UNIT 5

MATERIAL MANAGEMENT SYSTEM

INTRODUCTION
Materials Management plays a vital role in the smooth, economical, efficient, and
effective acquisition, storage, irretrievability, distribution, use and disposal of supplies
and equipment. It includes planning, directing, controlling and coordinating activities
which are concerned with materials and inventory requirements such as procurement of
machines and equipment, stock control, inspection of the material received and
material handling operation.

Material management influences the clinical and financial outcomes of a health

care system. It provides adequate and uninterrupted supply of materials to ensure
continuity of service and minimizing waste leading to higher productivity. Thus, it is
important for an institution to have a system that automates the control and regulation
of the flow of material in relation to changes in variables like demand, prices,
availability, quality, and delivery schedules.

This unit introduces the basic concepts, explain the scope and explicate the key
objectives of material management system. It also describes the functional modules of
material management system including purchasing, inventory control, receiving,
tracking, distribution, and storage of items.

LEARNING OUTCOMES
At the end of this unit, students will be able to:
 Discuss the concepts of material management system
 Explain item master maintenance, indents, issues, reorder level,
and minimum and maximum inventory
 Describe the procurement process from enquiries, quotations,
purchase request, order and approval, receiving and returns
 Review the concepts involving consignment, consumption, regularization,
and treatment of expired stock and quarantine
 Compare different issue methods
 Define the generic tax formula configuration

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TOPIC 1: OVERVIEW OF MATERIALS MANAGEMENT SYSTEM

Learning Objectives
At the end of this topic, the students will be able to:
 Discuss the activities essential to material management system
 List the benefits of using material management system

Activating Prior Knowledge

Concept Map: Use words or simple phrases to create a concept map which displays
your understanding on the concept:

“RIGHT MATERIAL in RIGHT QUANTITIES at RIGHT TIME at RIGHT PRICE from

RIGHT SOURCE at a LEAST COST.”

As production is steadily increasing, the demand for tangible components is also

increasing as well. This expanding demand for supplies establishes a need for material
management. In most hospitals, the materials management function is responsible for
the complete supply process--from purchasing to distribution. The management of
supplies, purchase orders, and equipment is of critical importance to the operation of a
health care organization.
Material management is a method for the planning, coordination and control of
all those activities which are primarily concerned with the flow of materials into an
organization. It is an optimal way of coordinating, planning, supplying, purchasing and
storing construction materials, as well as providing quality control. This ensures that the
right quantity of right materials are supplied exactly when they are needed at the right
time, at the right place, with the right quality, and at the right price. Materials
management performance centers around four basic goals: have material on hand
when needed, pay

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 the lowest possible prices, consistent with quality and value requirements for purchased
materials, minimize inventory investment and operate efficiently.

Material management handles purchasing, inventory control, shipment and

receiving functions, as well as production control, purchasing, master scheduling
(demand planning) and warehousing. Purchasing activity involves mainly the
identification of materials needed, market research and maintaining materials records.
Whereas, procurement activity involves the determination material specifications,
materials studies and receiving of materials. On the other hand, inventory control
includes material handling, storage and monitoring. Lastly, supply management is
responsible for controlling the handling of in-plant supplies and for strategic inventory
preparation. Careful monitoring of materials consumption leads to efficient supply chain
management and lowers costs by ensuring that enough materials are on hand and
used until their expiry date.

Unit 5 (Use the unit 5 submission bin to submit your answer)

1: Watch the video about material management using the link provided:

https://bit.ly/2YuanSK What are the steps involve in material management?

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 Materials Management System automates these continuous cycles of supplies
procurement and usage throughout the care delivery organization (CDO). It ensures
that services are rendered successfully from one source to an end-user and covers
several areas of hospital and could drastically affect the expenses of the medical
institution. This system is used to manage functions like purchasing, accounting,
inventory management, and patient supply charges. Incorporating this system in a
clinical setting helps in organizing all of its supply, vendor, location, purchase order, and
equipment data. Thus, allowing a health care organization to respond more rapidly and
accurately to inquiries, provide flexibility and permit it to define the inventory as best fits
a particular situation.

