DhawalBhatia Internship document

ST. JOSEPH’S COLLEGE OF BUSINESS ADMINISTRATION
18 Residency Road, Bangalore 560025
A Comprehensive Study on Inventory Classification
Techniques in Narayana Health City
Project Report
Submitted in partial fulfilment of the requirements
for the award of
The Post Graduate Diploma in Management
(A TWO YEAR FULL TIME PROGRAM IN MANAGEMENT)
Submitted by:
Dhawal N. Bhatia
Reg. No: 14010
PGDM 2014-16

ST. JOSEPH’S COLLEGE OF BUSINESS ADMINISTRATION
18 Residency Road, Bangalore 560025
CERTIFICATE
This is to certify that the project report entitled:
“A Comprehensive Study on Inventory Classification
Techniques in Narayana Health City.” is an authentic record
of the project work carried out by Mr. Dhawal N Bhatia (Reg
No. 14010), in partial fulfilment of the requirements for the
award of The Post Graduate Diploma in Management.
Mr. Lawrence V. J.
Faculty Member
Rev. Dr. S Peter S. J. Prof. Edwin Castelino
Director Dean

ACKNOWLEDGEMENT
I would like to thank Mr. Srinivas V Rao (General Manager for
Materials Management), for his valuable support to make the
study possible. I would also like to thank Mrs. Ancy Prince
(Senior Manager-Material Management), Mr. Manas
Bhattacharjee (Inventory head – India region, NH group of
Hospitals) for their valuable support.
I would also like to thank Mr. P. Jagat Jyothi Reddy and Mr.
Veskatesh Murthy, Mr. V Baskaran, Mr Harshavardhana Naidu,
without which this work would not have been possible.
Mr V.J.Lawrence, Faculty, St. Joseph’s College of Business
Administration for his wholehearted cooperation, constant
guidance and support during the study.
Dhawal N Bhatia

Table of contents: Page Numbers
Chapter 1: Industry and Company overview……………………… 1.1-1.11
 Global Scenario
 Indian Scenario
 Narayana Health City
Chapter 2: Introduction to Project ……………………………………2.1-2.9
 Statement to the project
 Introduction
Chapter 3: Design of Study……………………………………………3.1-3.8
 Objective of study
 Scope of study
 Methodology
 Plan of Analysis
 Tools and Techniques for data collection
 Limitations
Chapter 4: Analysis of Data…………………………………………….4.1-4.8
 Inventory Components
 Data Analysis:
1. For Cardiac unit
2. For Multispecialty unit
3. For Main Store
Chapter 5: Findings and Recommendations………………………….5.1-5.5
 General measures
 Control Measures
 Non-moving Analysis
Conclusion
Bibliography

List of all figures: Page Numbers
1. Global Healthcare Expenditure 1.4
2. Market breakup by revenues 1.5
3. Share in healthcare spent in India, 2015 1.6
4. Healthcare expenditure as percentage of GDP 1.7
5. Health expenditure per capita (US $) 1.7
6. Healthcare growth trend (USD Billion) 1.8
7. Classification of Inventory 4.2
List of tables: Page Numbers
1. Description of Classification techniques 2.7
2. Format for ABC analysis 3.4
3. Format for XYZ analysis 3.5
4. Format for HML analysis 3.5
5. MBASIC model 3.7
6. Abstract for Cardiac unit ABC analysis 4.3
7. Abstract for Cardiac unit FSN analysis 4.3
8. Abstract for Cardiac unit HML analysis 4.3
9. Abstract for Cardiac unit VED analysis 4.3
10. Abstract for Cardiac unit XYZ analysis 4.3
11. Abstract for Cardiac unit MBASIC analysis 4.4
12. Abstract for MSH unit ABC analysis 4.5
13. Abstract for MSH unit XYZ analysis 4.5
14. Abstract for MSH unit VED analysis 4.5
15. Abstract for MSH unit FSN analysis 4.5
16. Abstract for MSH unit HML analysis 4.5
17. Abstract for MSH unit MBASIC analysis 4.6
18. Abstract for Main store ABC analysis 4.7
19. Abstract for Main store XYZ analysis 4.7
20. Abstract for Main store FSN analysis 4.7
21. Abstract for Main store VED analysis 4.7
22. Abstract for Main store HML analysis 4.7
23. Abstract for Main store MBASIC analysis 4.8
24. Control measures of designed MBASIC model 5.3
25. Breakup item for cardiac unit 5.4
26. XYZ vs HML analysis for cardiac unit 5.4
27. Breakup item for MSH unit 5.4
28. XYZ vs HML Analysis for MSH unit 5.4
29. Breakup item for Main Store 5.5
30. XYZ vs HML Analysis for Main Store 5.5

Executive Summary
Executive Summary
The objective is to study the existing system of inventory management practices in the
existing structure of hospitals a case and suggest improvement in inventory to minimize
over stocking or under stocking by making use of certain inventory control tools and
techniques such as
 Selective control practices like ABC, HML, XYZ, FSN analysis.
 Application Multiple Basis Approach to Selective Inventory Control as an effective
tool for an efficient inventory management.
 Lead time analysis, Reordering procedures.
 Fixation of service levels etc.
By applying above stated inventory tools and techniques it is expected that substantial
reduction in average inventories can be achieved and there by liberate locked up money
in shape of inventory.

