INVENTORY

CONTROL
Reena Vincent
Professor
JMCON
CENTRAL OBJECTIVE

 At the end of teaching students

acquire depth knowledge on
inventory control and able to
explain and apply this knowledge in
the nursing service and education .
SPECIFIC OBJECTIVES

At the end of the class student

will be able to
Define inventory, inventory control
• List the objectives of inventory control
• Identify the importance of inventory control
• Explain maintaining inventory control and
inventory standards
• Describe the various techniques of inventory
control.
• Describe the inventory accounting system
 INTRODUCTION

 The inventory is a stock to ensure

uninterrupted suppliers and to have
future economic value .
 It provides a cushion between the
estimated and actual demand for
materials.
 Inventory is anything that is bought
and held prior to use
 Inventory means all the materials,
parts, supplies, expenses and in
processes or finished products recorded
on registers books by an organization
and kept in its stocks for some period of
time.
 INVENTORY CONTROL

 Inventory control is the process

by which inventory is measured and
regulated according to predetermined
norms such as economic lot size for
order, safety stock, and minimum level,
Maximum level, order level etc.
OBJECTIVES OF
INVENTORY CONTROL
 To supply the materials in time .

 To give maximum clients service by meeting

their requirement timely, effectively,

efficiently, smoothly and satisfactorily.

 To reduce or minimize investment in

inventories .
CONTD....
 To minimize idle time by avoiding stock
out and storages .
 To avoid shortage of stock .
 To minimize the losses due to
deterioration, obsolescence and damage
of stock.
 To meet unforeseen future demand .
 To average out demand fluctuations .
 To balance various inventory costs such
as carrying cost, order costs etc.
 IMPORTANCE OF INVENTORY CONTROL

 It provides and maintains good

customer’s service.
 Enables smooth flow of materials
through production process.
 Provides protection against the
uncertainty of demand and supply.
 Ensures a reasonable utilization of
equipment and effort .
 Possibility of discount, if purchased in
bulk.
 To provide gap between forecasted and
actual demand for a material.
 To have optimum level of inventory; not
too large, not small.
 To eliminate duplication in ordering
 To take care of fluctuations in demand and
lead time and price in bulk buying
 To minimizes the transportation cost,
inventory costs and waiting time .

 It monitors the loss of material and utilization

of stocks available .

 To facilitate the cost accounting activities and

disposes inactive and obsolete store items .

MAINTAINING INVENTORY
CONTROL
MAJOR ACTIVITIES OF INVENTORY CONTROL
ARE
 Planning
 Procurement
 Receiving and inspection
 Storing and issuing the inventories
 recording the receipt and issuing of
inventories
 Physical verification
 Follow up functions
 Material standardization and substitution of
materials and also the activities of inventory
control.
STANDARDS IN INVENTORY
CONTROL/INVENTORY STOCK LEVELS
There are four important
standards(levels are fixed ) in
inventory control.
 The minimum level
 The maximum level
 Reorder level
 Reserve stock
 1 MINIMUM LEVEL

 Is the level below which the available

supplies should never drop.

Minimum level is determined by the

rate at which an item is used, its
importance and its normal procurement
time .
CONT...
 Minimum level is the minimum
stock to be maintained for smooth
production.
 Never set as zero .
 Minimum level =reorder level –average
usage per period x average time to
obtain delivery
2 MAXIMUM ORDER LEVEL
 Is when the system is working
properly.

 It is the level of stock beyond which

the stock is not maintained .

CONTD…
 If the inventory is maintained beyond
this point, there would be loss to the
hospital by way of expiry of life items
beyond the shelf life of items, loss
incurred on the capital locked up in the
inventory, unnecessary use of items just
to exhaust the inventory.
 Maximum level = reordering level –
expected minimum consumption in
units during the least time to obtain
delivery +reorder quantity.
3 AVERAGE STOCK
LEVELS
 The average stock levels is half of the
maximum and minimum stock level.
 Maximum level+ Minimum level
 2
 4. RESERVE STOCK