Materials management system functional modules include requisitioning (online

requisition generation and approval), ordering (purchase order generation and
electronic data interchange or web-based transmission to vendor), receiving (receipt
generation and tracking), distribution (tracking where and when supplies are dispersed
throughout the organization), usage (usage tracking and charging of supplies to patient
accounts), invoice and payment processing (invoice tracking, EDI or Web transmission
of payments, and forwarding of financial data to the general ledger system), inventory
control (support for just-in-time or par-level inventory and automatic requisitioning when
supplies drop to user-defined levels) vendor database (bidding, contract management,
and online vendor supply catalogs) and management reporting. Electronic Data
Interchange (EDI) mentioned above is responsible for the exchange of electronic
documents between suppliers/manufacturers and users. This is consist of standardized
electronic message formats, called transaction sets, for common business documents,
such as Request for Quotation, Purchase Order, Purchase Order Change, Bill of
Lading, Receiving Advice, and Invoice.
Effective hospital MMIS automates the materials distribution and control process.
Fully integrated HMMIS includes a computerized inventory control system,
computerized patient supply charge system and EDI links with many of the hospital's

Topic1. 2. What are the benefits of the integration of MMIS in a health

system?

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 suppliers.

TOPIC 2: MATERIAL MANAGEMENT SYSTEM FUNCTIONAL MODULES

Learning Objectives
At the end of this topic, the students will be able to:
 Explain the process of purchasing
 List the benefits of inventory control

Activating Prior Knowledge

What information about material management is presented by the graphics below?

Source: Medical Store Management

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 Materials Management System has a fully integrated, comprehensive capability
for requisitioning, procurement, warehousing as well as inventory. Effective materials
management involves a complex set of interactions between processes, suppliers,
inventory, and the data that links them all together. This section will describe the
functional modules integral to a material management system.

Purchase Request, Orders and Approval

Purchasing function assumes importance for every health care organization as it
fulfills, to a large degree, the organization's input needs. Purchasing describes the
“process of buying”. This element of material
management has a wider function of
procurement and includes activities such as
identification and selection of vendor/supplier,
ordering, expediting, receipt and payment. The
purchasing cycle consists of the following steps:
 Receiving and analyzing purchase
requisitions
 Selecting suppliers
 Determining the right price
 Issuing purchase orders
 Following up to ensure delivery dates
are met
 Receiving and accepting goods
 Approving supplier’s invoice for payment
Source: https://bit.ly/2zj6jKt

Purchasing process starts with a Purchase Request (PR). A purchase request

contains the quantity and timeframe of the items requested and the authorization
information needed. It is a document that notifies the purchasing department that
certain items or services need to be replenished.

Watch the video on purchase requisition (Bizbox) using the link provided:
https://bit.ly/2SLcpu7

Requested items are confirmed using the purchased order and supplier is
nominated and this document serves also as basis of accepting the delivered items.
When the vendor receives a purchase order it is a legally binding document which
shows that the seller has already accepted the order issued by the buyer. A purchase
order specifies information about the buyer and seller (name, address, contact details);
order number and date; item description (quantity, unit, and total price); shipping
information (shipping dates and address); the price agreed upon; billing address;
delivery requirements; terms of payment and authorized signature.

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 The Originator is the person who creates the document (purchase order or
request). Originator is notified that the document needs approval if the document fails to
meet the approval requisites. Once the document has been approved an internal notice
is sent to the originator and the approver can access the document in the
Messages/Alerts Overview Window.

Watch the video on purchase orders (Bizbox) using the link provided:
https://bit.ly/2Wj2nRS

The final stage is receiving delivery, where the products are inspected for
indents and damage during receipt of delivery. Items that are damaged or have indents
while being transported from the source to the warehouse may be returned when the
supplier allows it (Retail and Distribution Industries) with a guarantee of replacement
without additional payments. The damaged items are moved to another warehouse for
them to be monitored.

Watch the video on deliveries and receiving entries (Bizbox) using the link provided:
https://bit.ly/2YszipK

Unit 5 Topic 2: 1. What are the different types of purchasing?