Chapter 1
Industry and Company overview

Industry and Company Overview
A Comprehensive Studyin Inventory Classification Techniques in Narayana Health City Page 2
GLOBALSCENARIO:
Across the globe, governments, health care delivery systems, insurers, and
consumers are engaged in a persistent tug-of-war between competing priorities i.e.
meeting the increasing demand for health care services and reducing the rising cost
of those services. Health spending is estimated to have increased by 2.8 percent to
total $7.2 trillion, or 10.6 percent of global gross domestic product (GDP). Health
spending is expected to accelerate, rising an average of 5.2 percent a year in 2014-
2018, to $9.3 trillion. This increase will be driven by the health needs of aging and
growing populations, the rising prevalence of chronic diseases, emerging-market
expansion, infrastructure improvements, and treatment and technology advances.
Yet even as demand rises, the pressure to reduce costs and demonstrate value is
intensifying.
Contradictory forces influence health care spending:
• Aging populations
• Growth of emerging markets
• Advances in treatments
• Health care cost reduction pressure
Despite an overall focus on cost containment, some markets are projected to experience
rapid spending growth as public and private health care systems develop. This
expansion in developing markets — especially in Asia and the Middle East — may bring
opportunities for international hospital chains, pharmaceutical and medical technology
companies seeking geographic and revenue growth. Globalization, however, is likely to
bring problems, too, as countries struggle to make sure they have sufficient health care
workers, facilities, and supplies to care for patients at a manageable cost. The growing
complexity of treatments, population aging, and public health outbreaks, such as the
current Ebola crisis in Africa, will add to clinical and cost pressures. As they endeavour
to balance competing priorities, health care stakeholders are also working to achieve
common goals: innovate in new and exciting ways, and generate scientific, medical, and
care delivery breakthroughs that can improve the health of people worldwide. This 2015
global health care outlook examines the current state of the sector, describes the top
issues facing stakeholders, and suggests considerations for the future.

Current and projected health care spending
Most of the world’s regions are facing a formidable challenge to manage the rapidly
increasing cost of health care.
1. Spending in North America is anticipated to grow an average of 4.9 percent annually
in 2014-2018, driven partly by the expansion of insurance coverage under the United
States’ implementation of the 2010 Patient Protection and Affordable Care Act (ACA).
2. U.S. health care spending, already the highest in the world, is likely to reach 17.9
percent of GDP by 2018.
3. Canada is expected to see slightly slower growth — 4.5 percent annually in local-
currency terms in 2014-2018, reaching 11.6 percent of GDP7 — although its regional
fragmentation makes coordinated cost controls difficult.
4. Western Europe’s strengthening but uneven economic recovery should ease some of
the pressures on the region’s health care systems. However, the continued need to
reduce debt and fiscal deficits is expected to constrain public health care spending to
just 2.4 percent annually over 2014-2018. Budgets are tightest in some of those
countries most affected by the euro zone crisis — Greece, Portugal, and Spain — where
governments are pushing through reforms that will replace the current two-tier
public/private system with one universal health care fund. Northern European markets,
including the UK, Germany, and Sweden, are expected to see a more robust recovery in
health care spending by 2018.
5. Russia’s health care spending is expected to decline in 2014-2018 from an average of
7.5 percent a year to 6.4 percent, reflecting the political tensions with Ukraine and their
detrimental effect on the Russian currency and economy.
6. Across Latin America, health care spending is projected to increase an average of 4.6
percent annually over 2014-2018; several governments are trying to improve public

health care systems amid general budget constraints.
7. In Mexico, health care spending has grown steadily in recent years and is projected to
rise annually by 8.2 percent in 2014-2018, to reach seven percent of GDP, up from 6.8
percent in 2013. The Mexican government has reinforced its commitment to unify
existing public health care services into a universal social service in the next five years.
Health care spending in Brazil has increased in recent years in GDP terms, attributable
to consumers’ rising disposable incomes and higher public health care expenditures.
8. Brazil’s total 2013 health care spending is estimated at 9.1 percent of GDP, according
to the World Health Organization (WHO). While this spending rate is higher than the
Latin American average, it is expected to remain constant to 2018.
9. In Asia and Australasia, the rollout of public health care programs combined with
growing consumer wealth are anticipated to boost health care spending an average of
8.1 percent in 2014–2018. The strongest growth, at 15.2 percent a year, will be in India,
with China following at 12.5 percent a year.
The following graph shows the Global healthcare expenditure for dominant nations
across the world.
3.9
4.1
2.1
6.5
9.4
10
10.9
17.7
0 5 10 15 20
India
Thailand
China
Global (median)
UK
Japan
Canada
USA
Fig1: Global Healthcare Expenditure
Percentage

INDIAN SCENARIO:
Healthcare market in India is valued at USD 1.3 billion at the end of 2014. It is expected
to be of USD 280 billion, market value by the end of 2020. Rising incomes, greater
health awareness and lifestyle disease with increasing access to insurance will
contribute to growth of sector. Investment in healthcare infrastructure is set to rise. India
has become largest exporter of formulations with 14 percent market share and 12th
in
the world in terms of export value. Availability of large pool of well trained professionals
in the country. India has an advantage over its peers in the West and Asia in terms of
cost of high-quality medical services offered. India is well supported by the government
and is set to be as global healthcare hub. Creation of new drug testing laboratories and
further strengthening of the 31 existing state laboratories will help in achieving the above
title. Apollo Hospitals (AHEL), Fortis Hospitals Ltd (FHSL) are a few major players in the
Indian healthcare industry.
I believe the aggressive, debt-funded expansion plans of these entities; delays in
receiving payments and tough competition from national-level players are the main
deterrents for the industry. Of the total healthcare revenues in the country, Hospitals
account for 71 percent, Pharmaceuticals for 13 percent and medical equipment and
supplies for 9 percent of revenues. FDI Policy is very liberal for hospitals. FDI is
permitted up to 100 percent under the automatic route for the hospitals sector in India.
This has driven the growth of the healthcare sector in last decade.
71%
13%
9%
4%3%
Fig2: Market breakup by revenues
Hospital
Pharmaceutical
Medical Equipment & Supplies
Medical Insurance
Diagnostics

