Lesson 6: Material Management

second largest expense. (second only to labor costs)

SUPPLIES

A systematic process of ______ and ______ the acquisition and utilization of _______ to ensure both _______ and __________.

1. overseeing

2. controlling

3. supplies

4. availability

5. cost-effectiveness

Consists of purchasing or requisitioning of supplies

MATERIAL MANAGEMENT

MATERIAL MANAGEMENT is handled by?

Centralized material management department

Centralized material management department is also known as?

CENTRAL SUPPLY

CENTRAL SUPPLY has 2 sections:

1. Purchasing Section

2. Stockroom

ordering of supplies and processing of invoice

Purchasing Section

Maintains security and inventory levels

Stockroom

Issues supply throughout the facility

Stockroom

handled by specific individual sections or supervisors.

Ordering and inventory control

the responsibility to handle the systematic requisitioning of supplies.

Assigned individual

supplies must meet the standards in terms quality, quantity, and timeliness.

GOALS OF MATERIAL MANAGEMENT

Supplies are products that meet specific ______ and ______ criteria

time & price

Things that are not considered supplies are:

CAPITAL ITEMS/FIXED ASSETS

Long duration (goods & services)

CAPITAL ITEMS

Short duration (current assets & expenses)

ACCOUNTING ITEMS

consumed within 1 year or have a shelf life of less than 1 year

SUPPLIES

Items below a certain price level, shelf life exceeds 1 year

CAPITAL ITEMS

documents are developed to expedite the ____________

SUPPLY ORDERING PROCESS

2 KINDS of SUPPLY ORDERING PROCESS that provides an "overview of the ordering process":

1. PURCAHSE ORDER

2. TRAVELLING REQUISITION

order supplies from outside vendors

PURCHASE ORDER

request supplies from the central stockroom

TRAVELLING REQUISITION

commitment by the organization to purchase a product or service.

PURCHASE ORDER

authorization for the vendor to ship and bill the institution.

PURCHASE ORDER

Tightly controlled

PURCHASE ORDER

interim document that begins the ordering process

REQUEST FOR PURCHASE

supplier then ships the item requested and bills the institution.

PURCHASE ORDER

Form is completed by the requesting unit and sent to the purchasing department

REQUEST FOR PURCHASE

purchasing department issues the purchase order and "charges" it to the ________ account of the requesting area.

bookkeeping

PO must be completed and must be detailed, including:

▪ Catalog number

▪ Name of supplier

▪ Description of the product

catalog of products held in stock

TRAVELLING REQUISITION

"travels" from the stockroom to each

department and back

TRAVELLING REQUISITION

TRAVELLING REQUISITION is updated every ______

Month

TRAVELLING REQUISITION: orders are ______ and _______ to the department at the same time

tabulated & charged

Includes articles used by many departments and purchased in "bulk"

TRAVELLING REQUISITION

helps to keep track of these items and to allocate

charges for accounting purposes.

TRAVELLING REQUISITION

describes the product and the unit of container

TRAVELLING REQUISITION

Ordered in advance

STANDING ORDERS

Products that have a predictable usage level or short shelf-lives

STANDING ORDERS

issued to reserve a single lot number of reagents or supplies

STANDING ORDERS

issued to the vendor with instructions to ship a specific amount of product according to an established schedule.

STANDING ORDERS

ensure that the best product is obtained

PRODUCT STANDARDIZATION COMMITTEE

take advantage of volume discounts for generic items

PRODUCT STANDARDIZATION COMMITTEE

resolve differences between preferences

PRODUCT STANDARDIZATION COMMITTEE

(4) INVENTORY MANAGEMENT is the Continual process of:

1. checking stock levels

2. rotating stocks to ensure freshness

3. ordering supplies in sufficient quantities

4. minimizing the cost of carrying inventory

(3) INVENTORY LEVEL CHECKS:

1. PERPETUAL SYSTEMS

2. PERIODIC SYSTEMS

3. RANDOM CHECKS

Auditor verifies inventory levels

RANDOM CHECKS

An inventory level most preferred

PERIODIC SYSTEMS

Checked according to an established "timetable"

PERIODIC SYSTEMS

The most IDEAL inventory level

PERPETUAL SYSTEMS

Why is PERPETUAL SYSTEM ideal, but not being used?

Many challenges are involved (eg. staff availability)

Continuously double checks each time a product is used/removed

PERPETUAL SYSTEMS

PERPETUAL SYSTEMS: how is double checking done?

via SHIFTING or DAY-TO-DAY update

2 STOCK REPLENISHMENT TECHNIQUES:

1. MINIMUM-MAXIMUM

2. JUST-IN-TIME

delivers on time (Japanese model)

JUST-IN-TIME

When & How much to reorder; maintain a MAX supply

MINIMUM-MAXIMUM

management science called "operations research"

FINANCIAL CONTROL OF INVENTORY

3 formulas:

1. The Economic Ordering Quantity (EOQ)

2. The Economic Ordering Point (EOP)

3. The Optimal Reorder Time (ROT)

EOQ

The Economic Ordering Quantity

Answers how much to order at one time?

The Economic Ordering Quantity (EOQ)

referred to as Reorder Point (ROP)

The Economic Ordering Point (EOP)

Provides base or safety level for reordering inventory

The Economic Ordering Point (EOP)

Best time to order to take advantage of EOQ and EOP

The Optimal Reorder Time (ROT)

INVENTORY MANAGEMENT METHODS:

(ANNUAL USAGE)

based on the workload of the

laboratory

INVENTORY MANAGEMENT METHODS:

(AVERAGE DAILY USAGE)

SO/365

INVENTORY MANAGEMENT METHODS:

(COST OF ORDERING)

PS/PO

INVENTORY MANAGEMENT METHODS:

(COST PER UNIT)

PP/CS

straightforward calculation with the best price available

COST PER UNIT

involves decisions based on "bulk orders", space utilization, and whether it is better to have the product

on hand or in the supplier's warehouse

ANNUAL HOLDING COST (crucial!)

between placing an order and its arrival

LEAD TIME

influences MINIMUM inventory that must be kept in

_______, as well as the QUANTITY that needs to be ________

Stock; Requested

Formula of EOQ

square root (2 * AU * CO / AHC per unit)

Formula of EOP "annual usage"

(AU/365) (LT in days)

Formula of EOP "average daily usage"

(ADU * LT) + SL

Formula for ROT

(EOQ/AU) (365)

percentage-of-revenue method, with an adjustment factor for anticipated inflation

PROJECTION OF BUDGET SUPPLY COSTS

2 methods for PROJECTION OF BUDGET SUPPLY COSTS:

1. YEAR-TO-DATE

2. COST-PER-TEST