TYPES OF PURCHASING DESCRIPTION

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 Inventory Control
An inventory is a list of materials and supplies that an institution carries either for
sale or to provide inputs or supplies to the production process. It is considered as one
of the biggest expenses for most medical institution. Inventory control. Inventory control
describes the control and management of quantities of items. The system has an
automatic inventory monitoring, so that orders are placed as soon as the re-order level
is reached. Material manage system provides an overview of the entire institution’s
purchasing and inventory control processes so they have more reliable information
regarding the drugs and consumables which is critical to decision making.

Below is a summary of strategies to improve inventory control in a healthcare

organization.

Strategies in improving inventory control in the health care facility

The Item Master Maintenance Screen (BizBox) of this system has different
sections. Upper portion contains the master information while the Item Tab is used for
the maintenance of the attributes of the item (e.g. product type, item class, item type).
Users may set the product type to group similar items for sales analysis and inventory
reporting. Item Availability Form specifies inventory levels across all warehouses.

Watch the video on deliveries and receiving entries (Bizbox) using the link provided:
https://bit.ly/2YqEtGu

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Topic 2: 2. Research and complete the table below

EFFECTS OF OVERSTOCKING EFFECTS OF UNDERSTOCKING

Reorder Level and Minimum and Maximum Inventory Ordering

Reorder level of stock also known as reorder point or order point in an
organization is a fixed level of stock or inventory at which the company places a new
order with its suppliers to procure inventory of raw materials or finished products. It is
the minimum quantity of an item that a company has in stock, and the item must be
reordered when the stock reaches the minimum quantity specified (purchased order /
order for production).

Min / Max Inventory Ordering Method, seen in the figure below, is a basic
reordering method used in many Enterprise Resource Planning (ERPs) and other
software for inventory management. This is an unpolished inventory ordering method
but settings can be adjusted to deliver better performance in the inventory. The Min
Value represents the stock level that prompts the reorder while the Max Value sets the
new targeted level that follows the reorder. The Economic Order Quantity (EOQ) is
often interpreted as the main difference between the Min and Max value. This is used
to identify the greatest number of product units to order to minimize buying.

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Enquiries and Quotations for Drugs, Consumables, Assets, and General Items

Consumables are items which are used in a short period of time, and need
to be replaced frequently. These include all the medications, drugs, vitamin,
supplements and infusion fluids (for intravenous use) as well as disposable items of
equipment (single-use) and other supplies. These items are frequently used in your
healthcare work and therefore need to be restocked regularly. Ordering supplies for
a health care organization must be done efficiently to ensure that it will not run out of
essential items and avoid wastage due to ordering too much. The following are the
documents required in this process:

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 Purchase quotation, as mentioned above, is a document requesting prices and
delivery information from a vendor before the purchase order. The system receives
replies from the vendors detailing the conditions of their offers. The vendors' details will
be recorded in the purchase quotations in the application. Quotation comparison
displays the price and quantity quoted by the vendor. Using this quotation, the right
supplier can be chosen. This system minimizes costs, improve product or service
quality and increase on-time delivery. It also allows the comparison of deals to choose
the best vendor for the purchasing scenario.

A vendor or supplier is a party in the supply chain that makes goods and
services available to companies. Vendor-selection process has a significant impact on
the productivity, quality and competitiveness of an organization. Companies usually
keeps a list of preferred vendors from whom they purchase their supplies. There are
numbers of criteria that can be used to select vendors, these include on-time
performance, offers reasonable costs, provides high quality products and services, fully
licensed, bonded, and insured product and services, and has good business practices.
It is important to remember that these criteria may be different for each item you are
sourcing and possibly different between regions or countries.

Watch the video on deliveries and receiving entries (Bizbox) using the link provided:
https://bit.ly/2yZGdMl

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Topic 2: 3. What is the difference between purchase quotation and purchase request?