Private sector has a strong influence in INDIAN sector. It has emerged as a vibrant force
in India’s healthcare industry, lending it both national and international repute. Large
investments by private players are likely to contribute significantly to the development of
India’s hospital industry, which comprises around 80 percent of the total market. Private
Healthcare in India accounts for around 72 percent of the country’s total healthcare
expenditure. Private sector’s share in hospitals and hospitals beds is estimated to be 74
percentages and 40 percentages respectively. The main factor contributing to rising
medical tourism in India is presence of a well-educated, English-speaking medical staffs
in a state of art private hospitals and diagnostics facilities.
The public sector accounts for only around 30 per cent of the total healthcare
expenditure in India; this is amongst the lowest in the world. By contrast, the world
median for government expenditure on healthcare, as a percentage of total expenditure,
stands at 61.6 per cent as per the WHO's 2014 report. The private sector in India
comprises assorted providers such as not-for-profit and voluntary organisations,
providers with a commercial motive including corporate houses, trusts, stand-alone
specialist services, diagnostic laboratories and pharmacies.
As per the data collected by world bank, following graphs reveals that India stands in a
meaner position compared to other countries in the world. Indian healthcare expenditure
as percentage of GDP for last few years.
19%
40%
11%
30%
Fig3: Shares in healthcare spent in India, 2015
Government hospital
Top-tier
Mid-tier
Nursing homes

Health expenditure per capita (US $) in healthcare in India.
The healthcare industry is divided into following segments:
1. Hospitals: It includes private hospitals and government healthcare centres,
district hospitals and general hospitals.
2. Pharmaceutical: It includes manufacture, extraction, processing, purification and
packaging of chemical materials for use as medication for humans or animals.
3. Diagnostics: It comprises businesses and laboratories that offer analytical or
diagnostics services, including body fluid analysis.
4. Medical equipment and supplies: It includes establishments primary
3.8 3.8 3.8 4
5.2
0
1
2
3
4
5
6
1995-99 2000-04 2005-09 2010-14 2015-16P
Fig4: Healthcare expend as percentage of GDP
Percentage
54
61
58
61
88.7
0
10
20
30
40
50
60
70
80
90
100
1995-99 2000-04 2005-09 2010-14 2015-16P
Fig5: Health expenditure per capita (US $)
US $

manufacturing, medical equipment and supplies, e.g. surgical, dental,
orthopaedic, laboratory instruments etc.
5. Medical Insurance: It includes health insurance and medical reimbursement
facility, covering an individual’s hospitalisation expenses incurred due to sickness.
6. Telemedicine: Telemedicine has enormous potential in meeting the challenges of
healthcare delivery to rural and remote areas besides several other applications
in education, training and management in health sector.
Healthcare has become one of the largest sectors both in terms of revenue and
employment. The industry is growing at a tremendous pace owing to its strengthening
coverage, services and increasing expenditure by public as well as private players.
During 2008-20, the market is expected to record a CAGR of 17 percent. The total
industry size is expected to touch USD 160 billion by 2017 and USD 280 by 2020.
The major players in the Indian market are as follows:
1. Fortis Healthcare Ltd: 12,000 beds
2. Apollo Hospitals Enterprise Ltd: 8,717 beds
3. Narayana Health: 7,500 beds
4. Manipal Group of Hospitals: 4,900 beds
5. Aravind Eye Hospitals: 3,649 beds
6. Max Hospitals: 1,973 beds
7. Care hospitals: 1,912 beds
45 51.7 59.5 68.4 72.8 81.3
160
280
0
50
100
150
200
250
300
2008 2009 2010 2011 2012 2014 2017P 2020P
Fig6: Healthcare growth trend (USD Billion)
Industry Size

Narayana Health is one of India’s largest healthcare service providers. It started in 2001
with 225 beds under the supervision of Dr Devi Prasad Shetty. It is accredited by NABH.
It has 29 existing hospitals in 17 cities with 7500 beds and 15000 associates and 1500
full time doctors. It is popular as one the world’s most economical hospitals. Narayana
Health is committed to creating an affordable, global- benchmarked quality- driven
healthcare services model.
Its vision is:
“High Quality Healthcare with care and compassion at an affordable cost on a large
scale”.
Its Values are represented by “iCare”.
 Innovative & efficiency
 Compassionate care
 Accountability
 Respect for all
 Excellence as a culture
In a typical day Narayana Health is provides the following:
 558 inpatient admissions.
 150 major surgeries.
 44 cardiac surgeries.
 4200 outpatients.
 250 cardiac procedures.
 417 dialysis procedures.
 13 neuro surgeries.
 1 kidney transplant.
 13200 laboratory tests.

