INTRODUCTION

Inventory control: inventory control mean stocking adequate number and kind
of stores so that the materials are available whenever required and wherever
required. This has to be done at an optimum outlay of financial and human
resources. High inventory level leads to high cost of inventories by:

a. Locking the finance

b. Large storage space

c. Large handling and administration charges

d. Obsolescence

e. Spoilage etc.

On the contrary, low inventories may lead to frequent stock outs, and high
shortage cost. Balancing the cost of carrying high inventories and the cost of
shortages is done through a system of scientific inventory control.

RATE OF CONSUMTION

Close study of each item from the point to view of movement of store or
consumption rate is a strong tool for proper inventory control.

The items can be classified into:

1. Fast moving

2. Slow moving

3. Non-moving

4. Obsolete

An understanding of the movement of items helps to keep proper levels of

inventors by deciding a rational policy or reordering.
VED ANALYSIS

The stores when subjected to analysis based on their critically can be classified
into

a. Vital

b. Essential and

c. Desirable stores

This analysis is termed as VED Analysis.

Use of ABC and VED analysis

V E D

A Av Ae Ad Cat I

B Bv Be Bd Cat II

C Cv Ce Cd Cat III

Fig: finding of ABC and VED analysis

It will be seen from the figure, that findings of ABC and VED analysis can
be coupled and further grouping can be done to evolve a priority system of
management of stores.

Cat I Cat II Cat III

V E D

A Av Ae Ad

B Bv Be Bd
 C Cv Ce Cd

MANAGEMENT OF STORES

The grouping will essentially depend upon the strategy of management and
the environment of functioning. These simple techniques can be very effective in
material management system.

STORAGE CONDITIONS

Drugs like Sera, Vaccines and regular products need to be stored at

temperature range of 2 to 10 degree Celsius. A large variety of drugs, etc need to
be stored at temperature of 15-20 degree Celsius.

Cool and cold room conditions should, therefore, be made available in all
medical store and strict monitoring of temperature done by the store keeper and the
supervisors.

INVENTORY CONTROL METHODS

1. Intuitive method: this is the “want book method” that is most effective
method. Here the 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 store keeper or worker in the field.

2. Perpetual inventory method: this is one of the best accurate and effective
methods of inventory are, of course an ideal situation if the record keeping
can be kept up to date. In a ward situation, the nurse in charge of dispensing
tats the end of each day. Summarizes all drugs issued to patients and make
the proper posting in the perpetual inventory file. The file consists 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. This after doing a cost analysis,
stock items are separated into three classes with the following
characteristics:

CLASS NUMBER OF ITEMS RUPEE VALUE IN ITEMS

A 10% of total items 70%

B 20% of total items 20%

C 70% of total items 10%

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.

4. VED method (vita, essential, desirable): in this method each stock item is
classified on 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 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 people.

5. Two bin method: this 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 is exhausted and order for replenishment
 is immediately placed. In the mean time, stock in the second bin is used to
satisfy demand until the replenishment stock arrives. Part of the new supply
when it arrives, is used to fill 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.

Inventory control procedures provide continuous means of verifying and

accounting for materials and supplies which are purchased and issued. The object
of inventory control is to adhere maximum efficiency in production and sales with
the least investment in inventory. Inventory is usually comprised of stocks of
stores, components, work in progress and finished products.

However, the word “inventory” is meant for medicines purchased and held in
stock, medical equipments etc and consumables, medicine etc in hospitals and
voluntary agencies respectively.

The techniques commonly applied for inventory control are:

a. ABC analysis

b. Setting of various levels

c. Use of perpetual inventory records and continuous stock verification

d. Economic order in quantity.

e. Review of slow-moving and non moving items and

f. Use of control rations like

1. Material consumer/average inventory

2. Slow moving stores / total inventory

3. Total inventory cost of production

 4. Cost of sales/average finished goods inventory

RELATIONSHIP BETWEEN ASSETS AND EXPENSES

Before considering specific details of accounting for supplies carried on

inventory it will be helpful to review the relationship between assets and expenses,
which is clearly shown in the case of supplies carried in stock.

Materials and supplies continue to have a market value until actually

consumed in the daily operations of the hospital or an agency and if not used could
be sold and turned into money again.