Receiving and Tracking Items

Material management systems allows an organization to define workflow and
processes by tracking the receipt, transfer, and delivery of items. Here is an outline of
the policies for the proper receipt and inspection of items.

a. Signing for Deliveries

The person who receives the delivery should inspect the delivered
items for damage before signing the receiving documents and the
packing list. The document should be submitted to the appropriate
department for reconciliation. Verify the number of items indicated on
the packing list. The person who receives the delivery should inspect
for damage to the shipped items before signing the receiving
documents and the packing list. The document should be forwarded to
the appropriate department

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 for reconciliation. Verify the number of items indicated on the packing
list.

b. Refusing Delivery
Receiving department should refuse to accept any shipment if
packaging appears to be damage or if there is any item that does not
have corresponding purchase order.

c. Record Retention
The packing list should be provided for proper documentation and all
files should be kept accordingly to the guidelines of the entity for
tracking partial and staggered deliveries.

d. Inspecting a Shipment
The personnel receiving the item should inspect the goods to ensure
the following conditions are met:
1. Received items match the requirements stated in the purchase
order (e.g. type, description, color)
2. Quantity is correct
3. Item has no damage, discoloration, and issues
4. Quantity per unit measurement is accurate
5. Packing list, certifications, and other delivery documentation
are completely provided
6. Perishable items be in good condition and have not reached
the expiration dates
7. The items are functioning properly

Inspect the contents as soon as possible (ideally, within 24 hours) for

concealed damage, unidentifiable items, items not conforming to
specifications or other discrepancies.

e. Partial Deliveries
Advise the purchasing department for approval and further instruction
when items are delivered partially without notification from supplier.
This should also be noted in the packing list or the receiving document

f. Tracking Goods
Items are easily tracked/traced when managed by serial numbers.
Aging of products can also be monitored based on how long they have
been in the warehouse. Create a label in the tracking system and label
the items so that it can be tracked throughout the rest of the receiving
and delivery process.

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Topic 2: 4. Receiving and incoming of items is a routine work, hence, it is considered as clerical task. Using your
current understanding on receiving and tracking items, make a check-list for receiving items.

Statements Yes No

Purchase Returns along with Returnable/ Non-Returnable Gate Pass

Sometimes a shipment arrives with a problem, which may include damage,

missing items, overages, or shortages. All problems with shipments must be reported to
the vendor or carrier, depending on the nature of the problem. Purchase/sales returns
may be due to defective or substandard quality goods, incorrect order delivery and
deteriorated purchased and sold items. When purchased goods are returned, the
materials management system updates inventory levels to reflect the decrease in
quantity. For temporary movement, a returnable gate pass is issued, whereas for
permanent movement, a non-returnable gate pass is given. Non-returnable gate pass
helps monitor outgoing deliveries, repair and fitting parts to identify what is issued and

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delivered and what is the accurate stock available in the warehouse. The gate pass is
generated by the system and it should be attached to the delivery. The system can also
monitor due dates for returnable items and provide detail reports of the status of
different items.

Watch the video on purchase returns (Bizbox) using the link provided:

https://bit.ly/3bX7Bco

Consignment Stock Receipt, Consumption, and Regularization

Consignment means that the items procured are still in vendors ownership, but
the company is keeping the material on stock. The items become the property of the
company only in the case of consuming. In the process of consignment, the vendor or
consignor issues materials to the receiver or consignee, and these materials are stored
in the consignee’s premises. Vendor maintains legal ownership until such materials are
removed from consignment stores. Invoice is due at predetermined interval. The
customer can also arrange to take ownership of the remaining consignment material
after a certain period. The customer can access product at any time from their
warehouse and company will issue invoices for only accessed product. If customer
return product due to damage, poor quality, expiry, then this process is called
consignment return.

Expired Stock and Quarantine

a. Expired Stock/Inventory
Expiration dates and decrease in values of items must be reflected in the financial
records so discrepancies in financial statements will be prevented. Amount that
reduces inventory in the records is recognized as a loss which equates to a
reduction in profit.
b. Quarantine Stock/Inventory
When undecided about how to handle defective goods, whether to be sold as
scrap, reworked, returned, or used as it is, a quarantine location or warehouse can
be used to temporarily house them until a final decision is reached. Inventory is put
into quarantine if it is initially rejected during:

1. Production, upon completion of an operation, when specified as

“Move Rejected End Item to Quarantine”
2. Inbound inspection upon receipt of:
 Manufactured end items
 Purchased items
 Sold items on sales return orders

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  Enterprise planning distribution orders
 Outbound inspection upon issue of materials to production

Issue Methods
In order to avoid accumulation of expired and obsolete stock, items should be
stored and issued on a First In, First Out (FIFO), Last In, First Out (LIFO) or First
Expired, First Out (FEFO) basis described below.

