INVENTORY CONTROL , ABC VED ANALYSIS & EOQ

Neeraj Lal Vice President Shalby Hospitals

Terms Clearness:
INVENTORY: is itemized list of

goods with their estimated worth, specifically annual account of stock taken in any business. CONTROL: An act of exercise, directing, guiding or retaining power over.

INVETORY:refers to the physical stocks of items which are kept idle in the store, but are essential for
smooth functioning of the hospital.

Importance & Need:

To facilitate uninterrupted supply To guard against the risk of unpredictable changes in demands To take advantage of price fluctuations To exercise effective control over a) procurement b) holding c) distribution Effective inventory management seeks to determine optimal level of stores items.

A-B-C Classification (Always Better Control)

About 10% of the items take away the budget allocation to the extent of 70% of the total allocation. These are grouped as A category items. About 20% of items consume 20% of the budget. These are grouped as B category items. About 70% of the inventory which will amount to only 10% of the total expenditure. These items are grouped as C category items.

Points to Note
Where items can be substituted for each

other, they should be preferably treated as a single item.] While classifying the items as A, B,and C, what should be considered is the total consumption value. All items that the company consumes must be considered in totally for classification. The period of consumption need not necessary be one year, it can be six months, four months, or even a month.

Limitations of A-B-C Analysis:

a)The A-B-C Analysis, in order to be fully

effective, should be carried out with standardisation and codification. b)It indicates nothing regarding profitability or criticality. c)The A-B-C analysis should be reviewed periodically so that changes in prices and consumption are taken into account.

VED Analysis: (Vital, Essentials & Desirable)

comes to standstill i.e. non availability cant be tolerated. Essentials: Items whose non availability can be tolerated for 2-3 days, as similar or alternative items are available. Desirable: Items whose non availability can be tolerated for a longer period.
Vital: Items without which treatment

Importance:
As V-E-D analysis is based on the

criticality of the item, at times it can be used in the case of some materials which are difficult to obtain. It gives some indication about the items that should be disposed off so as to trim the inventories. This analysis is very relevant for drugs, instruments and equipments needed in operation theatre and critical care units.

Economic Order Quantity: (EOQ)

According

to EOQ approach optimum level of investment in inventory is one where total cost of ordering cost and investment carrying cost will be minimum. EOQ = 2 AO PI A = Annual requirements in units O = Ordering Cost P = Price per unit I = Inventory carrying cost

Cont.....

Ordering

Cost: The cost to get the items on inventory is ordering cost. This includes cost of staff, communications, stationary and travel. Inventory carrying cost: This includes cost of staff, space, storage facilities, security, insurance and wastage.

Thank You