 Excess usage requirement during

normal lead time
 5 RE-ORDER LEVEL:

 it is the stock level at which an

order should be placed
 Reorder level = maximum reorder
period x maximum usage

Average stock level =

 maximumlevel+minimum level

2
 Inventory control techniques
TechniqueINVENTORY CONTROL
BasisTECHNIQUES,ITS BASIS
Main uses
AND USES

ABC Analysis value of To control

(Always better consumption inventories
control )

VED Analysis criticality of items To determine the

stocking levels
(Vital,Essential,Des
irable )

consumption To control
FSN Analysis pattern of items obsolescence
(fast, slow moving
and non-moving )

SDE Analysis problem faced in Lead time analysis

(Scarce,difficult,ea procurement and purchasing
sy ) strategies
Technique Basis Main uses
HML Analysis unit price of To control
(High,Medium,Low) material purchasing

XYN value of items in To review the

storage inventory and
their uses at
scheduled
intervals

GOLF sources of material procurement from

different sources

SOS Nature of supplies procurement

/holding strategies
for seasonal
items .
ABC ANALYSIS(PARETO ANALYSIS)

DEFINITION
 It is the analysis of stores items on cost
criteria.
 It is a very common tool.
A items- Represents high cost centre

B items- intermediate cost centre

C items- low cost centre.

It is the process of classifying items by

using values as measure.

ABC Class A Class B Class C
CLASSIFICATI
ON LEVELS
Items

Number of 10 20 70
items as a % of
total number

Annual usage 70 20 10
value as a % on
total usage
value
 Class A: High value items, consume

major portion of the funds.

 Small in number, managed by top
management.
A items must have

1. Rigorous value analysis .

2. Rigid estimates of requirement .

3. Strict and close watch.

4. Require low safety stocks

5. Centralized purchasing and storage.

Class B items -Medium value items
1. Moderate controls

[Link] based on rigid requirement

[Link] strict watch and control

4. Management be done at middle level

Class C:
 Low values items, but are required in
large quantities and consists of various
types and varieties like clips, washers.
C items

1. Ordinarily control measures .

2. Purchased based on usage estimates .

3. Controls exercises by store keeper.

4. Management be done at lower levels.

[Link] (delegated) purchasing.

PRINCIPLES OF ABC ANALYSIS

1. The analysis is depends on its annual

consumption values rather than unit
cost.

2. The limits for ABC categorization are

not uniform but depend on the size of
organization, its inventory as well as
number of items controlled.
CONTD…
3 The analysis does not depend on the
importance of items rather based on
material credibility and available status of
material, material physical characteristics
and frequency of material usage.

4 4 It also depends on degree and

characteristics of control to be exercised
by the management
METHOD OF ABC
ANALYSIS
1. Gather all the inventory data and make a list
of the store items with the unit price/ item
and yearly consumption.
2. Calculate annual usage
3. Arrange items in the descending order
according to the total value of consumption
(annually )per piece in rupees .
4. Assign item numbers against their annual
usage
5. Find out cumulative annual usage /
consumption cost and in percentage
6. Classify items according to their percentage
consumption value(price ).
ADVANTAGES OF ABC ANALYSIS

 Investment in inventory can be maintained.

 Easy to control the wastage of costly items.
 Helps in maintaining the safety to the cost.
 Easy to maintain stock and turnover rate.
 Helps to exercise selective control when
confronted with large number of items.
 Rationalize the number of orders,
number of items and thus reduces the
inventory.
 Shows visible results in a short span of
time.
 The manager is able to control the
inventories specially controlling the A it
helps to pin point the obsolete stocks.
 DISADVANTAGES
 Proper standardization and codification
of inventory items is required.
 Consider only the money value not the
importance of items for functioning.
 It is challenging to have periodic
reviews on ABC analysis .
APPLICABILITY

 It has universal application for fields

requiring selective control.
 It can be used in any setting to control
the cost.
 it extends almost all aspects of material
Management such as purchasing
receiving and inspection
 VED ANALYSIS

 Based on the criticability of the items .