Fig 7: NH INDIA PRESENCE:

Narayana Health City is located in Bangalore. It has three hospitals inside it namely:
 Cardiac Unit
 Multi-speciality Unit
 Narayana Eye speciality Unit
Main Store is located in the basement of the cardiac hospital which supplies
inventory to all other hospitals in the health city. It also supplies items to various
other facilities in India. Its major use is for fetching supplies for use within the health
city. Some items are not available at all locations in India at various facility, so main
store fetches it for them.
Inside cardiac Unit, following are major consuming departments:
 AITU Store
 CathLabs
 OT store
 Ward store
Inside Multi speciality, following are major consuming departments:
 IP pharmacies
 OT stores
 Nephrology
Major revenue is generated for the health city by Cardiac and Multispecialty units.
So it is of great importance to study both the units along with the Main store.

Chapter 2
INTRODUCTION TO THE PROJECT

Introduction to Project
A Comprehensive Study in Inventory Classification Techniques in Narayana Health City Page 2
STATEMENT OF THE PROJECT
Hospitals today have to meet the needs of patients and the total focus has shifted to
patient centric services instead of only medical and surgical therapies. Pharmacy is
one of the major areas of hospital operations. The basic issue is how to manage
stocks at the required levels and monitoring at regular intervals using scientific
methods of inventory to minimize the cost without compromising quality of service.
New drugs have been entering into the market, and hospitals procure thousands of
different types of drugs. They need to develop an effective mechanism in order to
enforce control and to ensure the best results. The inpatient pharmacy under study
holds 4500 items for health city. Hence it is proposed study inventory management
practices so as to suggest stocking policies for different classes of items to enhance
profitability of the organisation and to improve upon decision making process for
procurement.

INTRODUCTION TO THE PROJECT
Hospital Logistics and supply chain are the corner stones on which continuous
quality of patient care depends. Today materials management has assumed
multifaceted roles and dimensions. In the past, health care institutions performed just
the function of receipt, storage and issues, where a today stores have
metamorphasized into key centres for cost reduction, productivity, effectivity and
efficiency in provision of health care. Supply chain Management is an important
concept; it ensures the delivery of important product in right quantity, condition at
right place at right time to ensure its best use for right customer at an affordable cost.
Supply chain Management coordinates and integrates all these activities into a
seamless process where all components of chain like vendors , carriers and third
party logistics companies are tied together to achieve the common goals. It
encompasses all elements of sourcing, indenting, procuring, production scheduling,
order processing, inventory management, transportation, warehousing and customer
service as well as the information and monitoring system. Streamlining the supply
chain is a strategic focus that will greatly aid a hospitals ability to compete in future.
The supply chain management applies analytical skills, process expertise, and
management vision to optimize the supply chain. It helps to reduce expenses by
analysing and revising processes for selecting and using supplies and drugs,
contracting, purchasing, storing, managing inventory and distributing. It identifies
waste, inefficiencies, redundancies and determines appropriate opportunities for
integration, consolidation and centralization.
In Inventory Management, materials are classified in order to exercise effective
managerial control in terms of value of consumption, criticality, cost etc. It would be
very expensive to critically analyse all the items individually and exercise control over
them. Concentrating on all items would dilute the effect of the entire control process.
Inventory Management plays a pivotal role in the effective management of supply
chain. The present study is based on pharmacy units in the hospitals and the main
store. The pharmacy units are one of the key components of hospitals as cost
centre, which transacts all categories of pharmacy items including life savings
products.

The aim of running a pharmacy is to:
1. Provide standard drugs and medicines to the patients.
2. Facilitate easy and immediate access to these drugs.
3. Maintain an optimum stock level of drugs.
The goal of any pharmacy is to ensure the community is provided with the service. It
needs at an acceptable level of quality and at an optimum cost. The hospital
pharmacy is indispensable for the treatment of patients, and efficiency in the field
would help in achieving this by determining the categories of stock required in terms
of quantity from various sources at low prices. The hospital generates major
revenues from the Inpatient pharmacy, which provides its services to the patients
admitted in the hospital. The primary data is collected for one year and the scientific
methods of inventory management are used. Various inventory techniques are used
to classify the items and the strategies in brief stating the stocking policies for each
class items, level of managerial response etc. to have an effective inventory
management.
Most purchases are one in character. The user sends requisition to the purchase.
The item is bought and delivered to the requisitioned that uses it immediately. The
entire cycle may be repeated if the user asks for same or other items subsequently.
However, if the need for the item recurs on a regular basis it is costly to treat each
purchase as if it is was being made just once. In a typical hospital about 15 percent
of all purchase orders and much higher percentage of purchase value go for items
for which there is continuous demand those are bought relatively in large quantities
and carried in inventory until there is demand for them. While it is convenient to have
material immediately available, competent materials managers prefer to buy on a
hand to mouth basis rather than continuous. The reason for this is that the item that
is not inventory won’t be lost or stolen nor will it spoil or become obsolete. In addition
inventory creates a need for junior staff and the floor space and the other costs. It
also ties up money that could be profitably employed elsewhere.

