SEMINAR

PRESENTATION ON
MATERIAL
MANAGEMENT
MATERIAL MANAGEMENT
 DEFINITION:
Material management is
concerned with providing the drugs
supplies and equipment needed by health
personnel to deliver health care.
It is a scientific technique, concerned with Planning, Organizing and
Control of flow of materials, from their initial purchase to destination.
About 40 percent of the funds in the health care system are used up
for providing materials. It is important that materials of right quality
are supplied to the consumers
Material management integrates all materials functions
•Planning for materials
•Demand estimation
•Purchasing
•Inventory management
•Inbound traffic
•Warehousing and stores
•Incoming quality control
AIMS OF MATERIAL
MANAGEMENT
 To develop a system of supplies.
 To reduction in inventory costs.
 To ensure that resources available are used
most effectively.
 To bring about coordination among various
section in the organization.
 To ensure that the formulations do not suffer.
 Productivity will improve as raw materials of
right quality are continuously made available .
 Inventory losses will be minimised.
OBJECTIVES OF MATERIAL
MANAGEMENT
 PRIMARY OBJECTIVES
 Low cost.
 To obtain high inventory turnover.
 Low storage cost.
 Maintaining continuous supply.
 Maintaining quality of purchase.
 Cordial relations with suppliers.
 To have low pay roll cost.
 Development of vendors.
 Good records.
OBJECTIVES CONTINUED…..
 SECONDARY OBJECTIVES
 Favorable reciprocal relations.
 Introduction of new materials and products.
 Standardization .
 Product improvement .
 Inter dependent harmony.
 Economic for costs.
ELEMENTS OF MATERIAL
MANAGEMENT
 Demand estimation.
 Procurement.
 Receipt and inspection.
 Storage, inventory control.
 Issue and use.
 Maintenance and repair.
 Disposal .
 Accounting and information system.
 Pilferage.
CLASSES OF MATERIALS
 Raw material—material which is in an unprocessed
condition. eg. cotton ,iron ,steel and chemical.
 Finished material –it is fully manufactured goods
inspected and ready to delivery to customers.eg
.readymade garments etc.
 Purchased parts –these are items in assembly of
products. eg. bolts, nuts ,screw etc.
 Supplies ---these are consumable good used in the
process of manufacturing.eg .stationary ,pencils
,oils.
 Equipments items---all necessary equipments like
fixtures ,fittings etc.
ESSENTIAL PRINCIPLES OF
MATERIAL MANAGEMENT

Right
Right items
delivery

Right
quantity

Right
source
Right
price
GOLDEN RULES OF MATERIAL
MANAGEMENT
 There are ten rules of material
management.
 Rule one-
 effective management system
and
good supervision.
 Rule two-
 purchase order is called the
umbilical cord of
the purchasing process.
 GOLDEN RULES CONTINUED….
 Rule three-
 centralized and purchasing system.
 Rule four-
 negotiation is the key to sound
purchasing.
 Rule five-
 there should be an effective
receiving programme with responsibility accountability
and internal control built in to the system

 GOLDEN RULES CONTINUED……
 Rule six-
 establish on optimum level of inventory and simple but effective
inventory control programme.
 Rule seven-
 establish effective and result oriented requisition and distribution
system.
 Rule eight-
 establish written policy and procedure.
 Rule nine–
 standardization and evaluation of all products and services
 Rule ten-
 whenever possible go for contract purchasing through prime vendors.
PROCESS OF MATERIAL
MANAGEMENT
 Budgeting and material planning.
 Demand forecasting.
 Procurement ,receipt inspection payment.
 Storage ,inventory control.
 Issue distribution.
 Usage.
 Maintenance.
 Disposal.
 Pilferage.
PROCEDURES FOR GOOD
MATERIAL MANAGEMENT
 Taking inventory regularly and
systematically.
 Requisitioning at indenting according to
actual needs.
 Receiving and inspecting incoming items.
 Storing and protecting items.
 Issuing items for use.
 Proper use of items.
Aim of material management planning
  To get:
•The Right quality
•Right quantity of supplies
•At the Right time
•At the Right place
•For the Right cost
Purpose of material management planning
•To gain economy in purchasing
•To satisfy the  demand during period of
replenishment
•To carry reserve stock to avoid stock out
•To stabilize fluctuations in consumption
•To provide  reasonable level of client
services
Basic principles of material management Planning
Effective management and supervision
 