The stock control system must record the expiry date and the date of receipt.
Stock must be stored so that the earliest expiring or first delivered batches can be
picked or issued first. When small quantities are involved, this goal can be achieved by
placing the newly received stock at the back of the shelf behind the existing stock.
When large quantities are involved, the newly received items can be placed on the
upper levels of the pallet racking.
Generic Tax Formula Configurations
Material Management System usually allow tax rates to be defined internally via
tax codes, or imported from an external source. Master data such as customer, vendor,
and material, as well as transactional data like POs and Sales Orders are key to
determining the correct tax. Tax configuration is done by country. Automatic calculation
of tax dues during the purchasing process makes the process less susceptible to
clerical errors. The following taxes that can usually be processed while posting
documents: Tax on sales and purchase, Additional tax like VAT, Sales and use tax
(USA) and Withholding tax (income tax in India).

Periodic Physical Stock Taking and Adjustments with Tracking

Inventory Count is the process where an organization/business physically counts
its entire inventory. The actual counts are then compared to the quantities reported on
the detailed inventory records. This may be mandated by financial accounting rules or
tax regulations to place an accurate value on the inventory. If a difference exists, the
quantity shown on the inventory record should be changed to the physical count. The
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following tactics can be used to minimize disruption during the physical inventory:
Inventory Services (provide labor and automation to quickly count inventory and
minimize shutdown time); Inventory Control System Software (speed up the physical
inventory process); Perpetual Inventory System (tracks the receipt and use of inventory,
and calculate the quantity on hand); and Cycle Counting (alternative to physical
inventory and less disruptive). In addition to the Barcode and Radio Frequency
Identification (RFID) functionality, the material management system provides all of
these, ensuring reliable and less burdensome counts.

Watch the video on physical counts (Bizbox) using the link provided:

https://bit.ly/2zUcBk3

SUMMARY
 Materials Management System automates the continuous cycle of supplies
throughout the health care organization from purchasing, accounting, inventory
control, receiving and tracking items and patient supply charges and as well as
dealing with expired stock and quarantine.
 Purchasing involves mainly identification of materials needs, market research
and maintaining materials records while inventory management involves
planning and controlling of materials handling, storing materials and managing
material supplies.
 Policies for proper receiving and inspection include signing of deliveries, refusing
delivery, record retention, inspecting a shipment, partial deliveries, tracking
goods. Damage items may be returned when the supplier allows it or moved to a
warehouse for monitoring.

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  A quarantine location or warehouse can be used to temporarily house expired
stock or defective items.

REFERENCES

1. Arnod, J. R. T. Chapman, S. N., &Clive, L. M. (2008). Introduction to Material

Management. Sixth Edition. Pearson Prentice Hall, Pearson Education, Inc.,
Singapore. ISBN-13: 978-0-13-233761-8
2. Calano, R. B. and Del Rio, F. R. (2017). HEALTH INFORMATICS (An Illustrative
Approach). First Edition). APD EDUCATIONAL PUBLISHING HOUSE, Malabon.
3. Ebuen, B. U. et. al. (2019). HEALTH INFORMATION SYSTEM for MEDICAL
LABORATORY SCIENCE. C & E Publishing, Inc. Quezon City.
4. Material Management. (2013). First Edition. JNU, Jaipur. Retrieved from
http://jnujprdistance.com/assets/lms/LMS%20JNU/MBA/MBA%20-
%20Supply%20Chain%20Management/Sem%20IV/Material%20Management/Material
%20Management.pdf
5. Primaseller. (2019). The Complete Guide to Inventory Management. Retrieved from
https://www.primaseller.com/knowledge-base/inventory-management-guide/
6. Saini, V. P. & Tiwari, S. Purchasing and Materials Management. Retrieved from
http://www.ddegjust.ac.in/2017/Uploads/11/POM-325.pdf

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