Materials Management

(Pharmaceutical)

Dr. Ishtiaq Hussain Qureshi

Faculty
Dept. of Management Studies
University of Kashmir
 Materials Management
Material Management is a scientific technique, concerned
with Planning, Organizing &Control of flow of materials,
from their initial purchase to destination.
Materials Management is a method for planning,
organizing and controlling the activities that are related to
the flow of materials in a company. This can lead to
the control of the location, movement and time of
those materials from their introduction, production,
manufacturing process and final delivery.
Material is defined as “equipment, apparatus and supplies
used by an organization for the purpose of rendering
services”,
 BASIC FUNCTIONS OF MATERIAL
MANAGEMENT
• Effective management and supervision
• Sound purchasing methods
• An efficient purchase system
• A simple inventory control programme
• A result oriented requisition and distribution system
• Written policies and procedures
• A practical receiving programme: It denotes the need
for accountability and responsibility. For the best
results, the purchasing, receiving & paying of invoice
should be done by separate persons.
 Aims/purpose of MM
• To gain economy in purchasing
• To satisfy the demand during period of
replenishment
• To carry reserve stock to avoid out of stock
position
• To stabilize fluctuations in consumption
• To provide reasonable level of client services
• To have material in hand when needed
• To minimize inventory investment
• To operate efficiently
• Stock: The goods kept on the premises of a
business or warehouse and available for sale
or distribution
• Inventory–- total quantity of material available
in the store
• Logistics–- defined as function of moving,
storing and distributing resources and goods
For delivery of effective health care services it is
necessary that-
• Right material at right time at right place in right
quantity and of right quality should be made
available to perform the assigned activities in an
effective and efficient manner
• Recurring expenditure of an average hospital –
– 60%---on salaries of employees
– 30-35%--- on materials
– 5-7% ---- on non material resources
 Inventory Management
• Inventory or stock refers to the goods and
materials that an organization holds for the
purpose of production, utilization or sale. Eg. Raw
material, work in progress, finished goods or
consumables.
• Every organization holds inventory
• Inventory constitutes substantial portion of
organizational resources and monetary resources
• Organizations need to manage inventory to cost
minimization and optimal utilization of resources
 Inventory -5 Reasons
• Time: The time lags present in the supply chain, from supplier to user at
every stage, requires that certain amount of inventory be maintained .
• Seasonal Demand: Demands varies periodically, but producers capacity is
fixed. This leads to accumulation of stock for consumption during peak
season. Eg allergy drugs during allergy season.
• Uncertainty – Inventories are maintained as buffers to meet uncertainties
in demand, supply and movements of goods.
• Economies of Scale–Purchasing in large quantities is economical due to
lower price, quantity discounts and economica movement and storing
thus brings in economies of scale.
• Appreciation in Value – In some situations, some stock gains the required
value when it is kept for some time. Eg market appreciation (farm items)
or to allow them reach the desired standard for consumption, or for
production (raw vegetables, fruits, perfume, beer etc).
 Inventory Control
Inventory needs to be controlled to
• Minimize the money blocked in it
• To reduce investment in inventories and make effective
use of capital investments.
• To supply items/supplies (eg drugs) in time.
• Avoid obsolescence of items in inventory
• Wastages are avoided
• Rusting and decaying
• Pilferage
• To avoid stock out and shortages.
• Minimize cost of ordering and holding inventory
 Inventory control techniques
• Inventory management is essential to maintain a
large size inventory for efficient and smooth
production and also for sales operation.
• Inventory control is the technique of maintaining
the size of the inventory at some desired level
keeping in view the best economic interest of an
organization.
– EOQ
– ABC
 ECONOMIC ORDER QUANTITY (EOQ)
• It is the most effective technique for
determination of the quantity.
• It is defined as the quantity of materials to be
ordered at one time which minimizes the lost.
• The basic objective of EOQ is to have an ideal
order quantity for any item and to economize
on the cost of the purchase.
 Computation of EOQ
The widely used formula is:
EOQ =√{2A×O/C}
2𝐴×𝑂
Or EOQ= √
𝑐
Where ,
A=Annual or periodic requirement or demand
O=Ordering cost (cost of placing a purchase order)
C=Carrying cost (cost of holding an item in
inventory for one year)
 ABC Analysis
In this technique the materials are divided into 3
groups. A,B,C according to the cost of the materials
and money value.
• A items - A few costly items come under this
category these items require proper storage and
handling, overstock is avoided.
• B items - These are neither costly nor cheap.
• C items - Cheaper in cost.
• It is also known as Selective Inventory Control
Method (SIM)
ABC Analysis
 Procedure for ABC Analysis
• Make the list of all items of inventory.
• Determine the annual volume of usage & money value of
each item.
• Multiply each item’s annual volume by its rupee value.
• Compute each item’s percentage of the total inventory in
terms of annual usage in rupees.
• Select the top 10% of all items which have the highest
rupee percentages & classify them as “A” items.
• Select the next 20% of all items with the next highest rupee
percentages & designate them “B” items.
• The next 70% of all items with the lowest rupee
percentages are “C” items.
ABC Analysis