COST CUTTING BY EFFECTIVE STOCK AND

SUPPLY MANAGEMENT IN ALL HOSPITAL

STORES

MBA ZG623T: Project Work

by

SATAIN BHAT
2017HB28515

Project Work Carried out at

DEEP CHAND BANDHU HOSPITAL, NEW DELHI

BIRLA INSTITUTE OF TECHNOLOGY & SCIENCE

PILANI (RAJASTHAN)

November 2019

1
 COST CUTTING BY EFFECTIVE STOCK AND
SUPPLY MANAGEMENT IN ALL HOSPITAL
STORES

MBA ZG623T: Project Work

by

SATAIN BHAT
2017HB28515

Project Work Carried out at

DEEP CHAND BANDHU HOSPITAL, NEW DELHI

Submitted in partial fulfillment of MBA Hospital and Health Systems

Management degree programme

Under the Supervision of

Dr. AMIT PRAKASH

PURCHASE OFFICER, DCBH NEW DELHI

BIRLA INSTITUTE OF TECHNOLOGY & SCIENCE

PILANI (RAJASTHAN)

November 2019

2
 CERTIFICATE

This is to certify that the Project Work entitled “Cost Cutting by Effective

Stock and Supply Management in all Hospital Stores” and submitted

by MR. SATAIN BHAT having ID-No. 2017HB28515 for the partial fulfillment

of the requirements of MBA. Hospital and Health Systems Management

degree of BITS, embodies the bonafide work done by him/her under my

supervision.

Signature of the Supervisor

Place: Delhi
Name DR. AMIT PRAKASH
:
Date: 26/10/19
Designation: Purchase Officer
Organization Deep Chand BandhuHospital,
& Location: New Delhi

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 ACKNOWLEDGEMENTS

I express my sincere thanks to my beloved Mother Mrs. Indu Bhat, Father

Mr. Sunil Kumar Bhat and my sister Mrs. Somika Bhat for their
encouragement and constant support and trust they showered on me.

I express my sincere thanks to my work organization Deep Chand Bandhu

Hospital and my colleagues, senior especially Medical Superintendent Dr
Vikas Rampal for their support and guidance.

I extended my sincere gratitude to my supervisor Dr. Amit Prakash for

guiding me each and every time completing this project in effective way.

I express my sincere thanks to all Hospital staff stastical officer, store

keeper, DMS, AMS for their support and guidance and allowance for Data
collection analyzing in professional Manner.

I express my sincere gratitude and thanks to my all BITS Teachers, Mentor

for their valuable teaching and guidance.

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 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)

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 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

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 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

Health-care technology has become a critical component of health care, as it enables

health-care providers to diagnose, treat, monitor and provide therapy to patients within an
appropriate environment of care. The effectiveness and efficiency of healthcare delivery in
a hospital setting depends on the smooth and proper functioning of the medical stores
department.1

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)

Figure 1: Pharmacy Inventory

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1.1 Operative Goals of Stock and supply Management

▪ Optimum Materials acquisition:

The Purchase of materials must be governed by the most effective purchase, storage,
handling and usage practices.

• Optimum Inventory Turnover:

Inventories of all items must be maintained at optimum levels.

• Good vendor relationship:

The organization’s relationship with its suppliers has a direct bearing on its direct ability to
procure materials on the best possible terms or the terms and conditions must be duly
signed during procurement.

1.2 Materials Cost Control

Materials purchase process must be economical.

1.3 Effective Logistics 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)

Figure 2: Logistics Management

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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

1.4 Effective Issue and distribution

The system of issues and distribution must cater to economical holdings at the point of

usage with no possibility of accumulation of large quantities of stock.

1.5 Elimination of losses and Pilferage:

Wastage and pilferage should be controlled by a system of internal audit or external audit

in regular interval of time. Tosummarize, the materials management function caters to

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, from

✓ Right Place, at

✓ Right cost

(1),(5),(7)

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Figure 3: Inventory Shrinkage

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 CHAPTER 2

OBSERVATIONS: CHALLENGES AND CONSEQUENCES:

Situational Analysis -Internal Analysis

▪ 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.

▪ Long procurement procedures in coordination with govt. agencies makes it lengthy

and time-consuming which results in delayed supply of stock to stores.

▪ 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

▪ Miscommunication or less communication or coordination between stores and

purchases. This lack of information leads to excess storage of stock hence leads to
loss, pilferage, locks funds (investment) etc when stored for long time.

▪ 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

3.0 Check list for implementing effective Materials management program

Questions to be asked though these are not exhaustive:

▪ Is the Material Management department under professional materials Managers

▪ Are the written policies and procedures for material Managements function?

▪ Is there a product evaluation committee?

▪ Does the manager stay abreast of the trends in health care materials management?