Therefore, materials and supplies are assets until they are consumed in
operations, at which time they become expenses, materials and supplies are
consumed in relatively short periods of time, whereas buildings and equipments
are consumed in relatively long periods of time and their consumption is recorded
in the form of depreciation expenses. In short, assets can be called “unconsumed
expenses”. In order to accurately record as expenses only those materials and
supplies actually consumed in the financial year, it is necessary to assess the
quality and value of unconsumed supplies and materials at the end of the year. This
task is obviously known as “taking the inventory” and shall be done by a
responsible person other than a storekeeper.

ACCOUNTING FOR INVENTORY

Inventory is being treated ax unconsumed expenses and hence is shown in

the asset side of the balance sheet under the head of “current aspects”. The method
of valuation of inventory and various methods of pricing are dealt.

However, if the value of inventories has not been shown previously in the
hospital accounts or in accounts of an agency they may be entered firstly in the
“general journal” by using the second rule (related to real accounts) and after
posting from “journal” to the concerned “ledger” It shall be entered in the balance
sheet of the hospital/agency at the year end.

1. One must notice that the process of increasing the inventory or stock by
entering assets which were previously omitted mugs be done either b
 decreasing other assets like cash in hand or bank balance or by increasing
the liabilities of the hospital pregnancy so as to maintain the “double entry
principle”.

2. When the value of supplies in hand at the end of the financial year is
negligible book keeping can be minimized during the year by regularly
debiting various department supplies and expense accounts for all purchases
made. At the end of the year, after taking the inventory, the appropriate
expense and inventory accounting will require adjustment.

3. This procedure of counting and adjusting the inventory and supplies

accounts only once a year for inventory on hand is simple and involves little
clerical work. However it gives an inaccurate picture of inventory value and
departmental expenses during the year.

PERPETUAL INVENTORY (OR) AUTOMATIC INVENTORY SYSTEM

The control of materials while in storage is affected through what is known

as the “perpetual inventory” inventory means, here a list of goods in hand and
the the, “perpetual inventory” derives its name from its function of indicating at
all times the balance of each item of stores in hand.

Thus, the two main functions of the perpetual inventory system are:

1. Recording stores receipts and issues so as to determine at any time the stock
in hand, in quantity or value or both without the need for physical count of
stock.

2. Continuous verification of the physical stock with reference or the balance

recorded in the records at any frequency, as convenient for the management.
 Perpetual inventory system is comprised of:

1. Bin cards (quantitiave perpetual inventory)

2. Stores ledger (quantitative cum valued perpetual inventory)

3. Continuous stock taking (physical perpetual inventory)

Bin card: a bin card is a quantitative record of receipts issues and closing
balance of items of stores. Separate bin cards are maintained for each item of
medicine or any other material and are placed in shelves or bins or are suitably
lung up as convenient, alongside materials or medicine. If it is not possible all bin
cards may be maintained in a single place by using any of the “filing techniques”
(especially “suspended filing or circular filing is preferable in this regard).

On receipt of a consignment of materials/medicines, suitable entry of the

quantity is made in the receipts column of the bin card from goods received note.

Similarly issues of materials/medicines to various departments of the

hospital/agency and sale of medicines/materials are recorded in the “issue”
column. Remaining balance on the date is entered in the “balance” column. All
these entries are to be supported by receipt or issue documents of the materials or
medicines as the case may be.

Stores ledger: Like bin cards, the stores ledger is maintained to record all
receipt and issue transaction is respect of materials with the difference that along
with the quantities, the values (sometimes also the rate per unit quantity) are
entered in the receipt, issue and balance columns.

Unlike bin cards, here, issue or sale of medicines materials are priced by using
any of the methods shown in the section pricing of inventory” later (however, in
case of sale of medicines, materials/medicines are priced ont eh basis of actual
price of the material/medicine).

After posting in the bin cards, the receipt andissue documents are valued and
then passed on to the stores ledger clerk ofr entry in the ledger. Thus, there may be

a. Arithmetical errors
 b. Posting errors in the form of commission, omission or duplication errors.

Both stores ledger and bin cards are to be compared frequently and “reconciled”
after locating the causes of difference.

