LESSON XII

MATERIAL
MANAGEMENT
SYSTEM
 Material Management
System

The management function of hospital materials, that is, to

ensure that services are rendered successfully from one source to
an end user—covers several areas of the hospital and could
drastically affect the expenses of the medical institution.
Executing this function in a manner that lessens expenses and
ensures adequate cash flow requires effective management of a
large amount of information from several sources.

To successfully manage such information, many hospitals

implement a form of materials management information systems
(MMIS). The systems can be used to manage functions like
purchasing, accounting, inventory management, and patient
supply charges (“Materials management information systems,”
1996).
 Purchasing
• In HIS by Bizbox, a purchase request marks the beginning of the procurement process. Using this form, the user
notifies the purchasing department regarding the needed items and services. It contains the quantity, as well as a
timeframe for the items requested. It has the authorization information needed to proceed with the purchase.
The requested items are then confirmed using the purchase order and a supplier is nominated. Once completed,
the order is sent to the supplier for processing.
• Finally, the items are checked during receipt of the delivery. The receiver, which is usually the Central Supplies
department, uses the purchase order as basis for accepting the delivered items which should be checked for
indents and damages. Afterwards, the said items are then released to the requesting department.
 Inventory Control

Inventory is one of the biggest

expenses for most medical institutions
(Johnston, 2014). Inventory control
plays an important part in refining the
quality of health care services since
lives of people are on the line and
medical costs are increasing.
Strategies in improving inventory control in the healthcare facility:

Ensuring Shipment Accuracy

• Checking shipments for accuracy means ensuring that the received items are
the ones ordered and the supplies are free from possible damages during
transit.
Aligning with Sales Projections
• Producing an Inventory tracking report in comparison with actual sales proves
to be a challenge in the field of medicine. However, it is necessary to prevent
wastage, identify trends, and ensure that there is no excess inventory
Strategies in improving inventory control in the healthcare facility:

Complying with regulations

• The health institution should be responsive to the current trends and needs of the
highly regulated health care industry. The regulators monitor health institutions and
determine the success or failure of companies to serve the best interest of the
patients.
Establishing buying cycles
• Buying cycles should be determined and understood by inventory personnel based on
the previous cycles, so that inventory ordering becomes manageable through the
elimination of shortages and overages. The said cycles determine the trends and
adjustments that can be made accordingly.
Figure 12.2 Inventory Items
(Bizbox, 2017)
 ITEM MASTER
MAINTENANCE

Since the importance of inventory control has been recognized, the

usage of a materials management system brings an advantage. In this
system, the Inventory Item Maintenance screen has many sections. The
upper portion contains master information. Additional options appear
after the selection of an existing item.
“Item Tab” is used for maintenance of the attributes of an
inventory item, such as product type, item class, item type, and others.
If the balance and order activity is zero (0), items can be deleted using
this option.
Users may set the product type to group similar items for
sales analysis and inventory reporting. Most of the inventory reports
are based on a certain product type.
The “Item Availability” form specifies inventory levels across
all warehouses
The “Item Availability” form specifies inventory levels across warehouses.

Figure 12.3 Inventory Availability

(Bizbox, 2017)
Item Indents and Issues
There are some instances where items are damaged either upon receipt
from the supplier or during the move from the source to another location.
Some suppliers allow return of goods that have indents or the like, with a
guarantee of replacement without any additional payments. This applies to
distribution and retail
 RE-ORDER LEVEL AND MINIMUM AND MAXIMUM INVENTORY
ORDERING
• In a typical materials management system, reorder level is the minimum quantity of an item that a
company has in stock, so when the stock reaches the stated minimum quantity, the item must then be re-
ordered (purchase order/production order).

• A basic reordering method implemented in many ERPs and other inventory management softwares is
the Min/Max inventory ordering method. The “Min” value is representative of a stock level that
prompts a reorder, and the “Max” value is representative of a new targeted stock level that follows the
reorder. The main difference of these two—Max and Min—is often interpreted as economic order quantity
(EOQ). Although the Min/Max method is an unpolished method for inventory ordering, its settings could
be adjusted to provide better inventory performance (Vermorel, 2014).
 ENQUIRIES AND QUOTATIONS FOR DRUGS, CONSUMABLES,
ASSETS, AND GENERAL ITEMS Webrino (2018)

Enquiries – The enquiries mark the beginning of the purchasing process. These establish the
relationship between the entity and the right supplier. The supplier provides information on
the availability and price of the required items.

Quotations – Quotations contain vital information regarding the requirements which include
price, delivery details, payment terms, and etc. Companies usually review two to three
quotations before selecting the supplier.