 In VED Method (vital, essential and
desirable) , each stock item is classified
on either vital, essential or desirable
based on how critical the item is for
providing health services.
Vital
 Items without which treatment comes to
standstill: i.e. non- availability cannot be
tolerated.
 The vital items are stocked in
abundance, [Link] supply.
Essential
 Items without which an institution
cannot function but may affect the
quality of services. E.g. Antibiotics, I.V
Fluids.
 Desirable:
 Items whose non availability can be
tolerated for a long period.
 Which will not interfere the with
functioning because they can be easily
purchased as a and when required.
 on an average vital items are 10%,
essential items are 40% and desirable
items make 50% of total items available.
ADVANTAGES OF VED ANALYSIS

 It is useful for monitoring and control of

stores and spares inventory.
 Determine the criticality of items and its
effect on production and other services.
 It is useful in controlling and maintaining
the stock of various types.
 It classifies spare parts or objects based
on the necessity of things.
MATRIX OF ABC/ VED ANALYSIS

 Combination of these two categories like

a matrix combining ABC and VED
categories.
 These items can be controlled by the
top-level management.
 The CD category items are not very
costly and at same time of desirable
category.

 These items can be controlled at the

lower level.
MATRIX OF ABC/ VED
ANALYSIS

This matrix is more relevant in the

hospitals
Category 1 Category 11 Category
111
V E D

A AV AE AD

B BV BE BD

C CV CE CD
CONTROL OF VED ITEMS

a. Category I items: these items are

the most important ones and require
control by the administrator himself.
b. Category II items: these items are
of intermediate importance and should
be under control of the officer in
charge of the stores.
c. Category III items: these items are
of least importance which can be left
under the control of the store keeper.
 ADVANTAGES

 it aids in management in materializing

the policy and service standard.
 To control the stock levels by visualizing
the inventory carrying cost.
 FSN ANALYSIS

• Meaning is fast moving, slow moving and

non- moving classification is based on
consumption pattern of the items or
design of issue of items from stores.
METHOD DATE

 The items are usually grouped in periods

of 12 months .
 Non moving items must be periodically
reviewed to prevent expiry
 ANALYSIS

 For analysis the issuing of items in past two or

three years are considered.
 If there is no issuing of items during that
period it is labelled N item.
 10-15 issues in that period the item is S item.
 The item exceeding such limits of numbers of
issues during that period is F item.
 The demand for fast moving (F) items
are high, thus special care should be
taken in respect of these items
otherwise the work may suffer due to
shortage of items .
 All obsolete inventories
contribute to non moving (N) items.
 ADVANTAGES

 Helps to avoid investment in non

moving or slow items .
 Facilitates timely control.
 Useful in controlling obsolescence.
SDE (SACRCE, DIFFICULT, EASY TO
OBTAIN )ANALYSIS

MEANING
 s’ stands for scarce items those which are difficult
to obtain and generally require imported, short
supply managed by top level management .
 A big stock is maintained for such items .
 D’ stands for difficult items to procure .

items which have to come from distant places.

 A safety stock is maintained for these types of
items.
 E’ stands for easy items which are easy
to acquire and which are readily
available in the local market.
 A minimum safety stock is maintained
 CRITERIA.

SDE Analysis is generally done on the

basis of problems faced in the
procurement of an item and based on
the availability of items.
Advantages
 Vital to the lead time analysis.
 Useful in the context of scarcity of
supply.
 To determine the method of buying and
to fix up the responsibilities of buyers.
HML (HIGH,MEDIUM,LOW )ANALYSIS

Criteria
 The basic criterion of HML classification
is the unit value of the item classified
into high value materials, medium value
materials and low value materials.
Analysis
 List out all, the items in descending
order of unit value and the management
may fix the limits of determining three
categories.
Advantages
 Used to keep control over consumption
at departmental level.
 For deciding the frequency of physical
verification.
XYZ ANALYSIS

Criteria
 XYZ classification is based on the value
of the inventory stored.
 The X items are those inventory values
are high, while Z Items are those whose
inventory values are low.
 Y items are those which have moderate
inventory stocks.
 Usually XYZ analysis is made in
conjunction with ABC Or HML analysis.
ADVANTAGES
 Identify those few items which account
for large amount of money locked up in
the Stock.
 Helps to take steps for reduction.
GOLF ANALYSIS