▪ Is the materials record keeping done digitally?

▪ Are all departments equipped with Internet and computers?

▪ Are all Store Keepers Computer Literate?

▪ Are Computers Installed with latest updated record Keeping Software’s?

▪ Are yes is the software’s installed up to date?

3.1Assign Duties and Responsibilities

▪ By assigning duties the managers put forward personnel’s responsibilities in the

management of stores.
▪ Immediate investigation, enquiry or information and initiate remedial action.
▪ Issue of suitable standing orders to ensure healthy stock supply management.
▪ Periodical Surprise Check internal, external audits check stock and supply
management functions.
▪ All Divisions (types of stores Linen, Surgical, Medicine Store and General Store) are
placed specifically under the charge of individual officer or managers nominated for
the custody of same

3.2 Responsibilities of stock holders

The Stockholders are responsible for the concerned Store office for the following

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 a) General Tidiness clean sort and shine

b) Correct Shortage of goods goals to keep minimum stock.

3.3. Responsibilities of stores officer

a. Procurement, receipt storage, status etc.

b. Update EDL (Essential Drug List) and Non EDL (Essential Drug List)

3.4 Responsibilities of user division/Group officers holding stores.

▪ Has a great responsibility for economic use of procured items supplies?

▪ Maintain log of indented items of store to record effective consumption pattern.(1)

3.5 SWOT Analysis

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.

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3.6 Strategy Management

3.6.1 Directional Strategies:

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.

3.6.2 Adaptive Strategies:

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.

3.6.3 Support Strategies:

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.

3.6.4 Excellent inventory management strategies:

To improve efficiency of the stocking of materials It can be done by automating or

digitizing record keeping real-time inventory data and analytics enables you to have
accurate product and forecasts instantly. The data can be used to predict demand,
helping to scale its inventory up or down at the correct time.

3.6.5 'Just in Time - JIT':

Just-in-time (JIT) is an inventory strategy organization employ to increase

efficiency and decrease waste by receiving goods only as they are needed in the
production process, thereby reducing inventory costs. This method requires
producers to forecast demand accurately. This inventory supply system represents a
shift away from the older ‘just-incase’ strategy, in which producers carried large
inventories in case higher demand had to be met.(6)(9)

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 CHAPTER 4

METHODOLOGY: SOLUTIONS AND ACTION TAKEN:

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.

4.2 Demand Forecasting and Planning

• Naive Forecasting (Last Period Demand)

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.

• Arithmetic Average Method

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.

• Moving Average Forecasting

3-Month Moving Average = (M1+M2+M3) / 3 - A three month moving average, for

instance, takes the average demand per month for the three preceding months and
updates the calculation each month.

(1),(8)

Table 1.1

Understanding Fore casting in Tabular Form

Month Actual 3 Month Moving Calculation 5 Month Moving

Demand Average Average
Forecasted Forecasted
Demand Demand
Jan 75
Feb 90
Mar 125
Apr 130 96.6666 (75+90+125)/3
May 150 115 (90+125+130)/3
Jun 175 135 (125+130+150)/3 114
Jul 185 151.66667 (130+150+175)/3 134
Aug 125 170 (150+175+185)/3 153

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4.3 Standardization of Demand

Standardization is grouping together items of similar specification, use or application to

enable hospital to choose one out of the many other similar options.

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

▪ Acquire needed supplies as inexpensively as possible.

▪ Obtain supplies of high quality
▪ Assure prompt, dependable delivery.

Distribute the procurement workload to avoid period to idleness & over work.

▪ Methods of purchase should be centralised.

▪ Purchasing Procedure • Drawing up specification • Inviting quotations • Preparing
comparative statement • Shortlisting • Issuing purchase order
▪ Open tender (Inviting Quotations) •Public bidding, resulting in low prices. •Published
in newspapers. •Term - 4 weeks. •Quotations must be sent in the specific forms
that are sold, before the time and date mentioned in the tender form. •In technical
items, ‘two packets or two bins’ system is followed (Ideally). Offers are given in two
separate packets. - Technical bid - Financial bid

5.1Tender Procurement

▪ First technical bid is opened & short listed

▪ Then financial bid of selected companies isopened & lowest is selected.
▪ Delayed tenders and late tenders are not accepted.
▪ Quotations are opened in presence of indenting department, accounts and
authorized persons of party.
▪ Validity of tenders: The period within which a bidder’s offer is considered legally
binding. After this period, the bidder is at liberty to change their bid if the contract
has not been signed. Generally, 90 days.

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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:

Following tender conditions should be made into consideration:

▪ 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.