Orders – The buyer shows the intention to purchase the required item by issuing a purchase
order. A purchase order is placed to signify intention to engage in commercial for a specific
product or service. Upon agreement, the order becomes a contract between the health care
institution and the supplier.
 ENQUIRIES AND QUOTATIONS FOR DRUGS, CONSUMABLES,
ASSETS, AND GENERAL ITEMS Webrino (2018)

4. Invoices – An invoice is also called a bill. It is a commercial document that indicates the
product, the ordered quantity, and agreed price. The supplier issues this to the buyer to
show the products and services that were sold or providedCat to the buyer. Dog

5. Documents – Documents are statutory requirements used during purchase and sales
transactions. These ensure smooth transition and completion of the process.

Mouse Gorilla
 COMPARISON OF QUOTATIONS AND
PREFERRED VENDOR
Purchase Quotations
• A purchase quotation is a document for requesting prices and delivery information
from a vendor before the purchase order. It can be created then sent to a vendor.
When a response from the vendor is received, with a list of prices and delivery dates,
the information can be entered in the purchase quotation. In this way, the complete
history of the sourcing process can already be stored in the system.
• From the quotation, the right vendor for the purchase can be chosen based on the
tracked information. It helps in lessening expenses, improving the quality, and
increasing on-time delivery. A purchase quotation report allows the comparison of
offers in order to pick the appropriate vendor for the purchase scenario. Afterwards,
the purchase order can already be created from the selected quotation.
 Preferred Vendors

Companies typically maintain a list of

preferred vendors, from whom inventory
items are usually purchased. They look
for a vendor who has on-time
performance, offers reasonable costs,
provides high quality products and
services, offers fully licensed, bonded,
and insured products and services, and
has good business practices.
 PURCHASE REQUESTS, ORDERS, AND
APPROVAL
PURCHASE REQUEST
A purchase request or purchase requisition is a
document that notifies the purchasing
department that certain items or services need
to be replenished. The document stipulates a
timeframe and required quantities for the
requested items. In certain instances, it also
contains authorization to acquire assets. For
enhanced accountability and for
documentation purposes, some companies
require a purchase requisition for all purchases,
but others only require them for specific kinds
of purchases, such as those that would require
greater capital outlay (SAP, 2012).
PURCHASE ORDERS
A purchase order is a legally binding
contract which shows that the seller has
already accepted the order issued by the
buyer (SAP, 2012). It should contain:
information about the buyer and seller
(name, address, contact details, and etc.);
order number and order date; item
description (quantity, unit, and total price);
shipping information (shipping date and
address); billing address; and the
authorized signature.
 Approval Process
• The person who creates the document, either a purchase request or order, is the
originator. When the said originator adds document/s to the materials management
system, the system checks for any approval requirements. If the document fails to meet
the approval requisites, the originator is notified that the document needs approval. The
document is temporarily saved as a draft.

• When the approval process is launched, an internal request is immediately sent to

the first approval stage. This request is received in the Messages/Alerts Overview window,
and the approver can access the document. Approval can be done through a mobile
phone if the devices are integrated. An internal notification goes back to the originator
with a link to the rejected document when the approver rejects the document. The
originator can amend the document, and the approval procedure will continue until the
conditions are adequately satisfied (SAP, 2012).
RECEIVING AND TRACKING ITEMS POLICIES
(The York College, 2017)

1. Signing for Deliveries – The person who receives the delivery should inspect the delivered
items before signing the receiving document and the packing list. Then the document should be
submitted to the appropriate department for reconciliation.

2. Refusing Delivery – The receiving department should refuse to accept any shipment if the
packaging appears to be damaged or if there is any item that does not have a corresponding
purchase order.

3. Record Retention – The packing list should be provided to the receiving department during
delivery to ensure that there is proper documentation since they are taking possession and legal
ownership of the delivered items. If no list was provided, the department should request the
copy from the supplier. All files should be kept according to the guidelines of the entity. This
helps track partial and staggered deliveries.
4. Inspecting a Shipment

The personnel receiving the items should inspect the goods to ensure the
following minimum conditions are met:
• The received items match the requirements stated in the purchase order (type,
description, color, and etc.).
• The quantity is correct.
• The item has no damage, discoloration, and issues.
• The quantity per unit of measurement is accurate (e.g. one dozen = 12 pieces).
• Packing list, certifications and other delivery documentation are completely provided.
• Perishable items should be in good condition and have not reached the expiration
dates.
• The items are functioning properly.
5. Partial Deliveries
• When items are delivered partially without
proper notification from the supplier, the
receiving personnel should advise the
Purchasing department for approval and
further instructions. This should also be
typically noted in the packing list or the
receiving document.

6. Tracking of Goods
• Goods can be easily tracked /traced when
they are managed by serial number or
batch. Through that, aging of products
can also be monitored based on how long
they have been in the warehouse.
 Defective or substandard quality goods, incorrect order delivery, and
deteriorated purchased and sold items are usually common in
business. This leads to purchase or sales returns. When purchased
goods are returned, the materials management system updates
inventory levels to reflect the decrease in quantity.