The present study is on inventory management practices in Narayana Health city.
The relevant literature pertaining to the topic and the thrust areas in inventory control
are briefly classified in this part.
Inventory: A stock of materials used to satisfy customer demand or support the
production of goods or services.
Objectives of Inventory Control:
The main objectives of inventory controls are:
 To reduce financial investment in inventories. The capita to carry investments
in inventory costs money. As an asset in the form of inventory results in
decreased liquidity.
 To provide good customer services.
 Holding inventories costs to the organisation as holding cost.
 Stock out cost is to be bear by organisation in case of non-availability of
items.
 Credit control for financing inventories.
 If inventories are left to themselves have a tendency to expand and go
beyond economic limits.
Methods of improving Inventory System:
 Reduce the lead time by selecting suppliers close to the unit, this will reduce
the safety stock, reorder point and lead time.
 Inform suppliers of expected annual demand.
 Contract with suppliers for minimum annual purchases.
 Maintain multiple suppliers to reduce the risk of stock out and best price.
 Minimize transportation cost through effective sourcing.
 Economic Order Quantity
 Control access to storage areas to protect items from theft.
 Obtain better forecast for the items consumption.
 Standardize stock Items.
 Dispose of inactive items.

Effective inventory management allows a distributor to meet or exceed customers’
expectations of product availability with the amount of each item that will maximize
the distributor’s net profits. In order to achieve effective inventory management the
inventory manager need to look into the following:
 How to meet or exceed your customer’s expectations of product availability
while maximising your company’s net profits.
 Business policies and procedures that are necessary to achieve effective
inventory management.
 Effective warehouse organization.
 Increasing the productivity of warehousing employees.
 Best-practice methods for maintaining accurate inventory balances.
 How to determine the most effective method for determining the future
demand of each product in each warehouse, including a detailed discussion
of the four elements of future demand: Past usage, Seasonal, Economic, and
fashion trends, Collaborative forecasting and other anticipated future demand
that it is not reflected in past usage or trends, Forecast horizons.
 New methods for resupplying branches or stores from distribution centres.
 The new economic order quantity.
 How to prevent new products from becoming dead inventory.
 Developing a budget for stocked inventory.
 Identification and liquidation of excess inventory.
 How to determine when to order a product and how much to order, including
advantages and disadvantages of various methods for determining:
o Minimum & Maximum quantities.
o Anticipated lead-times.
o Safety Stock
o Length of time between two orders.

Concept of Selective Inventory Control Techniques
The fundamental idea behind selective inventory control technique is to put the
efforts where results are worth it. It is well known that even through the world consist
millions of people; only a handful of personnel determine the destiny of all human
beings. Similarly, even if an organization uses millions of items only a few items are
of great importance.
The importance of materials can be due to its costs, its criticality, its availability, and
its consumption. There are number of methods available for selective control of
inventory. Each method emphasizes on a particular aspect, e.g. ABC Classification
value of consumption, VED classification emphasis on criticality of product.
According to nature of inventories carried out by an organisation, a suitable method
should be chosen. In an organisation different departments can employ multiple
methods in conjunction.
Basic Technique Main Usage Full Name
ABC
To control inventory
components and its
consumption
Always Better Control or
Pareto Law
HML To control purchase High, Medium, Low
XYZ
Inventory review
and usage
XYZ class items
FSN
To control
obsolescence
Fast, Slow, Non-moving
VED
To determine
stocking of critical
items
Vital, Essential and Desirable
Table1: Description of Classification techniques

ABC ANALYSIS
 ABC analysis is the analysis of the store items cost criteria.
 It is a simple approach, which avoids being money wise.
 The cost of each item is multiplied by the number used in a given period and
then these items are tabulated in descending numerical value order.
 It will be seen that first 10% of items approximately account for 70%, the next
20% for 20% of value and the last 70% account for 10% of value.
 It has been seen that a large number of items consume only a small
percentage of resources and vice- versa.
 A – Items represent the high cost centre, B items represent the immediate
cost centres, and C- items represent low cost centres.
 A very close control is exercised over A items while less stringent control is
adequate for those in the category B, and less attention for category C.
HML ANALYSIS
Based on cost per unit items classified into Highest, Medium and Low valued items
This is used to keep control over consumption at departmental level for deciding the
frequency of physical verification.
FSN ANALYSIS
 It is based on rate of consumption.
 The items can be classified into:
1. Fast moving
2. Slow moving
3. Non- moving
4. Obsolete
An understanding of the movement of items helps to keep proper levels of
inventories by deciding a rational policy or reordering. This method is based on the
fact that some stock items have a much higher annual usage value than others.

VED ANALYSIS
The stores when subjected to analysis based on their criticality can be classified into
vital, essential and desirable stores. This analysis is termed as VED analysis.
1. Vital: items without which treatment comes to standstill: i.e. non- availability
can not be tolerated.
2. Essential: items whose non availability can be tolerated for 2-3 days,
because similar or alternative items are available.
3. Desirable: items whose non availability can be tolerated for a long period.
Although the proportion of vital, essential and desirable items varies from
hospital to hospital depending on the type and quantity of workload, on an
average vital items are 10%, essential items are 40% and desirable items
make 50% of total items available.
The vital items are stocked in abundance; essential items are stocked in medium
amounts, and desirable items we stocked in small amounts. By stocking the items in
order of priority, vital and essential items are always in stock which means a
minimum disruption in the services offered to the people.

