Inventory control techniques in medical stores of a tertiary care neuropsychiatry hospital in Delhi

doi:10.4236/health.2013.51002

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Vol.5, No.1, 8-13 (2013) Health

http://dx.doi.org/10.4236/health.2013.51002

Inventory control techniques in medical stores of a

tertiary care neuropsychiatry hospital in Delhi

Sarbjeet Khurana1, Neelam Chhillar2, Vinod Kumar Singh Gautam3

1Department of Epidemiology, Institute of Human Behaviour & Allied Scien ces, Delhi, India; [email protected]

2Department of Neurochemistry, Institute of Human Behaviour & Allied Sciences, Delhi, India; [email protected]

3Department of Neurosurgery, Institute of Human Behaviour & Allied Scien ces, Delhi, India; [email protected]

Received 22 December 2011; revised 28 January 2013; accepted 1 February 2013

ABSTRACT

Approximately 35.0% of annual hospitals budget

is spent on buying materials and supplies, in-

cluding medicines. We can bring about substan-

tial improvement in the hospital inventory and

expenditures by the inventory control techniques.

Objective: To identify the categories of drugs

which need stringent management control. Ma-

terial and Method: The ABC and VED analysis of

the medical store of a Neuropsychiatry hospital

at Delhi, India was conducted for the year 2008-

2009 to identify the categories of items needing

stringent management control. Results: The to-

tal number of the drugs at the medical store was

145 drugs. The total annual drug expenditure

(ADE) on these drug items was Rs. 19219594.79.

ABC analysis revealed 3.45%, 6.9% and 89.65%

items as A, B and C category items, respectiv ely,

accounting for 70.5%, 19.68% and 9.83% of ADE

of the medical store. VED analysis showed

32.41%, 61.38% and 6.2% items as V, E, and D

category items, respectively, accounting for

70.9%, 28.72% and 0.38% of ADE of the medical

store. On ABC-VED matrix analysis, 33.8%, 60%

and 6.2% items were found to be Category I, II

and III items, respectively, accounting for 92.33%,

7.29% and 0.38% of ADE of the medical store.

Conclusion: It is sugg ested by the study that the

management of Category I drugs should be done

by the top management resulting in stringent

control on the annual expenses. The Category II

should be managed by the middle management

level and Category III at lower managerial level.

Keyw ords: ABC; VED Analysis; Inventory

Control; Inventory Management

1. INTRODUCTION

Approximately 35.0% of annual hospitals budget is

spent on buying materials and supplies, including medi-

cines [1]. This requires effective and efficient manage-

ment of the medical stores. Efficient priority setting, de-

cision making in purchase and distribution of specific

drugs, close supervision on drugs belonging to important

categories, and prevention of pilferage depend on the

drug and inventory management.

Quality of care in tertiary care hospitals is also sensi-

tive to the timely availability of facilities in cluding drugs.

Huge budget and key element in the provision of care

make drugs as an important component of hospital care.

The medical store is one of the most extensively used

facilities of the hospital and on e of the few areas where a

large amount of money is spent on purchases on a recur-

ring basis. This emphasizes the need for planning, de-

signing and organizing the medical stores in a manner

that results in efficient clinical and administrative ser-

vices [2]. The goal of the hospital supply system is to

ensure that there is adequate stock of the required items

so that an uninterrupted supply of all essential items is

maintained. A study conducted by the Department of

Personnel and Administrative Reforms in India has re-

vealed that not only does the quantity of medicines re-

ceived fall short of the requirement but also the su pply is

often erratic. Even common medicines are out of stock

and remain so for a considerable period [3]. Of the vari-

ous explanations for non-availability of even simple

medicines in the third world countries, a large number

are related to materials management. A study from a

1500-bedded state-funded hospital has claimed that re-

view and control measures for expensive drugs brought

about 20% savings [4].

Drug inventory management aims at cost containment

and improved efficiency [5]. Inventory control is very

essential in a developing coun try like India [6]. India is a

country of scarce resources and it is the primary respon-

sibility of each hospital to ensure optimum utilization of

available resources to provide good service or quality

patient care. Usually, the hospital management is faced

with choosing the alternative of eith er lowering the qual-

S. Khurana et al. / Health 5 (2013) 8-13 9

ity of care or adopting ways and means to reduce the cost

of inventories. Therefore, the need of the hour is that we

follow the principles of rational drug use and inventory

management techniques so that in the existing budget we

can cater to more number of patients.

It is essential that health managers use scientific meth-

ods to maximize their returns from investment at a mini-

mal cost [6-9]. Inventory analysis seeks to achieve maxi-

mal output with minimal investment input, based on the

economic principle of stretching the limited means to

meet unlimited ends. Each item may be considered criti-

cal and there is a perceived need to supply very high lev-

els of service [10].