Movement of inventory is not limited to purchase returns. Supplies and

equipment are also sometimes required to be taken out of the
department for repairs or consignment. For temporary movement, a
returnable gate pass is issued, Whereas, for permanent movement, a
non-returnable gate pass is given.

The system can be configured to track returnable and non-returnable

items or equipment. It can also be set to monitor due dates for
returnable items and provide detailed reports about the status of
different inventory items.

PURCHASE RETURNS ALONG WITH

RETURNABLE/NON-RETURNABLE GATE PASS
CONSIGNMENT STOCK
RECEIPT,
CONSUMPTION AND
REGULARIZATION

In the process of consignment, the vendor

or consignor issues materials to the receiver
or consignee, and these materials are stored
in the consignee’s premises. The vendor
maintains legal ownership until such
materials are removed from consignment
stores. The invoice is due at predetermined
intervals. In addition, customers can also
arrange to take over ownership of the
remaining consignment material after a
certain period (SAP, 2011).
EXPIRED STOCK AND QUARANTINE

Expired Stock/Inventory
• Upon reaching their expiration dates, some goods, such as food
and medicine, can no longer be utilized. In rare instances, they may
be sold to other parties at lower costs. Expiration dates and
decrease in values of items must be reflected in the financial
records so discrepancies in financial statements will be prevented.
The amount that reduces inventory in your records is recognized
as a loss which equates to a reduction in profit (Keythman, 2017).
Quarantine Stock/Inventory
When undecided about how to handle defective goods, whether to be sold as
scrap, reworked, returned, or used as it is, a quarantine location or warehouse
can be used to temporarily house them until a final decision is reached.

Inventory is put into quarantine if it is initially rejected during (Infor LN

Warehousing, 2018):

• Production, upon completion of an operation, when specified as “Move Rejected End Item to Quarantine.”
• Inbound inspection upon receipt of:
• Manufactured end items
• Purchased items
• Sold items on sales return orders
• Enterprise planning distribution orders
• Outbound inspection upon issue of materials to production (Infor LN Warehousing, 2018).
DRUGS AND CONSUMABLE ISSUES AND
RETURNS TO PATIENTS
Nagarajan (2017) affirms that 30 to 50 percent of hospital charges are actually attributable to
diagnostics, drugs, and consumables; and doctors get only between 10 to 20 percent. For both
hospitals and patients, drugs and consumables take up the bulk of expenditure. Therefore, materials
management is critical for hospitals to optimize the investment in these kinds of consumable assets.

While some hospitals have functional inventory databases, the lack of integration does not give
them holistic information, and this affects decision-making, both on a managerial level, and during
day-to-day operations. For instance, some drugs are misplaced or misappropriated, or shortages
and surpluses may occur as a result of improper inventory controls in a traditional system (Infor LN
Warehousing, 2018). This is where materials management systems become advantageous. It
provides an overview of the entire institution’s purchasing and inventory control processes. As a
result, decision-makers can have more reliable information and can monitor the bigger picture.
 ISSUES
METHODS
Inventory management is a crucial function for any
product-oriented business. Common inventory
handling methods include:
a) First In, First Out (FIFO) – Inventory items are
sold in the order they are purchased. This is the
most common technique.
b) Last In, First Out (LIFO) – Last items to enter
the system are sold first. This is common among
non-perishable items like petroleum, minerals, and
metals.

c) First Expired, First Out (FEFO) – Materials

are sold based on dates they should be consumed,
regardless of when they were purchased.
GENERIC TAX FORMULA CONFIGURATIONS

Material Management Systems usually allow tax rates to be defined internally via tax codes or
imported from an external source. Tax configurations are usually accounted for on a per
country basis. The following taxes that can usually be processed while posting documents are
• Tax on sales and purchases
• Additional taxes like VAT
• Sales and Use tax as in USA, and
• Withholding tax like income tax in India.

The automatic calculation of the tax dues during the purchasing process makes the process
less susceptible to clerical errors.
PERIODIC PHYSICAL STOCK TAKING AND ADJUSTMENTS WITH TRACKING
Inventory services provide labor and
automation to quickly count inventory and
minimize shutdown time.
Inventory control system software can speed up
the physical inventory process.
A perpetual inventory system tracks the receipt
and use of inventory and calculates the quantity
on hand.
Cycle counting, an alternative to physical
inventory, may be less disruptive (CTI Reviews,
2016).
An inventory count is a process
where a business physically counts
its entire inventory. A physical
inventory may be mandated by
financial accounting rules or tax
regulations to place an accurate
value on the inventory, or the
business may need to count
inventory so component parts or
raw materials can be restocked.
Businesses may use the following
tactics to minimize the disruption
caused by physical inventory (CTI
Reviews, 2016):
The materials management systems offer all of these in
addition to the Barcode and RFID capability which are
supplementary technologies placed to give the institution
more accurate and less burdensome inventory counts.
Thank You