5.3Terminologies used in Tender procedure

▪ Earnest money deposit EMD

2 % of the tender amount or as decided has to be paid along with all quotations. In
case of default 1/5 is withheld

▪ Restricted or limited tender

From limited suppliers (about 10) - Lead-time is reduced –

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 ▪ Better quality.

▪ Negotiated procurement

Buyer approaches selected potential suppliers and bargain directly. –

Used in long time supply contracts.

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

In finance, a spot contract, spot transaction, or simply spot, is a contract of buying or

selling a commodity, security or currency for immediate settlement (payment and delivery)
on the spot date, which is normally two business days after the trade date. - It is done by a
committee, which includes an officer from stores, accounts and purchasing departments.

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)

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 CHAPTER6

CONCLUSIONS AND RECOMMENDATIONS:

Stores management takes care:

1. That the required material is never out of stock

2. That no material is available in (much) excess than required

3. To purchase materials on the principle of economic order quantity so that the

associated costs can be minimized

4. To protect stores against damage, theft, etc.

6.1 INVENTORY CONTROL

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.

6.2 Functions of Inventory Control

▪ It may be more economical to purchase an item on demand than to maintain an

inventory. At the same time, a certain minimum amount of each item must be held
to minimize the chances of total stock-out. –

▪ Inventory control helps in maintaining an optimum level of the idle resource at a

least possible cost. –

▪ 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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6.3 Control of Inventories

6.3.1 ABC (Always Better Control) Analysis

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.

Table 1.2 Understanding ABC Analysis in Tabular Form

Example of ABC ANALYSIS

Table 1.3 Example for ABC Aanalysis

Expenditures Items/ % Cost Spend % Classification

Suppliers

Medical Supplies 30 10 24000,000 70 A

House-Keeping 60 20 4500,000 20 B
Supplies

Office Supplies 210 70 1500,000 10 C

Total 300 30,000,000 100

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 Table 1.4 Class Items

A Class Items B Class Items C Class Items

1.Very Strict Control 1.Moderate Control 1. Loose control

2.Maximum Follow up 2. Periodic Follow up 2. Follow up in exceptional cases
3.Rigrous Value Analysis 3. Moderate value 3. Minimum value analysis
4.Handled by senior analysis 4. Can be delegated
officers 4.Handled by middle
management

6.3.2 VED ANALYSIS

▪ Based on critical value and shortage cost of an item.

▪ Vital: - Those items, the absence or shortage of which, even for a short period can
seriously hamper the work of the hospital
▪ Essential: - Those items, the absence or shortage of which cannot be tolerated for
more than a day or so.
▪ Desirable: - Those items, which are definitely needed, but the work can continue
even without them foe a substantial period of time.
▪ Obviously “V” items will require sufficient safety stock than the other two.

6.3.3 SDE ANALYSIS

▪ 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

V E D TYPE 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%

Category 1: Needs close monitoring and control

Category 2: Moderate control
Category 3: No Need for Control

6.3.4HML ANALYSIS

• Eased on Cost per unit

• Highest
• Medium
• Low
• This is used to keep control over consumption at departmental level for deciding the
frequency of physical verification.

6.3.5 Technologies in Inventory Control

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.

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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.

6.3.6 Factors which influence Order Quantities

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.

Safety Buffer Stock:

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.

6.3.7 Economic Order Quantity

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

total cost of inventory management.

Total Cost = Purchase Cost + Order Cost + Holding Cost

Inventory costs depends on Ordering costs and Holding costs

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

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Holding Cost (Inventory carrying cost): –

▪ Cost of storage

▪ Salary and wages of store personnel

▪ Insurance

▪ Stationary, forms, paperwork,

▪ Loss of interest money deadlocked in inventory

▪ Deterioration and obsolescence – Losses due to pilferage

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

• The number of orders to place in one year =

R/Q=1600/200=8
Where R= Annual demand in units, P= Purchase cost of an item, C= Ordering cost
per order, H= Holding cost per unit per, Q= Lot size or order quantity in units

Total Cost Formula

TC(Q)=PR+CR/Q+PFQ/2

• Total Cost = Purchase Cost +Ordering Cost +Holding Cost

• P=Purchase cost per unit
• R=Forecasted Yearly usage
• C= Cost Per order event (not per unit)
• Q= The no. of units ordered
• H= Holding Cost Factor
• Q/2= Average Inventory

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

How Much Suture should be ordered at a Time?

Examples

• R=5200
• Q*=√2CR/PF= √ 2CR/H
• C= Rs10 per order
• P= Rs 2
• F=20% of value inventory per year

EOQ= √2(10) (5200)/ (2) (.20)=510 cases

R= Annual demand in units

P= Purchase cost of an item
C= Ordering cost per order
H= Holding cost per unit per year
Q= Lot size or order quantity in units
F = Holding Factor (1),(5),(7)

28
 CHAPTER7

STORES LAY OUT FOR EFFECTIVE STOCK & SUPPLY MANAGEMENT

The Hospital is having number of service units and each one is located far from the
central office; decentralized storage system should be followed.