There is no denying that stocking hospital pharmaceu-

ticals and supplies can be expensive and tie up a lot of

capital, and bringing efficiencies to such important cost

drivers—often 30% - 40% of a hospital’s budget—can

present meaningful savings [11]. Thus, a hospital materi-

als manager must establish efficient inventory system

policies for normal operating conditions that also ensure

the hospital’s ability to meet emergency demand condi-

tions [12]. The study of use pattern helps in designing

appropriate corrective measures. ABC analysis is an im-

portant tool used worldwide, identifying items that need

greater attention for control [6-9,13]. The limitation of

ABC analysis is that it is based only on monetary value

and rate of consumption of the items. Sometimes, par-

ticularly in a hospital an item o f low monetary value and

consumption may be very vital or even life saving. Their

importance cannot be overlooked simply because they do

not appear in category A of inventory. Therefore, another

parameter of the materials is their criticality. This could

be in item of the therapeutic value of a drug or intrinsic

value of the material in achieving the objectives of the

hospital system.

We undertook this analysis of inventory control of

drugs to identify areas for further improvement as well as

to find corrective in terventions to achieve this end resu lt,

we did the analysis of inventory control of drugs of the

tertiary care Hospital providing the Neuropsychiatric care

in Delhi, India for the last completed financial year,

2008-2009.

We attempted to narrow down the areas, where man-

agement supervision and control measures are needed for

optimal utilization of the available resources.

2. AIMS & OBJECTIVES

General objective:

 To identify the categories of drugs which need strin-

gent management control.

Specific objectives of this study were to:

 To analyze the annual consumption of items of medi-

cal store and expenditure incurred on them for the

year 2008-2009;

 To evolve a priority system based on ABC and VED

and ABC-VED matrix analysis;

 To identify the item categories requiring greater su-

pervisory monitor ing.

3. MATERIAL AND METHODS

The study was conducted at one of the largest super

specialties tertiary care centers in Delhi, dedicated exclu-

sively to neuropsychiatric and behavioral illnesses. It is

an apex tertiary care institution of psychiatry, neurology

and behavioral sciences utilizing a multidisciplinary ap-

proach. The data of annual consumption and expenditure

incurred on each item of the medical store for the finan-

cial year 2008-2009 were collected and then transcribed

and analyzed in MS Excel.

3.1. ABC Analysis

The annual consumption of all the drugs was calcu-

lated after multiplying unit cost by annual consumption

and the resulting annual expenditure of individual items

was arranged in descending order. Next step was to cal-

culate the items cumulative cost of all the items, as well

as the cumulative percentage of expenditure and the cu-

mulative percentage of number of items. The drugs were

then classified into three categories: A, B and C, based

on the cumulative cost percentage of 70%, 20% and 10%,

respectively.

3.2. VED Analysis

Criticality analysis of all the d rugs in th e medical stor e

was conducted and then these drugs were classified bas ed

into three group s. Those drugs which are critical ly ne ed ed

as the life saving drugs and those that must be available

at all times were included in the V category. The items

having lesser criticality needs as well as those that may

be available in the ho spital were included in the E group.

The items with lowest criticality, or those whose short-

age may not pose a threat to the health of the patients,

were included in the D group.

3.3. ABC-VED Matrix Analysis

The data was coupled into an ABC-VED matrix by

cross-tabulating the ABC and VED analysis. This re-

sulted in categorization of drugs into (I, II and III).

Category I comprised of items belonging to AV, AE, AD,

BV and CV subcategories. The BE, CE and BD sub-

categories were included in categor y II, and the category

III was represented by items in the CD subcategory. The

first alphabet of these subcategories represent its po sition

in the ABC analysis, whereas the second alphabet repre-

sents its place in the VED analysis.

S. Khurana et al. / Health 5 (2013) 8-13

matrix yields nine different subcategories (AV, AE, AD,

BV, BE, BD, CV, CE and CD) and further these subcate-

gories were cou pled into three main categori es, ca teg or ie s

I, II and III.

The term stringent control is defined as the control by

the top management of the hospital.

4. RESULTS



AVBVCVAEADCATEGORY (I)

The present study was conducted at the medical store

of IHBAS, Delhi (a 314 bed tertiary care health institute

catering to the major portion of northern India), to iden-

tify the categories of drugs needing strict management

control.



BECECATEGORY (II)



CDCATEGORY (III)

There were 49 (33.8%) items in category I, 87 (60%)

items in category II and 9 (6.2%) items in category III,

amounting for 92.33% (Rs. 17745451.14), 7.29% (Rs.

1401109.19) and 0.38% (Rs. 73034.46) of annual drug

expenditure of the medical store, respectively Table 1

and Figure 3.

