INVENTORY INVENTORY CONTROL , ABC – VED CONTROL , ABC – VED

ANALYSIS & EOQANALYSIS & EOQ

Neeraj LalVice President

Shalby Hospitals

Terms Terms Clearness:Clearness:

INVENTORY:INVENTORY: is itemized list of is itemized list of goods with their estimated worth, goods with their estimated worth, specifically annual account of stock specifically annual account of stock taken in any business.taken in any business.

CONTROL:CONTROL: An act of exercise, An act of exercise, directing, guiding or retaining power directing, guiding or retaining power over.over.

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

smooth functioning of the hospital.smooth functioning of the hospital. Importance & Need:Importance & Need:✔ To facilitate uninterrupted supplyTo facilitate uninterrupted supply✔ To guard against the risk of To guard against the risk of

unpredictable changes in demandsunpredictable changes in demands✔ To take advantage of price fluctuationsTo take advantage of price fluctuations✔ To exercise effective control over a) To exercise effective control over a)

procurement b) holding c) distributionprocurement b) holding c) distribution✔ Effective inventory management seeks Effective inventory management seeks

to determine optimal level of stores to determine optimal level of stores items.items.

A-B-C ClassificationA-B-C Classification(Always Better (Always Better

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

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

Limitations of A-B-C Limitations of A-B-C Analysis:Analysis:

a)a)The A-B-C Analysis, in order to be fully The A-B-C Analysis, in order to be fully effective, should be carried out with effective, should be carried out with standardisation and codification.standardisation and codification.

b)b)It indicates nothing regarding profitability It indicates nothing regarding profitability or criticality.or criticality.

c)c)The A-B-C analysis should be reviewed The A-B-C analysis should be reviewed periodically so that changes in prices and periodically so that changes in prices and consumption are taken into account.consumption are taken into account.

VED Analysis: VED Analysis: (Vital, (Vital, Essentials & Desirable)Essentials & Desirable)

➔VitalVital:: Items without which treatment Items without which treatment comes to standstill – i.e. non availability comes to standstill – i.e. non availability

cant be tolerated.cant be tolerated.➔EssentialsEssentials:: Items whose non availability Items whose non availability

can be tolerated for 2-3 days, as similar can be tolerated for 2-3 days, as similar or alternative items are available.or alternative items are available.

➔Desirable:Desirable: Items whose non availability Items whose non availability can be tolerated for a longer period.can be tolerated for a longer period.

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

Economic Order Economic Order Quantity: (EOQ)Quantity: (EOQ)

According to EOQ approach optimum According to EOQ approach optimum level of investment in inventory is one level of investment in inventory is one where total cost of ordering cost and where total cost of ordering cost and investment carrying cost will be investment carrying cost will be minimum.minimum.EOQ = 2 AO EOQ = 2 AO

PI PI

A = Annual requirements in unitsA = Annual requirements in units

O = Ordering CostO = Ordering Cost

P = Price per unit P = Price per unit

I = Inventory carrying costI = Inventory carrying cost

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

Thank YouThank You