 GOLF stands for government .ordinary,

Foreign.
Criteria
 GOLF analysis is carried out on the basis
of source of material.
Method
 A special procedure is followed for
procuring imported items. The ordinary
procedure may not work in respect of
these items.
 SOS ANALYSIS

 S’ stands for seasonal and OS ;sands for off

seasonal items
 The analysis identifies items into

seasonal, but available only for a limited

period seasonal ,but available throughout the
year
 Off seasonal items whose quantity is
determined on different consideration.
 INVENTORY CONTROL SYSTEM
 The inventory management is a
process of managing the flow of
materials efficiently, utilizing work
force and equipment effectively
coordinating internal activities .
FACTORS IN INVENTORY CONTROL DECISION MAKING PROCESS

There are three main factors in

inventory control decision making
process
 Ordering cost

 The cost of holding the stock

 The cost of placing an order
 The cost of shortage i.e. what is lost if
the stock is insufficient to meet the
demand
1 ORDERING COSTS: This is the cost of

ordering the item and securing its supply.

It includes the expenses with raising

requisition, placing an order, follow up,
transportation, receipt and inspection,
acceptance and placing in stores.
2 INVENTORY CARRYING
COSTS/HOLDING COSTS:
This is the cost of holding an item in the
store till it is issued out or sold.
Following are the elements included-
 Interest on capital cost incurred.
 Cost of obsolescence, wastages,
damages.
 Rent, insurance, and taxes .
CONTD…
 Maintenance costs of inventory like
special treatment, stock taking etc.
 Operating costs of store like direct
labour and overheads like electricity,
dust proofing etc.
3 SHORTAGE COSTS/OUT
OF STOCK:
 it is loss which occurs or which may
occur due to non availability of
materials.
 It includes break down or delay carrying
out the work, back ordering, loss of
goodwill, etc..
 4 OTHER COSTS
 Includes overtime payments, layoffs and
idle time ,set up cost and overstocking
costs.
TOTAL INVENTORY COST

 A total inventory cost consists of

carrying costs and ordering costs.
INVENTORY ACCOUNTING/RECORDING SYSTEM

 Organization may use either the perpetual

system or the periodic system to record the
transaction involving inventory or account for
inventory.
[Link] INVENTORY SYSTEMS

MEANING
 Perpetual inventory system implies
continuous.

 Perpetual inventory system may be

defined as a method of recording stores
balances after every receipt and issue to
facilitate regular checking and to obviate
down for Stock taking.
PERPETUAL STOCK TAKING

 Good method of inventory control

 It can use manual sorting (card system)
or modern electronic equipment .
Benefits of Perpetual stock inventory
records
 Laborious methods of conventional
stock taking can be eliminated.
 Annual stock taking is not required.
 Errors ,omissions, or discrepancies can
easily and quickly detected prevented
and rectified.
 Store keeper can be well informed on all
items in stock at all times .
 Internal audit becomes easy, ensures
better and effective control
 Dishonesty, disloyalty and pilfering can
be minimized.
 Can easily located outdated stock from
fresh stock.
FEATURES

 This system updates inventory accounts

after each purchase.
 Inventory subsidiary ledger is updated
each transaction .
 Inventory quantities are updated
continuously.
[Link] INVENTORY SYSTEM

 Periodic means at certain points in time

 A periodic inventory systems implies when the
quantity of inventory on hand is determined
on periodically such as once a month,
quarterly or at the beginning and end of each
year and does not have an accurate record of
the inventories in between these points.
 This system does not keep continuous,
moment-to-moment records of inventories.
 FEATURES

 Inventory subsidiary ledger is not

updated after each purchase of
inventory.
 Inventory quantities are not updated
continuously rather updated on a
periodic.
 REFERENCES
1 M. Suneetha .Management of nursing services and education .Ist ed. Frontline
publishers,2015 .
2 .Deepak [Link] [Link].A comprehensive text book on nursing
management Bangalore .Emmess medical publishers.2013.
4. Vati J. Principles and practice of nursing management and administration .Ist
ed ,Jaypee publishers . New Delhi 2019.
5. Venkataraman .[Link] Trends In Management Of Nursing Service And
Education. The health science publisher .New Delhi,I ed.2017