It depends on managerial functions of:
•Planning
•Organizing
•Staffing
•Directing
•Controlling
•Reporting
•Budgeting
•Sound purchasing methods
•Skillful and hard poised negotiations
•Effective purchase system
•Should be simple
•Must not increase other costs
•Simple inventory control programme
Procurement process planning 
Problems affecting material planning

       Corporate/Govt objectives and plans

       Technology available
       Market demand
       Lead time and rejection rates
       Working capital available
       Nature of inventory required
       Capacity and its utilization of the
organization
       Seasonal variations
       Information and data available
       Overall material policy
PROCUREMENT
 The term procurement is define as the
acquisition of goods and services and
payment of an accepted price for them.
 Objectives of purchasing-
 Continuous supply of materials.
 Maintaining standards of quality.
 Avoidance of duplication waste etc.
 Maintenance of inter-departmental relations.
 Maintenance of proper records.
PRINCIPLES OF PURCHASING
Right
quality
Right
price

Right
quantity

Right
source

Right
time
ADVANTAGES OF EFFICIENT
PURCHASING
 It eliminates waste of materials.
 Promotes favorable marketing.
 Purchasing of requisite quantity of materials
avoids lacking up of working capital.
 Purchases are made at the most economical
price.
ADVANTAGES OF CENTRALIZED
PURCHASING
 Better administrative control.
 Specialization .
 Uniformity.
 Favorable terms.
 Avoidance of duplication.
 Record keeping.
 Flexibility.
 Research.
 Import.
Contractual services by Directorate General of
Supplies and Disposals for Government Institutions

       Fixed quantity contract: supply firms are

called upon to offer to supply a definite quantity of
stores by a specified date. Such contracts are
binding both parties
       Running Contract: these contacts are for supply
of an approximate quantity of stores at a specified
price during a certain period of time.
       Rate contract: most common contracts in
health care institutions, in which firms are asked to
supply stores at specific rates during the period
covered by the contract. No fixed quantity is
mentioned. This system of offers maximum
flexibility in ordering specified quantity of materials
at frequent intervals.
Points to remember while purchasing
 Proper specification
Invite quotations from reputed firms
Comparison of offers based on basic price,
freight and insurance, taxes and
levies
 Quantity and payment discounts
Payment terms
 Delivery period, guarantee
 Vendor reputation (reliability, technical
capabilities, Convenience, Availability,
after-sales service, sales assistance)
 Short listing for better negotiation terms
Seek order acknowledgement
Procurement of equipments
Points to be noted before purchase of an
equipment:
       Latest technology
       Availability of maintenance and
repair facility, with minimum down time
       Post warranty repair at reasonable
cost
       Upgradeability
       Reputed manufacturer
       Availability of consumables
       Low operating costs
       Installation 
       Proper installation as per guidelines
DISADVANTAGES
 Delay
 No local benefits.
 No authority to users.
 Uneconomical.
 Conflicts.
 Unsuitability.
DECENTRALISED PURCHASING
 ADVANTAGES-
 Close contact .
 Fixed responsibility.
 Flexibility in purchase.
 Emergencies.
 Local characteristics.
 Avoidance of misunderstanding.
DEMERITS
 No uniformity of purchase practice.
 Materials are at higher price.
 Some managers may consider purchasing as
an unnecessary botheration.
 Detailed information will not be available.
 Research of new sources of supply will not be
encouraged.
INVENTORY CONTROL
 Principle of inventory control is to minimise
investment on materials.
 Purpose of inventory control.
 To prevent stocking of materials which result
in locking up .
 Prevent possible pilferage and to decrease
costs by minimizing stock out.
CONCEPTS OF CONTROLE OF
INVENTORY COSTS.(TYPES)
 Cyclic system.
 Two bin system.
 Lead time.
 Minimum stock or safety stock.
 Reorder of point.
 Maximum sock .
 Economic order quantity.
 ABC Analysis.
 VED Analysis.
 FSN Analysis.
 Turn over of inventory.
 Physical inventory.
ABC ANALYSIS
 ABC analysis separates inventories in to ABC
items. In order to make a such an analysis.
The list of all the stored items and their
annual consumption value are listed
separately and then this list is rearranged in
descending order beginning with the items
of highest value.
 A-Approximately account for 70-80% of the
value.
 B-20-25% and last 70% of items.
 C-Only 5-10% of the value.
 ABC ANALYSIS
A – Items