Design of Study
OBJECTIVE OF STUDY:
The objective is to study the existing system of inventory management practices in
the existing structure of hospitals a case and suggest improvement in inventory to
minimize over stocking or under stocking by making use of certain inventory control
tools and techniques such as
 Selective control practices like ABC, HML, XYZ, FSN analysis.
 Application Multiple Basis Approach to Selective Inventory Control as an
effective tool for an efficient inventory management.
 Lead time analysis, Reordering procedures.
 Fixation of service levels etc.
By applying above stated inventory tools and techniques it is expected that
substantial reduction in average inventories can be achieved and there by liberate
locked up money in shape of inventory.

Design of Study
SCOPE OF STUDY:
Scope of this study is as follows:
 Classify the items into various categories based on criticality,.
 Classify the items into various categories based on consumption value.
 Classify the items into various categories based on consumption rate.
 Classify the items into various categories based on unit cost
 Classify the items into various categories based on closing amount.
 Authority can dispose the dead items lying in the stock.
 Manager can prepare a schedule for minimizing risks like stock-out, etc.

Design of Study
METHODOLOGY:
Type of Study: Analytical study
To draw various conclusions for the data collected the following methodology has
been adopted:
ABC Analysis:
The methodology adopted for ABC analysis is discussed as:
 The consumption Value is calculated from the report using the formula stated.
“Consumption Value = [(Department Issue Value - Department Return Value) +
(Patient Issue Value- Patient Return Value)]”
The consumption value is then arranged at decreasing order, followed by cumulative
consumption value. The cut-off points considered for ABC Classification are-
 A-Class: 70 percent of total consumption value.
 B-Class: Next 20 percent of total consumption value.
 C-Class: Remaining 10 percent of total consumption value.
Table2: Format of ABC-Analysis
S. No. Item Name Item Code Consumption
Value
Cumulative
Consumption
Value
Unit price
XYZ Analysis:
The methodology adopted for XYZ analysis is as follows:
 The closing quantity of each item is obtained from the report.
 Stock so arrived valued for each item using unit price.
 The closing inventory value of each item is listed in decreasing order, followed
by cumulative value.
The cut-off points considered for XYZ Classification are-

Design of Study
 X-Class: 70 percent of total closing value.
 Y-Class: Next 20 percent of total closing value.
 Z-Class: Remaining 10 percent of total closing value.
Table3: Format of XYZ-Analysis
S. No. Item Name Closing qty Unit price Closing
Value
Cumulative
Closing
Value
HML Analysis:
The methodology adopted for HML analysis is discussed as:
 The unit price for each item is obtained from the OCR report.
 It is arranged in the decreasing order, followed by cumulative value to classify
them.
The cut-off points considered for HML Classification are-
 H-Class: 70 percent of total unit value.
 M-Class: Next 20 percent of total unit value.
 L-Class: Remaining 10 percent of total unit value.
Table4: Format of XYZ-Analysis
S. No. Item Name Unit price Cumulative unit Value
FSN Analysis:
The methodology adopted for FSN analysis is as detailed as follows:
 The consumption quantity is calculated using the formula:
“Consumption Quantity = [(Department Issue Quantity - Department Return
Quantity)+(Patient Issue Quantity - Patient Return Quantity)]”

Design of Study
The consumption quantity is divided by 365, to obtain the value. This value is used
for classifying items under these categories.
This value is arranged in decreasing order.
The cut-off points considered for FSN Classification are-
 F-Class: (consumption quantity/365)>=1.
 S-Class: (consumption quantity/365)<1 & (consumption quantity/365)>0.
 N-Class: (consumption quantity/365)<=0.
 D Class: (consumption quantity/365)<=0 & closing value <=0.
VED Analysis:
All departments were approached to obtain the vital items list maintained by them,
followed by their stock list to classify them as essential and desirable items.
MBASIC approach:
The methodology used for this approach is as:
 All items are classified individually into ABC, HML, FSN, XYZ and VED Class
items.
 Each item belongs to each of the class.
 Total number of combination is 5^3 = 125.
 The coding is done for each item in five letter string, each string represent the
class off each inventory control technique.
Example: AFXVH: It represents highly consumed, fast moving, high closing value,
vital item and High unit value item.

Design of Study
A B C
F S F S F S N
V E D V E D V E D V E D V E D V E D V E D
H
X
Y
Z
M
X
Y
Z
L
X
Y
Z
Table5: Mbasic model
Each box in the above table represents a unique combination of techniques.

Design of Study
PLAN OF ANALYSIS
The study is aimed at controlling pharmacy inventory and to suggest norms of
inventory to improve the performance. For the purpose of this study the following
data has been collected.
 Annual opening and closing report.
 Collection of primary data, observation, discussions with concerned people in
the concerned departments.
 For HML classification unit price of all items were collected.
 The closing stock as on 31.03.2015 was taken from the main store.
 For MBASIC model, the different combinations of selective Inventory Control
techniques have been taken into consideration.
 All departments in charges were asked questions about their stock held by
them.
 Proper cares have been taken while collecting the data to minimize the errors.
TOOLS USED For DATA COLLECTION:
 HINAI software and
 Oracle billing software
 Personal Interviews
LIMITATIONS:
There are two limitations for the study:
 Availability of limited time.
 Non-availability of certain data.
 Clarity in information flow.
 Explaining the findings to the authority.