“CONTINOUS PHYSICAL STOCK VERIFICATION”

The perpetual inventory system is not complete about a systematic procedure

for physical verification of stores. The bin cards and stores ledger record the
balance but their correctives can be verified by means of physical verification only.

The above books indicate what the balances “should be” or should have been
whereas a physical check would reveal what the balances “actually are”.

The continuous physical stock verification must be neatly undertaken without

disturbing regular functions of stores. There methods of recording the results the
sheet is then sent to the stores ledger clerk who enters the balance on recorded in
the stores ledger.

PERIODIC STOCK VERIFICATION

Besides the method of continuous stock verifications as described above,

there is another system known as the “periodic stock verification” under this
system, the entire stock is verified all at a time, all periodic intervals, usually once
in a year.

It is advantageous to have the verification at the close of the annual

accounting period so as to facilitate valuation of stores for exhibition in the final
accounts.

An alternative practice is to arrange the verification in such a manner that

the stock taking usually coincides with a period of slack business activity but this
practice cannot be adapted in hospitals where there is no clear cut demarcation
between busy season and lean season.

Stock may also be verified at intervals and than a year if so desired but such
a curse is expensive.

MANAITNAING BALANCE BETWEEN COSTS AND RISKS

There are two types of costs namely ordering costs and carrying costs:

Ordering costs: if inventory of small quantities of supplies are purchased

frequently the “ordering costs” will be quite high. Ordering costs include
secretarial tome book keeping, telephone, postage, transportation and the process
of placing orders.

Carrying costs: on the other hand if one orders very large quantities, one
incurs “carrying costs”. These costs are time value of money tied up in inventory,
spoilage and storage cost.

An optimum quantity to be ordered will be at which quantity ordering cost

equals “carrying costs”.

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

 1. 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.

2. Economy on purchase of larger costs: This will depend on the cash

position and availability of storage space of the hospital/agency.

VALUATION OF INVENTORY

1. 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 shield on hand
is the money that has been paid for that amount of stock at latest price levels
and hence can straight away be used in balance sheet, truly reflecting the
value.

Limitations: the limitations of FIFO process are that the process becomes
unwieldy when too many changes in price levels are encountered and the
fact that this method does not provide a satisfactory answer to costing
returns from stores.

The FIFO method has the effect of maximizing the book profits
during periods of rising prices and minimizing the book profits during the
periods of falling prices. Hence under “inflationary” conditions FIFO is not
suitable.
2. Last in first out method (LIFO): The newest items in stock are assumed to
be issued before the order and priced accordingly. Strictly followed, this
method too can have the same difficulties as FIFO.

Advantages: unlike “FIFO” under “LIFO” issues reflect “current prices”

under inflationary conditions.

Limitations: this method will show higher profits under “dictionary”

conditions (when prices fall) and hence is into suitable for “deflationary”
conditions.

3. Average unit price method: In this method the issue price (and the price of
the inventory) is set by averaging in the quantities and the prices of each
new purchase f 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 system.

4. Fixed last price method: Any method which involves a lot of careful and
frequent mathematic, though more precise, may not be of sufficient
advantage to the management of or small organization to warrant the effort.
 Interestingly, the above said method (simplest) is available. In this
method issues and the inventory at stock taking time are priced at the price
of the last receipt of the item.

Advantage: no cumbersome calculations involved. Supplies expense

reflects charge in market prices immediately and inventory valuation is
conservative as it reflects current market prices.

DONATED SUPPLIES

Hospitals/agencies often receive gifts (i.e., donations 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 of no value to the hospitals agencies their value
should be considered nil and not entered into the accounts.

NARCOTICS

Under the Dangerous Drugs Act 1950, the Government of India is

empowered to make rules permitting and regulating import, export, transport,
possession and sale of “manufactured drugs” defined under the act and it is
imperative for every hospital to be conversant with rules and regulations governing
the handling of dangerous drugs in its own state.
 An adequate perpetual inventory (just like Group “A” items under ABC
Analysis). Must be maintained by the pharmacy department for the receipt and
issued each narcotic. This is accomplished by maintain a “Narcotic stock register)
which will have a separate sheet in the register for each item.

