) What is an inventory control?

Discuss various
techniques of inventory control. Give examples of any five
items in a 500 bedded hospital.

Definition :- Inventory control is a supervision of the supply

and storage and accessibility of items in order to insure an
adequate supply without excessive oversupply
It can also be referred as internal control - an accounting
procedure or system designed to promote efficiency or assure the
implementation of a policy or safeguard assets or avoid fraud and
error etc
Techniques :-

There are several techniques a person can use to increase

profitability and streamline workflow via proper inventory control.
Through research, competitive analysis and experience, an
effective business leader can balance costs versus benefits to
storing and ordering the necessary supplies to ensure business
vitality. The supply chain is made of all materials that help you to
produce, market and supply your product. Inventory control
means that you have identified every facet of your supply chain
and its logistics.

FIFO
1. If you deal in perishable items, FIFO (first in, first out) is an
important concept to understand and maintain throughout the
supply chain. If a grocery store did not rotate their stock, new
stock coming in would get taken immediately and older stock
would expire, causing great loss. Stock must be arranged by
date received.
Cutting Edge Control
2. For a great deal of stock that needs constant management,
consider bar codes or RFID (radio frequency identification)
where hand-held readers can immediately tell you where
valuable merchandise is. Many IT inventory programs on the
market provide a wealth of features including tie-ins to USPS,
 Fed-Ex and/or UPS to track merchandise and provide real-time
logistics.
Costs versus Convenience
3. A Business owner must balance space available for extra stock
versus speed of product turnover, fees for storage, cost in bulk
versus regular ordering, and whether clients/end users would
be willing to wait.
Stock Levels
4. Defining your minimum stock level will allow you to set up
regular inspections and re-ordering of supplies. Take into
account emergencies and vendors taking longer than average
to replenish stock. This will aid you in arriving at JIT (just in
time) ordering, where stock is held for a minimum amount of
time before moving on to the next stage in the supply chain.
Security
5. Stock security is a necessary cost. Many experts recommend
separating staff that is responsible for stock management from
staff that has financial responsibility. Many times, shoplifting
and thievery is committed by employees rather than a
stranger. Security guards, cameras, bar codes and security
devices are used by most businesses since the cost of security
is minimal compared to the millions of dollars that U.S.
businesses lose each year to stolen goods. Training staff in
identifying potential security issues and having a clear method
of reporting violations is important in reducing crime. Often,
shoplifters and thieves use standard techniques to distract
employees and take stock.
Stock on Hand
6. Having a great deal of stock on hand has both positive and
negative consequences. Having an immediate supply means
that end users get their product that much sooner. Speed and
immediate gratification for a client can make the difference not
only in a sale, but recommendations, repeat business and
client loyalty. In the modern business environment where every
business is a global business, an emergency or unforeseen
circumstance anywhere in the world can render competition
without resources you have on hand. Of course, one must take
 into account using capital in bulk buys, management and
insurance costs as well as goods perishing or becoming
obsolete

The aim of inventory control in hospital is to:-

a. Maintain availability of item anywhere anytime in the
hospital at optimum cost
b. Optimize cost by analyzing holding cost, ordering cost and
stock out cost to have minimum cost of inventory.
c. Minimize dead stock and obsolesce.
The whole principle is availability of items keeping cost to
minimum; hence type of inventory cost is to be understood by all
students.
Process for keeping track of objects or materials. In common
usage, the term may also refer to just the software components.
Modern inventory control systems rely upon barcodes, and
potentially RFID tags, to provide automatic identification of
inventory objects. In an academic study[1] performed at Wal-Mart,
RFID reduced Out of Stocks by 30 percent for products selling
between 0.1 and 15 units a day. Inventory objects could include
any kind of physical asset: merchandise, consumables, fixed
assets, circulating tools, library books, or capital equipment. To
record an inventory transaction, the system uses a barcode
scanner or RFID reader to automatically identify the inventory
object, and then collects additional information from the
operators via fixed terminals (workstations), or mobile computers.

