Inventory Control Management

INVENTORY CONTROL MANAGEMENT

Introduction

• Inventory control is the systematic regulation, supervision, and management of the procurement, storage, distribution, and utilization of materials and supplies to ensure availability in the right quantity, at the right time, with minimum cost and wastage.
• In hospitals, inventory control ensures uninterrupted patient care by maintaining essential drugs, consumables, surgical items, linen, and equipment without excess or shortage.

Types of Inventory

1. Based on Nature:
• Raw Materials – supplies required for operations (e.g., drugs, reagents, disposables).
• Work-in-Progress (WIP) – partly processed material (lab samples, sterilized packs pending use).
• Finished Goods – completed products ready for use (sterile packs, compounded drugs).
• Consumables – items used regularly (cotton, syringes, gloves).
• Spare Parts – for equipment maintenance.
2. Based on Movement (ABC analysis):
• A-items (Vital, high value, strict control).
• B-items (Moderate value, moderate control).
• C-items (Low value, simple control).
3. Based on Criticality (VED analysis):
• Vital – essential for patient survival (life-saving drugs).
• Essential – necessary but non-critical (analgesics, gloves).
• Desirable – luxury items or rarely used.
4. Based on Usage Value (FSN analysis):
• Fast-moving – frequently used.
• Slow-moving – occasional use.
• Non-moving – obsolete or expired.
5. Other Classifications:
• HML – High, Medium, Low cost.
• SDE – Scarce, Difficult, Easy to obtain.
• XYZ – Based on stock value.

Objectives of Inventory Control

• Ensure uninterrupted supply of essential materials.
• Minimize stock-outs and shortages.
• Prevent overstocking and wastage.
• Achieve cost-effectiveness in procurement and storage.
• Improve utilization of working capital.
• Maintain optimum stock levels (neither too high nor too low).
• Ensure timely availability of critical items.
• Provide data for forecasting, planning, and budgeting.
• Reduce obsolescence, theft, and pilferage.
• Enhance quality patient care through availability of resources.

Principles of Inventory Control

1. Right Quality – materials should conform to required standards.
2. Right Quantity – optimum stock levels to prevent excess or shortage.
3. Right Time – availability as per demand.
4. Right Source – reliable and cost-effective suppliers.
5. Right Price – economical procurement without compromising quality.
6. Right Place – proper storage conditions and accessibility.
7. Right Accountability – accurate record-keeping and stock verification.
8. Scientific Techniques – use of EOQ, ABC, VED, and computerized systems.

Key Terms

• Lead Time: Time gap between placing an order and receiving the material.
• EOQ (Economic Order Quantity): The optimal order quantity that minimizes total inventory costs (ordering + carrying costs).
• Buffer Stock (Safety Stock): Extra stock kept to meet unexpected demand or supply delays.
• Reorder Level: Stock level at which a new order must be placed to avoid stock-out.
• Formula: Reorder Level = Lead Time × Average Daily Usage
• Optimum Safety Stock: Minimum extra quantity to avoid emergency shortages while minimizing carrying cost.

Tools & Techniques of Inventory Control

1. ABC Analysis – based on cost significance.
2. VED Analysis – based on criticality.
3. FSN Analysis – based on movement/usage rate.
4. HML Analysis – based on unit price.
5. SDE Analysis – based on availability.
6. XYZ Analysis – based on stock value.
7. ABC-VED Matrix – combines cost and criticality for prioritization.
8. Just-in-Time (JIT) – items delivered exactly when needed (reduces storage but risky in hospitals).
9. Two-Bin System – stock divided into two bins; when first bin is exhausted, reorder is placed while the second bin provides buffer.
10. Perpetual Inventory System – continuous stock tracking using records and computers.
11. Cycle Counting – regular stock checks for accuracy.

Inventory Costs

1. Ordering Costs: Cost incurred per order (administration, communication, tendering).
2. Carrying/Holding Costs: Costs of storing inventory (space, refrigeration, insurance, deterioration, pilferage).
3. Shortage/Stock-out Costs: Loss due to unavailability (delayed treatment, substitution costs, patient dissatisfaction).
4. Purchase/Procurement Costs: Cost of acquiring inventory (supplier cost, transportation).

Ordering System

• Fixed Order Quantity System: A fixed quantity is ordered whenever stock reaches the reorder level (e.g., EOQ model).
• Fixed Order Period System: Orders placed at fixed intervals (weekly, monthly), quantity varies as per need.
• Two-Bin System: One bin for active use, second as reserve. When first bin is empty, reorder is triggered.
• Min-Max System: Stock maintained between minimum and maximum levels; orders placed when stock falls to minimum level.
• Just-in-Time (JIT): No excess storage; procurement aligned with immediate need.

Video Description

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