DANGEROUS DRUG REGISTER

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

A perpetual inventory must be maintained also for receipts and issues from
the also for rectified and methylated spirits. This 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

RECORD OF NARCOTICS

Name of the institution

Dat
e:

Drug Batch no:

Date Time Patient name Room no I.P. no. Dose Ordered by Given by

MATERIAL MANAGEMENT
 1. Planning

2. Procurement

3. Storage

4. Issue

5. Utilization

The main purpose of material management includes

1. Reduction of cost

2. Avoidance of wastage

3. Shortages

4. Ensuing adequate quality and quantity of material without any delay in

procurement.

The categories of materials used in PHC levels are as follows:

1. Drugs: which includes substances used in prevention and treatment of

illness, they are in the form of tablets, capsules, solutions, ointments, injects
etc.

2. Medical supplies: This includes items used along with drugs to provide
curative and preventive services eg: bandages, cotton wool, needles,
syringes, suture materials etc.

3. Non medical supplies: include such items use by health personnel like fuel,
linen, clothing’s, supplies, stationary supplies etc.
 4. Equipment include movable items used by personnel which last for many
years like desks, tables, beds, cot mattress, refrigerator, vehicles.

5. Facilities include non-movable items used by personnel for many years like
buildings, latrines, wells, fencing etc.

Primarily the medical officers are concerned with the inventory control and
regular replenishment materials already stated above. But actual material
management falls on the shoulders of nurse managers. Hence, the nurse also
should know the policies and procedures for materials management.

PROCEDURES AND RULES FOR MATERIAL MANAGEMENT

Procurement of materials is governed by certain procedures and rules

prescribed by the government of materials management. These rules cover such
activities:

1. Estimation and budgeting for materials

2. Indent for materials.

3. Placing indent with government stores as or local firms (RC)

4. Receiving and verification of materials (quantity, quality breakage, damage,

expiry date, spoiled etc)

5. Transportation of materials.

6. Taking into stock and storage of materials.

7. Issuing materials.

THE METHODS OF STORAGE OF MATERIALS

 1. All the poisonous drugs should be kept separately in compartments under
the custody of medical offices or supervisor concerned.

2. All the general drugs, instrumental equipments, kept separately in the

compartment under the custody of sore keeper/pharmacist.

3. All the insecticide and disinfectants kept separately under the custody of
pharmacist.

4. All vaccines should be kept stored in refrigerate with proper temperatures.

5. All linen should be stored in compartment under the custody of store keeper.

And insist a physical verification to be done at the end of every calendar

year/financial year. If any articles are found unserviceable, a list has to be
prepared, and the articles condemned by the competent authority.

The Health Assistant (M) in collaboration with the health Assistant (F) is
required to check at regular intervals at sub-centers, the availability of requisite
medicine and replenishment of items and preventive maintenance.

IMPORTANCE OF MATERIAL MANAGEMENT IN NURSING

For any nursing technique or procedure from very simple to complex and
invasive nursing procedures, materials are required, be it administration of an oral
medication an intra muscular injection or performance of a dressing, materials are
essential.

No nursing procedure can be undertaken without appropriate and adequate

materials. Whether these are performed in institutional or community settings.

NURSES ROLE IN MATERIAL MANAGEMENT

A word is often referred to as a nursing unity. This implies that a ward is actually under the
control of the nurse in charge for its maintenance activities. Material management consequently
is an onus that lies on the nurse in charge as well on all members of the nursing team.

1. Ensuring regular and adequate flow of supply of necessary equipment, supplies, drugs
and solutions.

2. Monitoring and sustaining the quality and safety of the materials used including drugs
and solutions issuing of items ofnt he basis of “first in Fjirst out” and regular checking of
expiry dates of drugs contribute towards safety.

3. Indenting, receiving, storing, checking and timely replenishing of all necessary

equipment, supplies, drugs and solution.

4. Maintaining of emergency and buffer stocks.

5. Arranging for preventive maintenance where ever necessary.

6. Maintaining inventory and stock of all items and supplies.

7. Arranging for condemnation of articles in accordance with the laid down policies of the
organization and maintaining of a dead stock register.

8. Arranging and assisting in audit of materials.

9. Participation in policy making for material management.

10. Participation in tender/procurement sub-committees.

11. Orienting nursing personnel on material management policies from time to time
12. Evaluating the efficacy of the material management system followed in particular nursing
unit.