1. Tight controls

2. Rigid estimates

3. Strict and close watch

4. Safety stocks should be low.

5. Management of items should be

done at top management level.
B – Items

1. Moderate controls.

2. Purchase based on rigid requirements

3. Reasonably strict watch and control.

4. Safety stocks moderate

5. Management be done at middle level.

C – Items

1. Ordinary controls

2. Purchase based on usage

estimates

3. Controls exercises by store

keeper

4. Safety stocks high

5. Management be done at middle

level
Rate of Consumption
movement of store or consumption rate is a
strong tool for proper inventory control. The
item can be classified into :
 Fast moving
 Slow moving
 Non moving
 Obsolete.
It helps to keep proper levels of inventories
by deciding a rational policy or reordering.
ADVANTAGES OF ABC ANALYSIS
 There is great economy in stock carrying
costs.
 There is a close and strict control on those
items of stocks in which a large amount of
capital is invested.
 It helps in maintaining enough safety stock
for ‘C’ category of store items.
 It helps in maintenance of high stock turn
over rate .
 Investment in inventory can be regulated and
kept under control.
VED ANALYSIS
ABC analysis does not tell anything about the
criticality of the items. .
This is an important variant in patient care
services.
Based on the estimation of the time length for
which non availability can be tolerated, there
are three categories.
The stores when subjected to analysis based
on their criticality can be classified into vital,
essential and desirable stores. This analysis is
termed as VED analysis.
1.Vital: items without which treatment comes to
standstill: i.e. non- availability can not be
tolerated.
2.Essential: items whose non availability can be
tolerated for 2-3 days, because similar or
alternative items are available.
3.Desirable: items whose non availability can be
tolerated for a long period. Although the
proportion of vital, essential and desirable items
varies from hospital to hospital depending on the
type and quantity of workload, on an average
vital items are 10%, essential items are 40% and
desirable items make 50% of total items
available.
there is a peculiar category of ‘U’ items which
can be grouped as unnecessary. These
unnecessary items get purchased due to the
following reasons.
a)      Thoughtless continuation of previous
purchase.
b)      Indifferent attitude towards hospital
formulary
c)      Fear of change
d)      Poor supervision and control
e)      Unfair practice due to vested interest.
The vital items are stocked in abundance;

essential items are stocked in medium

amounts,
and desirable items we stocked in small
amounts.

By stocking the items in order of priority, vital

and essential items are always in stock
which means a minimum disruption in the
services offered to the people.
It should be realized that vital- V items
and A items are not the same.
All the vital items are not expensive and
all the expensive items are not vital.
Domestic examples of salt and matchbox
proves that though these items are vital,
they are not expensive,
similarly microwave oven and air
conditioning unit are expensive, but they
are not essential.
It is possible to conduct a two dimensional analysis taking into
consideration cost on one hand , i.e. A,B,C categories, and
critically VED on the other. Findings of ABC and VED analysis
can be coupled and further grouping can be done to evolve a
priority system of management of stores:

Coupling matrix model

                                                Cat I                Cat II                           Cat III
                                                  V                      E                                   D
                        A                       Av                   Ae                                Ad
                        B                      Bv                    Be                               Bd
                        C                       Cv                  Ce                                Cd
An example for the coupling matrix model for equipment between
criticality and cost
NB: 1-9 is cell no                       Matrix module: criticality Vs cost

  V E D
H Defibrillator X-ray machine Air- curtains
          1           2          3

