relative impact or

value and treated differently.

2. Just-In-Time System (JIT)

Coyle et al (2003), defined Just-In-Time (JIT) System as an inventory

control system that attempts to reduce inventory levels by coordinating demand

and supply by the point where the desired item arrives just in time for use.

Ideally, products should arrive exactly when a firm needs it, with no tolerance for

late or early deliveries. Lysons et al (2003), also defined Just-In-Time System as

an inventory control philosophy whose goal is to maintain first enough material in

just the right place at just the right time to make just the right amount of product.

It is a lean production system used mainly in repetitive manufacturing.

The Just-In-Time System suggests that inventories should be available when an

organization needs them, not any earlier, nor any later. Stock & Lambert (2001),

defined Just-In-Time System as a program which seeks to eliminate non-value-

added activities from any operation with objectives of producing high-quality

products, high productivity levels, lower levels of inventory, and developing long-

term relationships with channel members. Stock and Lambert, further explained
that in Just in time (JIT) System, anything over the minimum amount necessary

for a task is considered wasteful. Thus, Just-In-Time (JIT) attempts to minimize

inventories through the elimination of safety stock. This theory is relevant to this

study because it focuses on the identification and elimination of manufacturing

system. This therefore helps to eliminate unnecessary inventory and reduce cost

throughout the entire supply chain system. Of the techniques to inventory

management discussed above, ABC Analysis seek to categorize all inventory in

accordance to relative impact and value, so that the more value placed on an item,

the more of that particular item held in stock.

3. Effective Inventory Management and Staff Performance

Proper management of inventory enables the organization to mitigate its

inventory costs for example holding costs, stock out costs, lead time among

others. Also, the organization is able to improve on its delivery time leading to

quick delivery of goods and services. According to Water (2013) integration is

one of the inventory management tools used to achieve efficiency. In an

integrated system, the organization and the supplier can be able to share

information. This helps the supplier to know when the organization is out of

stock. This improves supply chain performance since the supplier is able to

deliver goods and services on time.

To successfully manage inventory, top management and the employees should be

actively involved in key decisions on supply of goods and services (Drurry,

2011). The organization should provide facilities and resources to manage

inventory (Eckert, 2012). This will help the organization to improve on efficiency

and thus improve on supply chain performance. Lapide (2010) established that

most organizations that invest in modern technologies for example: vendor

managed inventory, just in time systems and integration were efficient in their

operations. It was further revealed that there existed a positive relationship

between integration and supply chain performance.

Inventory management models have helped organizations to become more

competitive in terms of how they manage their inventories. The availability of

technologies has made it possible for firms to conduct businesses on a daily basis

with fewer inventories (Akintonye,2014). Increased competitiveness in

transportation has led to greater opportunities for shippers to purchase high-

quality as well as customized services, thus reducing the need to carry large

inventories. Lapide (2010) posit that Overall sensitivity to the incurring of excess

and non- value-added cost has motivated many firms to identify ways to reduce

and even eliminate unnecessary levels of inventory leading to improved supply

chain performance.

4. Challenges in Holding Stock in Organisation

Inadequate availability of and access to essential stock are major barriers

to the delivery of quality service in developing countries (Adzimah, 2014). A

recent survey in Nepal found that the availability of 32 selected essential

reproductive health (RH) commodities in public sector outlets was less than 25

percent Rao & Mellon (2016). In a companion study in Nicaragua, only 20

percent of these medicines were available to public sector clients (Lufesi et al.,

2013).

Efforts to address this challenge have focused on seeking additional and

diversified funding sources and procurement channels. These efforts are essential.

Adequate funding to purchase commodities and functional procurement

mechanisms are prerequisites for any programme. However, these efforts have

resulted in a more complex procurement environment involving more choices and

requiring greater coordination. They have increased the burden on existing

systems already struggling with limited human and organizational capacity. In

this context, it is therefore crucial to understand how to strengthen procurement

management systems and untangle the combinations of options and strategies

available to public health sector procurement programs.

Contribution of Holding Stock in Organisation

Inventory control is the logistics function of product handling and the

processes involved in its withdrawal or use, as well as the information

management of the stocks. In health logistics, it is recommended that products be

managed on a first-to-expire, first-out (FEFO) basis (Akintonye, 2014). This

requires that products that will expire first be removed from inventory for use; this

is the opposite of other inventory management systems that are based, for

example, on first-in, first-out (FIFO). This, in turn, drives the nature and type of

record keeping that can facilitate management based on these principles

(Amenyah, McMahon, Ward, Deane, McNulty, Hughes, Strain, Horigan, Purvis,

Walsh and Lees-Murdock, 2018).

A study conducted by Nyarkotey (2012) indicates that organisation manage their

stock by comparing their physical stock against the book balance to check

whether there are discrepancies and advice management on stock movement. He

further explained that in stock management, the past consumption is what is used

to calculate the stock control work sheet to get the stock levels.

Conceptual Framework

The conceptual framework which are most adopted in inventory

management practices influence performance of public hospitals. The practices

include: Economic order Quantity, Radio frequency identification system, vendor

management inventory, enterprise resource planning, Just in Time, ABC analysis

and EProcurement. The dependent variable is considered to be the performance of

public hospitals. Therefore, the conceptual framework shows performance at

public hospitals on inventory management practices used as presented in the

figure below.
 Independent variables Dependent

variables

Economic Order Quantity

Enterprise Resource Planning

SERVICE DELIVERY

Just in Time

Figure 1: Independent and Dependent Variables.

REFERENCES

1. Toomey, J.W. (2000) Inventory Management: Principles, Concepts and

Techniques. Kluwer Academic Publishers, Norwell.

2. Little, J., Coughlan, B. Optimal inventory policy within hospital space

constraints. Health Care Manage Sci 11, 177-183 (2008).

3. Palevich, R. 2012. The Lean Sustainable Supply Chain: How to Create a

Green Infrastructure with Lean Technologies. Pearson Education. London.

4. Coyle, J. J., Bardi, E. J., and Langley, C. J. Jr (2003). The Management of

Business Logistic: A Supply Chain Perspective (7th ed.). Mason: South-

Western

5. Aikins, M Ahmed, ED Adzimah. European Journal of Logistics

Purchasing and Supply Chain Management 2 (3), 1-23, 2014.