Analysis of Data
A Comprehensive Study in Inventory Classification Techniques in Narayana Helath City Page 2
INVENTORY COMPONENTS:
Inventory is broadly classified into following categories:
 Pharmacy items
 Surgical items
 Linen items
 Implants
 General Store items
 Electronic items
 Kit items
 Miscellaneous items
31%
32%
7%
17%
11%
2% 0%
0%
Classification of Inventory
Pharmacy
Surgical
Linen
Implants
General Store
Electronics
Kit items
Miscellaneous

Analysis of Data
DATA ANALYSIS:
For Cardiac unit,
The abstract of all five classification techniques are as follows:
Items
Percentage
of item
Consumption
Value
Percentage of
consumption value
A 142 4 22,07,13,305 70
B 302 8 6,31,67,289 20
C 3,527 89 3,15,77,914 10
Grand Total 3,971 100 31,54,58,508 100
Items Percentage
F 855 22
S 1836 46
N 1280 32
Grand Total 3971 100
Items
Percentage of
items Sum of Unit rate
Percentage of
unit rate
H 98 2 76,17,841 70
M 214 5 21,92,448 20
L 3659 92 10,93,158 10
Grand Total 3971 100 1,09,03,447 100
Items Percentage
V 93 2
E 1351 34
D 2527 64
Grand Total 3971 36
Items Percentage
Sum of Closing
Value
Percentage of
closing value
X 262 7 1,29,58,594 70
Y 352 9 37,16,658 20
Z 3,357 85 18,58,693 10
Grand Total 3,971 100 1,85,33,945 100

Analysis of Data
A B C
F S F S F S N
H
X - - - 1 - 2 - - - - - 7 - - - - - 15 - - 25
Y - - - - - - - - - - - - - - - - - - - -
Z - - - - - 5 - - - - - 9 - - - - - 3- - - 4
M
X - 1 - - 4 1 - - - - - 17- - - 3 - 17 - - 9
Y - 1 - - - - - - - 1 - 4 - - - - - 29 - - 17
Z - - - - 1 1 - - - - - 4 - - - 1 - 89 - - 14
L
X 4 69 - 1 5 - - 26 - 4 12 2 - 5 - - 8 21 - - 3
Y 3 23 - - - - 8 67 - - 17 9 1 32 - 2 28 1-4 - - 6
Z 1 19 - - - - 1- 87 - 1 17 - 1848- - 2344989211- 1191
3971
MBASIC abstract for cardiac unit

Analysis of Data
For MSH unit,
Count of
Material Name
Percentag
e
Sum of Cons
value
Percentage of
Closing Value
A 204 4 24,13,33,943 70
B 395 8 6,93,17,632 20
C 4,370 88 3,45,88,377 10
Grand Total 4,969 100 34,52,39,951 100
Items Percentage
Sum of Closing
Value Percentage
X 286 6 1,00,95,970 70
Y 420 8 28,85,894 20
Z 4,263 86 14,46,386 10
Grand Total 4,969 100 1,44,28,250 100
Items Percentage
V 37 1
E 3,340 67
D 1,592 32
Grand Total 4,969 100
Items Percentage
F 1,074 22
S 2,383 48
N 1,512 30
Items Percentage
Sum of Unit
Cost
Percentage of
unit cost
H 211 4 55,87,001 70
M 312 6 16,07,223 20
L 4,446 89 8,00,107 10
Grand Total 4,969 100 79,94,331 100

Analysis of Data
A B C
F S F S F S N
H
X - 2 - - 23- - - - - 15- - - - 4 12 - 3 - 8
Y - - - - - - - - - - 3 - - - - 1 3 - - - 3
Z - - - - 12- - - - - 27- - - - - 69 1 - - 25
M
X - 3 - - 17- - - - - 19- - - - 1 17 - 3 - 7
Y - - - - 3 - - - - - 1- - - - - 2 43 - 4 - 11
Z - - - - 3 - - - - - 8 - - - - - 119 1 1 - 4-
L
X - 61- - 4 - - 31 - - 18- - 7 - 1 25 - 2 - 3
Y - 52- - 3 - - 85 - - 26- - 27 - 2 126 1 3 - 12
Z - 21- - - - - 114- - 39- - 671- 2 1622 1-1 8 - 1379
4969
MBASIC abstract for MSH unit

Analysis of Data
For main store,
Items Percentage
Sum of cons
value
Percentage of
consumption
value
A 250 4 56,03,50,985 70
B 503 7 16,04,60,132 20
C 6,294 89 8,02,40,460 10
Grand Total 7,047 100 80,10,51,578 100
Items Percentage
Sum of
Closing
Value
Percentage of
closing value
X 174 2 4,48,28,352 35
Y 569 8 1,28,31,700 10
Z 6,304 89 64,17,911 5
Grand Total 7,047 100 12,81,55,926 100
Items Percentage
F 1,525 22
S 2,658 38
N 2,864 41
Items Percentage
V 88 1
E 2,389 34
D 4,570 65
Items Percentage
Sum of unit
rate
Percentage of
unit cost
H 262 4 1,23,01,675 35
M 488 7 35,20,146 10
L 6,297 89 17,61,432 5
Grand Total 7,047 100 3,51,66,505 100

Analysis of Data
A B C
F S F S F S N
H
X - - - 5 4 - - - - 2 - 4 - - - - - 2 - - 7
Y - - - 1 - - - - - 4 - 5 - - - 1 - 10 - - 7
Z - - - 2 1 10- - - 1 - 30 - - - - - 141 - - 25
M
X - 4 - - 9 - - - - - 3 6 - - - 1 - 3 - - 2
Y - 1 - - 3 - - - - 5 8 6 - - - 4 - 40 2 - 13
Z 2 3 - 2 11 - - - - 3 11 17 - - - 11 - 246 6 - 66
L
X 2 85- - - - 2 17 - - 6 1 - 2 - 1 3 2 - - 1
Y 2 70- - - - 2 149- 4 26 - 1 48 - 5 45 67 - - 40
Z - 32- 1 - - 1 163- 3 24 - - 939 - 9 7221,127 3 - 2,692
7047
MBASIC abstract for Main Store