M Ventilator Electric cautery Ultrasonic wash

         4            5 machine
            6

L Oxygen Patient trolley Electronic BP

regulator            8 machine
         7             9
• Cell 1 contains vital and high cost items like defibrillator. It must be
noted that a material manager has to comprehensively supervise
category 1 items since an item may be a low cost one but critical for
patient care. ( oxygen regulator)
•Category I items: these items are the most important ones and
require control by the administrator himself.
•Category II items: these items are of intermediate importance and
should be under control of the officer in charge of the stores.
•Category III items: these items are of least importance which can be
left under the control of the store keeper.
•The grouping will essentially depend upon the strategy of
management and the environment of functioning. However these
simple techniques can be effective in material management system.
• Items with high criticality (V), but required in small quantity (A)
should receive highest priority. Items with low criticality (D) and which
are required in big quantity should receive least priority.
A thorough understanding and use of the
techniques of materials management would
help in ordering the supplies when needed,
controlling their use,
keeping them safely and in working order, and
also motivating the personnel in the best use
of equipment and drugs.
This also prevents chances of non availability
of equipments and drugs as being out of stock
of these reduces the usefulness of the hospital
system.
Drugs like sera, vaccines and regular
products need to be stored at
temperature of 2 to 10C.
A large variety of drugs, etc. need to be
stored at temperature of 15 to 20C.
Cool and cold room conditions should,
therefore, be made available in all
medical stores and strict monitoring of
temperature done by the store keeper
and the supervisors.
Perpetual Inventory system is comprised
of :

 Bin Cards (Quantitative Perpetual

Inventory)

 Stores Ledger (Quantitative cum

Valued Perpetual Inventory)

 Continuous Stock taking (Physical

Perpetual Inventory)
 INVENTORY CONTROL METHODS
.Intuitive Method : This is the “want book method” that is
most effective method. Items are recorded in the want book
when the number of units in stock reaches close to zero. The
amount ordered then is the best estimate for the
storekeeper or worker in the field.

2. Perpetual Inventory Method : One of the best accurate

and effective methods of inventory is, , an ideal situation if
the record keeping can be kept up-to-date. In a ward
situation, the nurse in charge of dispensing at the end of
each day, summarizes all drugs issued to patients and make
the proper posting in the perpetual inventory file. The file
consist of appropriate forms.
3. ABC Method : This method is based on the fact that some stock
items have a much higher annual usage value than others. The after
doing a cost analysis, stock items are separated into three classes
with the following characteristics :

Inventory control efforts are maximized on expensive items, e. g.

inventory level consumption of class “A” items is minimized with the
help of tight and close control (frequent stock taking, secure storage,
careful using procedure). On the other hand, in the case of
inexpensive C items control is comparatively relaxed and an abundant
buffer stock is maintained throughout the year because it is quite
economical to carry these items.
. VED Method (Vital, Essential, Desirable): in this
method each stock item is classified on either vital,
essential or desirable based on how critical the item
is for providing health services.

The vital items are stocked in abundance, essential

items are stocked in medium amounts, and desirable
items we stocked in medium amounts, and desirable
items we stocked in small amounts.

By stocking items in order of priority.

Vital and essential items are always in stock which

means a minimum disruption in the services offered
to the
5. Two-bin Method : separates the stock of each
item into two Bins (Boxes).
One bin (box) contains the main stock;
the second (small) bin contains enough stock to
satisfy demand during the period necessary for
replenishment.
When the first bin exhausted, an order for
replenishment is immediately placed. In the mean
time, stock in the second bin in used to satisfy
demand until the replenishment stock arrives.
Part of the new supply when it arrives, is used to
file the second bin, which against placed in
reserve.
The remainder of the replenishment stock is
placed in the first bin, where it is available for
issuing and use.
MANAGEMENT OF EQUIPMENT
 Ordering equipment.
 Storing equipment.
 Issuing equipment.
 Controlling and maintaining.
 Coding and standardization .
 Usage.
 Maintenance.
 Disposal and condemnation.
 Pilferage.
Perpetual Inventory or Automatic Inventory
System

In order to plan the inventory one needs to

know :

a. The monthly-quarterly-yearly
requirement of each item.
b. Purchase cost per order.
c. Lead time (time from placing order to
receipt of goods).
d. Price of items.
e. Inventory carrying cost.
Size of Inventory

In determining the size of the inventory the

hospital /agency has to consider :

i. The volume of safety stock : This will be

influenced by procurement lead time which
normally depends on the locality of the
hospital/agency, transportation problems and
availability of supplies.
ii. Economy on purchase of larger lots : This
will depend on the cash position and
availability of storage space of the
hospital/agency.
Valuation of Inventory

Generally closing stock (inventory) shown is the “asset”

side of the balance sheet is calculated by using the
formula “cost price or market price whichever is lower”.