▪ Incoming materials receiving gate.

▪ Place for dumping materials.
▪ Place for sorting and checking materials & medicines.
▪ Place for materials & medicine inspection.
▪ Place for temporary storing of materials before placing racks, bins,
etc.
▪ Proper place for stringing each type of material.
▪ Main aisle
▪ Side aisle.
▪ Service window.
▪ Boxed containing material to be brought from container issues.
▪ Counters for keeping materials to be issued.

7.1 Receipt of Shipments:

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

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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.

7.4 Air-conditioned well-equippedHousekeeping and rodent control

▪ 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)

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7.5 Condemnation & Disposal

• Minimum criteria to be followed by condemnation

• Non-Functional and Beyond economical repair.
• Functional but obsolete.
• Functional but Hazardous.
• Functional but no longer required.

7.6 Condemnation:

Committee Should be constituted for addressing whether or not an equipment should be

condemned and disposed of based on the history sheet & recommendations of the user
department.(1),(9)

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 CHAPTER 8

EPILOGUE & FINAL PRESPECTIVE: TO REDUCE LOSS AND PILFERAGE

1. Access to all stores should be limited.

2. Locking and unlocking of stores and handling of keys should be strictly

controlled.

3. Intensive vigilance to prevent frauds involving purchasing personnel and

collusion with vendors.

4. Limiting or controlling following mal-practices: -Control of commission under the

table, especially for emergency purchase -Inflating prices -Accepting sub-
standard goods -Making fraudulent payments

5. Developing system of internal audit

6. Strict policies and procedures guiding purchase, receipt, storage and distribution

7. Proper controlling and monitoring by Managers and Officers appointed. (1),(5),(9)

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 CHAPTER 9

REFERENCES

1.Principles of Hospital Administration &PlanningChapter 21-Materials Management Pg no

256 to 268 ---BM SAKHARKA

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

6.Vision 20-20 E resources

Projecthttp://www.v2020eresource.org/home/newsletter/news12008

7.Materials management by ZulefqarAhmed slide share

https://www.slideshare.net/zulfiquer732/material-management-in-hospital

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

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 Appendices.

EOQ Economic Order Quantity

FIFO First In First Out
LIFO Last In First Out
MM Material Management
EMD Earnest Money Deposit
EPC Economical Purchase Cost
SWOT Strength Weakness Opportunity Threat
CR Central Receiving
HC Holding Cost
TC Total cost
AAM Arithmetic Average Method
EDL Essential Drug List
JIT Just In Time
MAF Moving Average Forecasting
COS Cost of Storage
SBF Safety Buffer Stock
PIC Preventive Inventory Control
RFID Radio Frequency Identification

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 Checklist of items for the Final Project Work Report

This checklist is to be attached as the last page of the report.

This checklist is to be duly completed, verified and signed by the student.

1. Is the final report neatly formatted with all the elements required Yes
for a technical Report?
2. Is the Cover page in proper format as given in Annexure A? Yes
3. Is the Title page (Inner cover page) in proper format? Yes
4. (a) Is the Certificate from the Supervisor in proper format? Yes
(b) Has it been signed by the Supervisor? Yes
5. Is the Abstract included in the report properly written within one page? Yes
Have the technical keywords been specified properly?
Yes
6. Is the title of your report appropriate? The title should be adequately Yes
descriptive, precise and must reflect scope of the actual work done.
Uncommon abbreviations / Acronyms should not be used in the title
7. Have you included the List of abbreviations / Acronyms? Yes
8. Does the Report contain a summary of the literature survey? Yes
9. Does the Table of Contents include page numbers? Yes
(i). Are the Pages numbered properly? (Ch. 1 should start on Page # 1) Yes
(ii). Are the Figures numbered properly? (Figure Numbers and Figure
Titles should be at the bottom of the figures) Yes
(iii). Are the Tables numbered properly? (Table Numbers and Table Titles
should be at the top of the tables) Yes
(iv). Are the Captions for the Figures and Tables proper? Yes
(v). Are the Appendices numbered properly? Are their titles appropriate Yes
10. Is the conclusion of the Report based on discussion of the work? Yes
11. Are References or Bibliography given at the end of the Report? Yes
Have the References been cited properly inside the text of the Report?
Yes
Are all the references cited in the body of the report
Yes
12. Is the report format and content according to the guidelines? The report Yes
should not be a mere printout of a Power Point Presentation, or a user
manual. Source code of software need not be included in the 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.

Place New Delhi

Date: 26-10-19 Name: Satain Bhat

ID No.: 2017HB28515

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