The drug formulary of the hospital comprises of 145

items. The total annual expenditure of the medicines in

2008-2009 was Rs.19219594.79.

4.1. ABC Analysis

ABC analysis revealed that, 3.45% (5), 6.9% (10) and

89.65% (130) items represented A, B and C category

items, respectively, amounting for 70.5% (Rs.

13548757.56), 1 9.68% (Rs. 3782145.79 ) and 9.83% (Rs.

1888691.44) of annual drug expenditure of the medical

stores Table 1 and Figure 1.

5. DISCUSSION

In the healthcare delivery system the hospitals are dy-

namic institutions and spend their major portion of b udg et

for material/logistics which rank second only to the em-

ployees’ salaries. The entire system and sub-system of

the hospital are dependent on the materials and without

materials availability the patient care function of the

hospital can come to stand still. Hence it is of great im-

portance that materials of right quality are supplied to all

users in right quantity at the right time and place. Inven-

tory is one of the methods, which helps in achieving this

goal. The inventory control is one of the important ele-

ments in materials management and an effective measure

for containing cost of materials. Hence the control of the

inventory is essential for efficient and effective supply

management, which is vital to the patient care function

[14].

Table 2 shows the cumulative annual expenditure in

percentages (according to various classifications i.e. ABC,

VED and Category I, II and III) vary with the cumulative

percentage of items. Based on these findings cumulative

curves were made to depict the relationship for all the

three classifications used, i.e. ABC, VED and ABC-VED

matrix outputs namely Category I, II and III.

4.2. VED Analysis

About 32.41% (47), 61.38% (89) and 6.2% (9) items

were found to be V, E and D category items, respectively,

amounting for 70.9% (Rs. 13626692.14), 28.72% (Rs.

5519867.40) and 0.38% (Rs. 73034.46) of annual drug

expenditure of the medical store Table 1 and Figure 2. The aim of the hospitals is to make medical services

available timely and continuously. The regular availabil-

ity of drugs is the topmost priority for any hospital. In

case of drugs, we cannot achieve this aim by focusing

only on one factor, whether cost or criticality. When we

4.3. ABC-VED Matrix Analysis

ABC-VED matrix analysis is depicted in Table 3. This

Table 1. The ABC, VED analysis and ABC-VED matrix of the Medical store of IHBAS.

Category No. of Items % of Items Annual drug expenditure % Annual drug expenditure of the medical store

A 05 3.45% 13548757.56 70.5%

B 10 6.9% 3782145.79 19.68%

C 130 89.65% 1888691.44 9.83%

V 47 32.41% 13626692 70.9%

E 89 61.38% 5519867 28.72%

D 09 6.2% 73034 0.38%

Category I 49 33.8% 17745451.14 92.33%

Category II 87 60% 1401109.19 7.29%

Category III 09 6.2% 73034.46 0.38%

OPEN ACCESS

S. Khurana et al. / Health 5 (2013) 8-13 11

Y-Values

Expon. (Y-Values)

Figure 1. ABC analysis cumulative curve.

Table 2. The cumulative % of items and cumulative annual

expenditure % for various categories of the drugs of Medical

store of IHBAS.

Cumulative % of items Cumulative expenditure %

A 3.45% 70.9%

B 10.35% 90.18%

C 100% 100%

V 32.41% 70.9%

E 93.79% 99.62%

D 100% 100%

I 33.1% 92.33%

II 93.8% 99.62%

III 100% 100%

Y-Values

Expon. (Y-Values)

Figure 2. VED analysis cumulative curve.

Table 3. ABC-VED matrix analysis.

Category V E D

A 03 02 0

B 09 01 0

C 35 86 09

Series1

Expon. (Series1)

Figure 3. ABC-VED matrix cumulative curve.

focus on cost only, we might miss those which are less

costly but vital. If we focus on both i.e. cost and critical-

ity, we would be able to monitor the inventory better and

avoid any situations of drug less periods. We have tried

to substantiate this hypothesis by our study, where about

3.45% of the drugs consumed about 70% of ADE of the

medical stores. This is the group requiring greater moni-

toring as it has fewer drugs consuming most of the money.

But focusing on these drugs left us on missing the vital

and essential drugs from B and C categories. On catego-

rization of drugs by the ABC-VED matrix model, we

were able to narrow down on drugs requiring stringent

control.

5.1. ABC Analysis

The results of the present study showed th at if we con-

sider the ABC analysis alone for inventory management,

it would help to effectively control 5 (3.45%) items in

the A category, which represent almost 70% of annual

drug expenditure of the medical store, but in our aim of

focusing on these items we would compromise on the

availability of items of vital nature from B and C catego-

ries (44 items, 30.3%). The results of the study are com-

parable with similar studies conducted in India [5,15-

18].