Here “cost price” signifies the amount appears in the

books and “market price” denotes the actual price
prevailing in the market.

However, if stock in hand of any item in a year includes

many units purchased at various prices, pricing of the
inventory poses a problem (i.e. the question arises
whether to take higher price, lower price or average
price).
First in First Out Method (FIFO)

The oldest items in stock are assumed to be

issued before new stock, and the issue is priced
accordingly.

Advantage : The issues and inventory are priced

exactly at original cost. Since actual prices are
used, there cannot be any “profit” or “loss” in the
pricing arrangements. In FIFO process, the value
of the stock held on hand is the money that has
been paid for the that amount of stock at latest
price levels and hence can straight away be used
in balance sheet, truly reflecting the value.
Limitations: when too many changes in price levels
are there a this method does not provide a
satisfactory answer to costing returns from stores.

It has the effect maximizing the book profit during

period of rising prices and minimizing the book-
profits during the periods of falling prices. Hence
under “inflationary” conditions FIFO is not suitable
Last in First Out Method (LIFO)
The newest items in stock are assumed to be issued
before the order and priced accordingly. this
method too can the same difficulties as FIFO.

Advantages : Unlike “FIFO”, under “LIFO” issues

reflect “current prices” and hence it is the suitable
method under inflationary conditions.

Limitations : This method will show higher profits

under “deflationary” conditions (when prices fall)
and hence is not suitable for “deflationary”
conditions.
Average unit price Method

In this method the issue price (and the price of the

inventory) is set by averaging in the quantities and
price of each new purchase of the item.

Advantage: This is suitable both for inflationary

and deflationary conditions since it reflects lesser
gain or loss than the previous methods.

Difficulty : Lots of mathematics involved in this

Fixed Last price Method

In this method, issues and the inventory at stock-taking

time are priced of the last receipt of the item.

Advantage : No cumbersome calculations involved :

supplies expense reflects change in market prices
immediately and inventory valuation is conservative as it
reflects current market prices.
Donated Supplies
Hospitals/agencies often receive gifts , in the form
of donated supplies from the public or any other
agencies. Such supplies are to be entered in its
books and shown in its balance sheet.

The value assigned to these free supplies should

be the selling price prevailing in India. If supplies
are no value to the hospitals agencies, their value
should be considered nil and not entered into the
accounts.
Dangerous Drug Register

Name of the Institution

Dangerous Drug Page No.

Register

Name of Drug Strength Type Unit

Date Unit Units Balance Signature of the

Received Issued Pharmacist
This record of narcotics must be kept by every
ward, e.g. the OPD, operating and delivery rooms
and returned to the pharmacy at regular intervals
for checking.

A perpetual inventory must be maintained also for

receipt and issues from the store room for rectified
and methylated spirits. The inventory will be
checked annually by the local (state) excise and
taxation officer before another permit is granted.

All the above records must be kept on file for a

minimum of 5 years and is subject to government
inspection at any time.
Procedures and Rules for Materials Management
Procurement of materials is governed by certain
procedures and rules prescribed by the government for
materials management. These rules cover such activities.

 Estimation and budgeting for materials,

 Indent for materials,
 Placing indent with government stores as or local
firms. (RC),
 Receiving and verification of materials (quantity,
quality, breakage, damage, expiry date, spoiled, etc.)
 Transportation of materials,
 Taking into stock and storage of materials
 Issuing materials.
The method of storage of materials –

