SELECTIVE INVENTORY CONTROL AND ITS APPLICATION IN APOLLO HOSPITAL

OPERATIONS

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WHAT IS INVENTORY?

Inventory refers to stock of raw materials , work in progress and finished goodsCan be stored for future use.Inventory possess value.Objective of inventory is to ensure continuous supply of goods at reasonable cost.

NEEDS OF INVENTORY

To make bulk purchase and get advantage of

discount

To maintain customer service level

To maintain continuous flow of supply through

supply chain

To achieve economy of scale in transportation

WHAT IS INVENTORY CONTROL

Its planning, ordering and scheduling of

raw materials

Right quality of raw materials available

at right time

Systematic control over purchasing,

storing and using of material.

FUNCTIONS OF INVENTORY CONTROL Effective use of financial resources Protection against all material

losses Proper calculation of cost of

production Keep the ball of production

bouncing Economies in purchasing Eliminates redundant inventory Keeping prompt delivery to the

customers

SCOPE OF INVENTORY CONTROL

Formulation of relevant policies Determining economic order quantity Determining lead time Minimization of material-handling and

storage cost Ascertaining Safety Stock 

MAIN TECHNIQUES IN SELECTIVE INVENTORY CONTROL

ABC Analysis

GOLF Analysis

SOS Analysis

HML Analysis

SDE Analysis

FSND Analysis

CLASSIFICATION OF INVENTORYClassification Full form Criterion employed

ABC Analysis Always Better Control Usage Value (i.e. Consumption per period x price per unit)

GOLF Analysis Govt, ordinary, local, foreign

Source procurement

SOS Analysis Seasonal off seasonal Seasonality

HML Analysis High Medium Low Unit Price i.e. does not take consumption into account

FSND Analysis Fast, slow, non-monetary, material demands

Issues from store

SDE Analysis Scarce, difficult, easy Procurement difficulties

HML ANALYSIS

The cost per item (per piece) is considered for this analysis. High cost items (H),

Medium Cost items (M) and Low Cost item (L) help in bringing controls over

consumption at the departmental level. Uses and application •To assess storage & Security Requirements

•High priced items in cupboards e.g. bearings, worm wheels

•To keep control over consumption at the departmental head level

•Authority to indents of High & Medium priced items to departmental head after careful scrutiny

•To determine the frequency of stock verification

•checking frequency: more for high priced items and less for L category

•To evolve buying policies to control purchases

•Excess supply: Not accepted in case of H & M category, Acceptable in case of L category

•To delegate authorities to different buyers to make petty cash purchase

•H & M by senior & L by junior buyers

FSN ANALYSIS :

This analysis is to help control obsolescence and is based on

the consumption pattern of the items.

The items are analyzed to be classified as Fast-moving (F),

Slow-moving (s)and Non-moving (N) items. The Non-moving

items (usually not consumed over a period of two years) are of

great importance. Scrutiny of non-moving items is to be made

to determine whether they could be used or be disposed off.

The fast and slow-moving classifications help in arrangement

of stock in stores and their distribution and handling methods.

SDE ANALYSIS : This analysis is based on spares availability of an item –

S - refers to Scarce Items, especially imported and those

which are very much in short supply.

D - are Difficult items which are procurable in market but not

easily available. For example, items which have to come

from far off cities or where there is not much competition in

market or where good quality supplies are difficult to get or

to be procured.

E - refers to Easy items – Items are those which are easily

available; mostly local items.

It is normally advantageous to consider A, V & S items for

selective control

SOS ANALYSIS

SOS analysis is based on seasonality of items and it classifies all

the items into two categories ‘Seasonal ‘And ‘Off seasonal ‘

The analysis helps in:

Identifying items that are available only during a limited period of

the year .For e.g. Raw mangoes are only available only during a

summers

Identifying items that are seasonal but available throughout the

year however their costs in offseason are relatively high.

SOS analysis can be selected when we want to determine the

seasonality of items and the right season for procuring them.

ABC ANALYSIS

Classifying inventory according to

annual value of consumption of the

items

A - very important

B - mod. important

C - least important

Annual $ value of items

A

B

C

High

Low

Few ManyNumber of Items

CONT..

When a large number of items are

involved, relatively few items account for

a major part of activity, based on annual

value of consumption of items.

It is based on the principles of ‘vital few

and trivial many’.

A-items : 15% of the items are of the highest

value and their inventory accounts for 70% of the

total.

B-items : 20% of the items are of the

intermediate value and their inventory accounts

for 20% of the total.

C-items : 65%(remaining) of the items are

lowest value and their inventory accounts for the

relatively small balance, i.e.10%.

POLICIES FOR A

Develop class “A” suppliers more

Purchasing dpt makes maximum efforts

to expeditade and delivery of these items

The stock is maintained say in at least

once in 15 days

Policies for B

Order quantities, re-order stocks and

safety stocks should be fixed and revised

for B items say once in 4-6 months

Should be ordered less frequently in

comparison to A items

Policies For C

Large quantities can be bought as the cost

involved will be least

Paper work is reduced if the stock is maintained

and ordered once or twice in a year

The source of their supply can be based on their

reliability

ADVANTAGES

Control

Cost

Improved service

warehousing

Allows a company to control over- supply and under- supply of important SKUs

Once the company has decided which items fall into ABC category it can establish cost reduction initiatives at SKUs level.

•Improvement in customer service level and order fulfilment.•provides a company information to stock the right mix of inventory.

•extends to warehouse management as well•Companies utilizing ABC analysis in the warehouse give priority space to faster moving SKUs

OR

ADVANTAGES

Control

Cost

Improved service

warehousing

Control: Stocking a better mix of right inventory allows a company to control over- supply and under- supply of important SKUs

Cost: Once the company has decided which items fall into ABC category it can establish cost reduction initiatives at SKUs level.

CONT ...

Improved Service: Improvement in customer service level and order fulfilment.

ABC analysis provides a company information to stock the right mix of inventory.

Warehousing: ABC inventory extends to warehouse management as well

Companies utilizing ABC analysis in the warehouse give priority space to faster moving SKUs

APOLLO HOSPITALS

The basic principle of inventory control used by Apollo hospitals is ABC based on cost criteria

Based on ABC matrix, the method that they use is economic analysis of drug expenditure of prised vocabulary of medical stores (PVMS)

Out of 493 drugs in PVMS section 1, only 325 were being used in reference hospital. The total cost of drugs used was rupees 55,23,503

Out of these 325 drugs 47 (14.4%) drugs were category A consuming 70% of total expenditure

73 (22.46%) drugs were category B consuming 20% of the expenditure

Rest 205 drugs (63.7) were category C drugs consuming only 10% of the expenditure

IMPLEMENTED

Midland Bank Group British Aerospace Swiss Automobile Association London Underground Gardner Merchant Vending Services Dervo Inc- Division of Johnson and

Johnson