Material

Management
 Material Management
systemic process of overseeing
and controlling the acquisition and
utilization of supplies to ensure both
availability and cost effectiveness.
 Functions:
Purchasing or requisitioning of
supplies
Oversight of products after they
arrive
 At the hospital level these two
functions are handled by a centralized
material management department
organized into two sections:

Purchasing
Stockroom
 Purchasing section- oversees the
ordering of supplies and the
processing of invoices from vendors

Stockroom- maintains security and

inventory levels and issues supplies
throughout the facility
 Goals of Material Management
Supplies arrive in a timely manner
Spoilage is reduced to a minimum
Back orders and delays are avoided
Storage space is used to the best advantage
The most economically advantageous price is
obtained
Financial resources are not tied up in
inventory
 Supplies- products that meet specific time
and price

1. Items that are consumed within 1 year or

have a shelf life of less than 1 year are
almost always classified as supplies.
2. Items below a certain price level, as
established by the comptroller, may be
classified as supplies, even though their
shelf life exceeds 1 year.
 Supply Ordering Process
A standard operating procedure for the ordering of
laboratory supplies is essential.
This procedure applies to all faculty members and
student laboratory assistants who need to order
laboratory supplies.
Several documents have been developed to both
expedite and simplify the record-keeping process.
The two most common documents are the purchase
order and the traveling requisition
 Purchase order
- represents a commitment by the organizaton to purchase a
product or service.
- it is used to order supplies from outside vendors
Travelling requisition
- a catalog of products held in stock by material
management
- provides a means to request supplies from the central
stockroom
Standing orders
- products that have a predictable usage level or short shelf
lives
- may also be issued to reserve a single lot number of
reagents or supplies
 Purchase Order
- is a commercial document and first
official offer issued by a buyer to a seller,
indicating types, quantities and agreed
prices for products or services. It is used to
control the purchasing of products and
services from external suppliers.
a purchase order:
represents a commitment by the
organization to purchase a product or
services
serves as the authorization for the vendor
to ship and bill the institution in order the
process has to be tightly controlled
 Ordering Process
-the purchase order begins to an
interim document called Request for
Purchase it is completed by the requesting
unit (Hematology or Chemistry supervisor)
and sent to the purchasing department
which then formally issues a purchase order.
-the request for PO must be completed
in exact detail including the: catalog
number, the supplier, and a description of
the product.
 -the Purchasing Department prepares
and issue the purchase order for the item
specified and charges it to the bookkeeping
account of the requesting area.
 Travelling Requisition
- It is a catalog of products held in
stock by material management.

-This catalog describes the product

and the unit of container and provides
a place to request the quantity needed.
Articles included are:
Articles used by many departments that
are purchased in bulk
Non perishable supplies (microscope
slides and vacuum tubes)

Travelling requisition system helps to

keep track of these items and to allocate
charges for accounting purposes.
 Standing Orders
-products that have a predictable usage
of level or short shelf lives are frequently
ordered in advance via Standing Orders.
-issued to reserve a single lot number
of reagents or supplies.
-ship a specific amount of product
according to an established schedule.
Examples:
Blood bank reagent cells
Quality Control material
Phlebotomy

Offer benefits to both the laboratory and

the supplier.
Play an important role in many inventory
programs, especially the just in time
Product Standardization Committee
Ensure that the best product is obtained.
Review supplies that the hospital uses in large
volumes
Resolve differences between preferences in
areas that may share a common product.
Develop standards for selection and quality
assurance.
Uses the recommendation of the committee to
obtain bids from competing vendors for the best
product and price.
 INVENTORY MANAGEMENT
INVENTORY MANAGEMENT is a continual
process of:
-checking stock levels
-rotating stock (to ensure freshness)
-ordering supplies in sufficient quantities
-minimizing the cost of carrying inventory
Survey
-is one of the major accounting events in
a hospital to determine the value of the
inventory.