Applications of Inventory System :-

An inventory control system may be used to automate a sales
order fulfillment process. Such a system contains a list of order to
be filled, and then prompts workers to pick the necessary items,
and provides them with packaging and shipping information.
Real time inventory control systems use wireless, mobile
terminals to record inventory transactions at the moment they
occur. A wireless LAN transmits the transaction information to a
central database.
Physical inventory counting and cycle counting are features of
many inventory control systems which can enhance the
organization.

Techniques of Inventory Control in Hospital :-

The inventory control is a scientific system by which to decide as
to how much to order, when to order and how often to order
ensuring availability of vital and essential drugs all the time but
keeping cost minimum. The basic technique to calculate it are
ABC, VED and EOQ which are discussed as follows:-
1. ABC analysis
This is based on Pareto’s Law where 20% items may be
accounting for 80% of total cost annually. The analysis focuses on
cost of items and need to control these items. There are
significant few require most attention. The ABC analysis states:-
a. 10% of drugs would cost 70% of the total of drugs (Group
A)
b. 20% of drugs would cost 20% of total drug cost (Group
B)
c. 70% of drugs would cost 10% of total cost ( Group
C)
The figure shows percentage of inventory items and
percentage of average inventory usage value. The demand
multiplied by unit price giving inventory worth of annual
consumption. It can be seen from the figure 10% items are
consuming 70% of annual usage value which are ‘A’ class
items(significant few) another 20% of items account for 20%
annual usage value and another 70% items account for 10%
expenditure on material consumption which constitute
“insignificant money” are called “C” items.

To prepare ABC analysis we may follow following steps:-

 a. Calculate annual usage value of each drugs.( Annual
usages value = Annual demand X unit cost)
b. Keep in order according to annual usage value. That
means most expensive items to be kept at top and
cheapest at bottom
c. A cut off point where there is perceptible sudden change
of cost which can also be found out by a graph and it
would approximately be at 10% items,20% items are
where change can be observed, however there may be
variation of up to 5%.
Let us imagine medical store of a small hospital has 100 items on
its inventory and the total annual expenditure is Rs. 10, 00,000.
The items can be arranged in the descending value of their
annual cost in the following manner:-

Sr.No. Name of the Annual Cumulati Cumulati Categor

Items Consumpti ve Total ve y
on in Rs. in Rs. Percenta
ge
1. Inj. Ampicillin 91000 91000 9.1
2. Inj. 89000 180000 18
Ciprofloxacin
3. Inj. Dextrose 83000 263000 26.3
5% 540 ml
4. Inj. Normal 81000 344000 34.4
saline 540 ml
5. Inj. 71000 415000 41.5
Cefatoxim 1
gm
6 Inj. 65000 480000 48
Streptokinas
e
 7 Tab 63000 543000 54.3
Ciproflaxacin
8 Inj. 63000 543000 54.3
Haemaccel
9 Fluothane 51000 653000 65.3
10 Inj. 47000 700000 70 A(70%)
Dexamethas
one 2 ml
11 -------- ---------- --------- -------
12 -------- ---------- --------- -------
30 Inj. ---------- 900000 90 B( 20%
Urograffin )
100 Acriflavine 300 1000000 100 C( 10%
)
The idea of doing ABC analysis is to keep strict financial control
and it implies that ‘A’ items have to be under strict control of
higher management since it consume 70% of consumption cost
its safety stocks to be low and need high turn over and frequent
procurement and requirement of these items need to audited.
‘B’ items fall in between A and C items and need moderate
control by middle management since consumption cost is 20%
‘C” items are consuming 10% of cost hence need control by lower
management, can have high safety stock and procurement could
be less frequent.

Statement showing one month analysis of items for a 500

bedded hospital
Qty Tota
Item UOM Sol l Net Total
Code Item Name Issue d Sale Amt Cost Profit Profit(%
SD00130 Face Mask- Numbe 821 8210 8210 1403.6 6806.3 83
4 Sterile [1x50] r 5 5
DM0031 Numbe 3848 3848
29 Adrenor Inj. r 296 0 0 7696 30784 80
Three
SD00076 Way[Polymed Numbe 3486 3486 4166.3 30693.
6 ] r 581 0 0 5 65 88
SD00059 Intracath No- Numbe
1 22 [Poly] r 10 750 750 77 673 90
DM0073 Numbe
61 Pentowok Inj r 114 7125 7125 1926.6 5198.4 73