Chapter-5
Findings and Recommendations

The major objective of the project is to minimize the over stocking by making use of
different control tools and techniques. From the data compiled and analysed in
previous chapter, the following logical conclusions have been drawn:
The study was conducted on three aspects of Selective Inventor Controls:
1. ABC analysis
2. XYZ analysis
3. HML analysis
4. VED analysis
5. FSN analysis
Based on the combination of above selection Inventory Controls, MBASIC models
were designed to suggest improvements in the existing system of inventory
management in the Health city.
General Recommendations:
a) It is observed that certain inventories are kept in large quantities without any
relation to the consumption pattern. The pharmacies can carry out HML
analysis once in a year. Based on HML analysis, the following
recommendations are made:
1. The stock position of all H items is to be reviewed at the end of every
month.
2. The stock position of all M items is to be reviewed at the end of two
months.
3. The stock position of all L items is to be reviewed at the end of three
months.
4. After doing such an exercise the levels of inventory can be rationalized
keeping criticality and availability of the drug.
b) Items that are non-moving can be returned to the suppliers to avoid the shelf
life problem.
c) Items for which there is a regular consumption, stocks should be kept in
accordance.
d) The following annual reviews are suggested:
 XYZ and FSN analysis.
 ABC and XYZ analysis.

Table25: Control measures of designed MBASIC model:
S.
No
Nature of
Control
procedure
High
Consumption
Value
Moderate
Consumption
Value
Low
Consumption
Value
1 Type of control
and authority
Very strict,
Controller can
have high authority
Moderate control,
controller can be
from middle
management
Low control, user
departments can
be given
authority
2 Quantity of Safety
stock
Very low Low safety stock High safety stock
3 Consumption
Control
Weekly or daily
control
Fortnight or a
month
Quarter
4 Material Planning Material planning
should be accurate
and database
should be up to
date
Past consumption
can be used as a
basis of plans data
can be 10 to 15
days old
Rough estimates
are sufficient and
data can lag
behind by a
month.
5 Application of
Value analysis
Waste reduction,
Obsolete and
surplus reduction
Moderate attempts
are sufficient
Annual reviews
sufficient
6 Number of
sources of supply
Increase the
number of
sources, centralize
purchase
2 or 4 reliable
sources combined
purchase with
attempt to reduce
lead time
1 or 2 reliable
sources, annual
or half yearly
purchases.
Decentralized
and reduce
clerical work
7 Lead time
reduction
Maximum efforts
should be made to
reduce lead time
Moderate Minimum clerical
efforts
8 Centralized vs
Decentralized
Centralized
purchasing
Combination
purchasing
Decentralized
purchasing
9 Priority High priority in all
activities for
procurement stage
Normal processing
with high priority
only when critical
Lowest priority

Non-moving Analysis:
a) For cardiac unit, there are 78 items that are non-moving in the Cardiac unit of
Narayana Health City. The breakup for these items is shown as:
Normal PH 10
SG 60
IM 8
Total 78
These 78 items are further classified in terms their closing value and their unit cost.
H M L
X 9,35,172 94,666 44,601
Y 0 1,51,313 36,590
Z 0 4,748 75,086
13,42,175
b) For MSH unit, there are 50 items that are non-moving in the multispecialty unit
of Narayana Health City. The breakup for these items is shown as:
Normal PH 13
SG 37
Total 50
H M L
X 94,292 51,795 32,786
Y - 43,292 28,164
Z - - 18,813
2,69,142

c) For main store, there are 209 items that are non-moving in the main store of
Narayana Health City. The breakup for these items is shown as:
Normal PH 47
SG 160
Temperature PH 1
General Stationary GN 1
Total 209
H M L
X - 16,727 -
Y 31,734 2,33,337 3,05,627
Z - 61,942 4,19,065
10,68,432

Conclusion
CONCLUSION
An effective inventory system should be Relative, Dynamic, and Truthful.
 Relative refers to meeting the needs of other organizational function or
departments. The system is dependent on the needs of the others.
 Dynamic refers to time varying nature of inventory needs.
 Truthful refers to the ability to report accurately the stock or position of inventory
when required.
It is not uncommon to have different types of inventory systems in the same
organization at the same time. Management’s responsibility is to manage organisations
assets both human and non-human in the light of preconceived goals. Pharmacy
inventories tend to have an impact upon continuous quality patient care. It should not be
surprising that pharmacy inventories are troublesome and controversial in view of
manifold influences.

Bibliography
BIBLIOGRAPHY:
Following are the names of book fetched online in form of PDF:
1. Adam E.E. & Ebert RJ – Production an Operation
Management, 6th edition, K. Ashwathappa & K. Sridhara
bhatt
2. Delhi: SAGE Publications - Selective Inventory Control,
2nd
ed., edited by A. V. Srinivasan, 126-45.
3. M. G.Parameswaran: Production & Operations
Management, TMH, 2006.
Websites used for references:
 www.crisil.com
 www.ibef.com
 www.nhhospitals.com

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