All the poisonous drugs should be kept

separately in compartments under the
custody of medical officer or supervisor
concerned.
 All the general drugs, instrumental
equipments, kept separately in the
compartment under the custody of store
keeper/pharmacist.
 All the insecticide and disinfectants kept
stored in refrigerator with proper
temperatures.
 All linen should be stored in compartment
under the custody of store keeper.
STOCK VERIFICATION
 Definition: it is the process of counting
,measuring or weighing the entire range of
items in the store and recording the result in
systemic manner.
 PURPOSE OF STOCK VERIFICATION:
 To identify areas which requires more
discipline document control.
 To check up balance sheet stock figure and
to minimize pilferage.
TYPES OF STOCK VERIFICAION
 Periodic verification : under this system
the entire cross section is verified at the end
of one period. which is usually accounting
period.
 Continuous verification: under this system
verification is done through out the year as
per predetermined plan of action .
 A---items may verified thrice a year.
 B ---items may verified twice a year.
 C ---items may verified once a year.
DIRECTORATE GENERAL OF SUPPLIES
AND DISPOSALS(DGSD)
 DGSD plays important role in purchase which involves
heavy costs.
 Three types of services offered by DGSD.

1.Fixed quantity contract:

in this type the firms are
called upon to offer definite number of quantity of stores
by specified date.
2.Running contract: these are contracts for the supplies of
approximate quantity of stores at specified price during
certain period of time.
3.Rate contracts:
under this contracts the firms are
asked to supply stores at specific rate during the period
covered by the contract.
VALUE ANALYSIS
 DEFINITION :
 The process of analysis of the intrinsic value
of material for achieving the objectives of the organisation
is called value analysis.
 This is the vital function of a materials manager .the
following the points to be considered to carry out the
value analysis.
 Can the material be dispensed with
 Can it be simplified
 Will standard material do
 Is its value proportionate to its cost
 Is any thing cheaper but equally good available in the
market.
 Would not it better to manufacture it.
NURSES’ ROLE IN MATERIAL MANAGEMENT:
•Ensuring regular & adequate flow of supply of necessary
equipment, supplies, drugs and solutions.
•Monitoring and sustaining the quality and safety of the
materials used including drugs and solutions. Issuing of items
on basis of ‘First in First out’ and regular checking of expiry
dates of drugs contribute towards safety.
•Indenting , receiving ,storing ,checking and timely replenishing
of all necessary equipment, supplies ,drugs and solutions.
•Maintaining of emergency and buffer stocks.
•Arranging for preventive maintenance wherever necessary.
•Maintaining inventory and stock of all items and supplies.
•Arranging and assisting in audit of materials.
•Arranging for condemnation of articles in
accordance with the laid down policies of the
organization and maintaining of a dead stock
register.
•Participation in policy making for material
management.
•Participation in tender /procurement sub-
committies.
•Orienting Nursing personnel on material
management policies from time to time.
•Evaluating the efficacy of the material management
system followed in particular Nursing unit.
Principles of Administration applicable in Material
Management are:
•Discipline – Involves observance of norms, rules
regulations and established procedures.
•Unity of command – Refers to having one superior
to give commands.
•Unity of Direction.. Refers to having a single
superior in control and for giving directions.
•Orders- concerned with systematic and orderly
arrangement of materials, supplies and equipment
according to requirements of specific
departments.
Nurses involved in material management are
required to abide by these principles.
BIBLIOGRAPHY:
•B. T. Basawathappa, Nursing Administration, 4 TH Edition, Jaypee Publishers,
Pg.
•Jean Barrett, Ward Management & Teaching, Delhi, Konark Publisher Pvt ltd, 1995
Pg
•H. A.Goddard, Principles of Administration, Applied to Nirsing Service, WHO, 1958,
Pg
•S.L. Goel Hospital Administration and Management I,1ST Edition, Pg 230-246.
6) Kulkarni G R. Managerial accounting for hospitals. Mumbai: Ridhiraj enterprise;
2003.
7) Ghei P N. Selected reading in hospital administration. New Delhi: Indian hospital
association. 1990.
8) Pai P. Effective hospital management.( 2 nd edn).  Mumbai: the national book
depot; 2003
•Kumar R& Goel SL. Hospital administration and management. Vol 1 ( first edn).New
Delhi: Deep & deep publications;
• Gupta S& Kanth S. Hospital stores management, an integrated approach.( First
edn). New Delhi: Jaypee brothers; 2004.
• Basavanthappa B T. Nursing administration. ( Ist edn). Newdelhi: Jaypee brothers
medical publishers (p) ltd; 2000
• Internet /Nursing%20Management%20%20ABC,%20VED,%20HML%20analysis.htm
 
THANK
YOU