5.2. VED Analysis

The results of the present study revealed that if we

consider VED analysis alone then we can effectively

S. Khurana et al. / Health 5 (2013) 8-13

control the vital and/or essential items, accounting for

99.62% of annual drug expenditure of the medical store.

Review of literature suggests that various other studies

on the similar issue in our country show diverse results

in the percentages of vital, essential and desirable items

Table 4 [5,15-18]. The reason of these varied results

could be due to the different status of the hospitals agen-

cies in terms of the specialties and super-specialties they

cater to.

5.3. ABC-VED Matrix Analysis

It is quite evident fro m the results of the pr esent study

that the combination of ABC and VED analysis, in terms

of the ABC matrix enhances the ability to narrow down

our attention on 49 (33.8%) items belonging to category

I for strict managerial control; these items are either

costly or vital. The annual expenditure of category I

items was 92.33% of annual drug expenditure of the

medical store. This category if further divided into 2

subgroups—subgroup I comprises of AV, AE and BV and

there are total 18 items (12.4%) that are expensive

(91.1% of ADE). It is difficult to manage the medical

services if these drugs are out of stock because they are

either vital or essential. Further it is very important to

prevent the locking up of capital due to these costly

items, hence we need to maintain low buffer stock for

these items as well as keep a strict vigil on the consump-

tion level and the stock in hand. A two-bin method of

ordering needs to be ensured for these as this will elimi-

nate the risk of item shortage. The drugs belonging to CV

(31%, 21.4%) are drugs of low cost but high criticality

and take up 1 .23% of ADE of the medical store. As they

are representing very small percentage of the total ex-

penditure hence they can be procured once a year and

can be stocked as their carrying cost is low.

Category II items (87%, 60%) represent 7.29% of the

ADE. These items can be ordered once or twice a year,

thereby saving on ordering cost and reducing manage-

ment hassles at a moderate carrying cost and without

blocking substantial capital. Category III items (9%, 6 .2% )

consume 0.38% of the ADE. These items can also be

ordered once a year and hence save on ordering cost. The

result of the present study in comparison with similar

studies in India is shown in Table 4 [5,15-18].

Various studies done in our country are depicted in this

table, and there are some salient observations: In contrast

to various studies done on the similar topic in our coun-

try where the range of A class of drugs varies from

10.76% to 17.8%, in our study the group A drugs are

only 3.45%, i.e. only 5 drugs. Similar are the findings for

B and C group drugs in our study which are in markedly

different percentages as compared to the earlier studies.

In our present study the percentage of vital drugs was

32.41%, and essential drugs were 61.38%. If we compare

these findings with other studies the percentage of vital

drugs range from 5.41% - 23.76% whereas the percent-

age of essential drugs range from 38.12% - 59.9%.The

percentage of the desirable drugs is quite less in our

study (only 6.2%) in comparison to the various other

studies done in our country (range is 28.51% - 43.38%).

On developing the ABC-VED coupling matrix, the

percentages of category I, II does not differ from existing

studies too much, but category III shows marked differ-

ences from the other studies. These differences could be

because of the nature of the inventory being quite differ-

ent in our setup as compared to the general tertiary care

hospitals. There is a paucity of studies in the super-spe-

cialty hospitals; therefore there is no way we could com-

pare our results with the same.

6. CONCLUSIONS

During the year 2008-2009, the inventory expenditure

of the medical store of a tertiary care neuropsychiatric

hospital at Delhi was Rs. 19219594.79. There is a need

of application of scientific inventory management tools

for effective and efficient management of the medical

stores and close supervision on items belonging to im-

portant categories. ABC-VED matrix analysis identifies

the drugs requiring stringent control for optimal use of

funds and avoid out-of-stock situations in the medical

stores.

Table 4. Comparison of various Indian studies with the present study.

Category Govt Hospital Nagpur study AFMS studyCGHS studyGMCH, Goa studyPGI Chandigarh study Present study

A 10.76 14.46 17.8 12.93 13.78 3.45

B 20.63 22.46 22.6 19.54 21.85 6.9

C 68.61 63.08 59.5 67.53 64.37 89.65

V 23.76 7.39 5.14 12.36 12.11 32.41

E 38.12 49.23 58.9 47.12 59.38 61.38

D 38.12 43.38 35.9 40.52 28.51 6.2

I 29.15 20.92 21.5 22.99 22.09 33.8

II 41.26 48.92 56.1 41.67 54.63 60

III 29.59 30.16 22.2 35.34 23.28 6.2

*All the values in this table are in percentages. The table has been adopted from Devnani et al, J Young Pharmacists 2010 with permission from the author and

publisher.

S. Khurana et al. / Health 5 (2013) 8-13 13

Category 1: Needs close monitoring & stringent

control by top management.

Category 2: Moderate control by the middle level

management.

Category 3: Control at the lower managerial level.

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