The Inventory Check is performed at least

once a year and it demonstrates the
importance placed on controlling supply
costs
 Annual inventory
-is the only one method used to manage
this asset.

Stock Replenishment Techniques

used to determine the amount of

-

inventory that should be maintained in-house

and the most economic reorder point.
 Inventory Level Checks
Perpetual Periodic Systems Random Checks
System -records inventory on
-used to
-keeps account a periodic basis document the
-merchandise
of the inventory inventory and cost of
value of supplies
each time a goods sold are not
product is used updated continuously at a specific
-updates -uses an occasional time.
physical count to
inventory measure the level
accounts after of inventory and
each purchase the cost of goods
sold (COGS).
Under periodic inventory system, all purchases during
the accounting period are recorded in the "Purchases"
account. The inventory account and the cost of goods
sold account are updated at the end of a set periodthis
could be once a month, once a quarter, or once a year.
 Stock Replenishment
Techniques
Two stock replenishment techniques

Minimum-Maximum
Just in Time
Minimum-maximum
Minimum is a point at which inventory is to
be recorded and maximum is the reorder to level
Example:
The minimum stocking level or the safety
reserve for blood bank saline may be fixed at 5
cases and the maximum stocking level at 10
When inventory is taken and 7 cases are found
on the shelf, an order for 3 units would be
placed to bring the count to the maximum point
Just-in-time
Just-in-time ordering is a Japanese
model developed by manufacturers to take
advantage of inventory management
opportunities
It is a commitment by the supplier to
guarantee delivery of an item at the exact
moment of need
It limits the financial costs associated with
stocking and storing inventory items
 Its use is appropriate in health care
settings in which the safety stock level can
be kept at a minimum, freeing up much-
needed financial resources for other
purposes
The standing-order programs frequently
used in the laboratory for obtaining short-
dated items such as reagent cells or test
kits are examples of just-in-time ordering
 Financial Control Inventory
Because supplies are the second
largest cost incurred by the laboratory, much
attention has been given to monitoring and
controlling supplies expenses.
Problems of Inventory Answers to the
Management problem
1.What is the most economic 1. The economic
quantity to order from the ordering quantity
point of view of financial,
(EOQ)
storage, and delivery issues?
2. The economic
2.How can the institution take
advantage of bulk purchase ordering point (EOP)
discount? 3. The optimal reorder
3.What is the best time to time (BOT)
place order to both limit the
amount of financial
commitment and ensure
adequate suppplies?
 Inventory Management
Methods
Annual usage
Average daily usage
Cost of ordering
Annual holding cost
Cost per unit
Lead time
Inventory Formulas and
Management Tools
Example of Inventory Management Methods
 Thus, for maximum financial benefit
and storage space utilization, order 469
packs of plates each time the inventory
drops to 211. Several commonsense
modifications should be made once this
information is available. Adjustments may be
made, based on such factors as a weekly
ordering system and bilk sizes. However, the
farther the ordering system stray from
standards, the fewer the economic benefits.
 Projection of Budget Supply
Costs

Supply costs are projected for budgeting

purposes by using the percentage-of-
revenue method, with an adjustment factor
for anticipated inflation.
 The following example illustrated the calculation
of supply costs as projected in the budget using
the percentage-of-revenue method.
Year-to-date
Current supply costs = $234,124
Current laboratory revenues = $1,533,626
Cost/revenue = 0.153
Budget projection (includes factor for expected
inflation)
Budgeted revenue = $2,127,000
Supply cost projected = $325,431 ($2,127,000 x
0.153)
 Cost-per-test information can also be useful, as
illustrated in the following example, and may be
more helpful in determining supply expenses for
smaller units of the laboratory, such as the blood
bank or Histology.
Current year cost per test = $1.56
Tests projected = 23,150
Supply cost inflation factor: 4%
Budget projection:
23,150 x $1.56 = $36, 114
$36,114 x 1.04 = $37, 559