Management And Control Of Inventory In Government Health Institution

Project and Seminar Material for Public Health

Abstract

Managing stock effectively is important for any organization, running a hospital is no exception because without enough stock, services to patients will come to a halt. Stock represents the largest single investment in assets for most organizations. Health facilities must provide 24 hour services and accordingly, the need to keep stocks of certain medicines and other medical supplies to be able to discharge their duties effectively. It is a generally held opinion that where stock management by health facilities is poor, delivery of healthcare is normally affected. Hence, this study examined the effect of inventory management practices on healthcare delivery using UNTH, Enugu as a case study. A sample of 60 staff and 30 patients, was selected for the study. Questionnaires were used as the main instrument of data collection. The study revealed that the hospital ensures agreements with supplier for short cycle deliveries (items which do not take long to deliver), ensures accurate prediction of supplier delivery dates and operate Materials Requirements Planning system (MRP). The study also revealed that the hospital ensures Strategic Supplier Partnerships as an Inventory management practice and strictly uses Information Technology in its inventory management practices. The patients were satisfied with the hospital’s reliability of healthcare service (24 hour service and full complement of medical staff), completeness of healthcare service, empathy of healthcare staff and affordability of healthcare service and physical appearance of healthcare service. However, among the challenges the hospital faced with inventory management was poor storage of drugs leading to insufficient inventories, bureaucratic process in procurement, loss of drugs through inventory shrinkages, conflict of interest, weak management system and insufficient funds for procurement. It was therefore recommended that there is a need for management to emphasize the importance of inventory management and the hospital should improve the demand forecasting of major medical supplies and adoption of advanced information system such as Electronic Data Interchange (EDI) to link their inventory practices with their service delivery.

Chapter One

Introduction

1.1 Background of the Study

Inventories occupy the most strategic position in structure of working capital of most business enterprises. It constitutes the largest component of current asset in most business enterprises. In the sphere of working capital, the efficient control and management of inventory has paired the most serious problem to the health institutions. The turnover of working capital is largely governed by the turnover of inventory, that is the rate of working capital is largely governed by the amount of inventory which is largely provided by the government. It is therefore quite natural that inventory which helps to maximize profit occupies the most significant place among current and profit assets.

The American usage of the word ‘inventory’ is synonymous with the British use of the word ‘stock’, this synonym is evident in the definitions of inventory and stock by the Oxford Dictionary. The Oxford English Dictionary defined inventory as follows:

A list, catalogue, detailed account
A lot or stock of goods, etc which are or may be made the subject of an inventory.
The aggregate of goods and some specified kind of goods which a trader has on hand as provision for the possible future requirement of customers.

The American Institute of Certified Public Accountants (AICPA) defined inventory thus, the term inventory in used to designate the aggregate of those terms tangible personal property which are held for sale in the ordinary course of business, in the process of production for such sale or currently consumed in the production of goods and services to be available for sale.

According to the Nigerian Accounting Standard Boards (NASB) stock includes those finished goods and livestock waiting sale, work-in-program, raw materials and supplies to be consumed in the production of goods and rendering of services.

Many understand the word inventory as a stock of goods, but the generally accepted meaning of the word ‘goods’ in the accounting language is the stock of finished goods only. In a manufacturing organization, however, in addition to the stock of finished goods, there will be stock of partly finished goods; there will be stock of partly finished goods, raw materials and stores. The collective name of these entire items is ‘inventory’.

Inventory management is aimed at maintaining a minimum investment in operations to maximize profitable operations. To maintain a large stock of investment to ensure a smooth and efficient operation of the firm.
The effect of inventory management on government health institutions like UNTH Enugu cannot be over emphasized; this is because asset of many institutions represents considerable percentage of the total invested capital. The control, accounting and management of an efficient inventory management system is of a special interest to both management, suppliers and other users of accounting information.

Therefore, poor inventory management leads to expiration of drugs, loss of quality sequel to poor storage system with resultant reduction in efficacy of the drug. This might even lead to death of some patients. There may be stock out and lot more effect of poor inventory control and management.

Inventory control is concerned with the acquisition, control, handling and use of inventories so as to ensure the availability of inventory whenever needed, providing adequate provision for contingencies, deriving maximum economy and minimizing wastages and losses.

Hence, inventory control refers to a system, which ensures the supply of required quantity and quality of inventory at the required time. Inventory control can make or break a company. This explains the usual saying that inventories are the grave yard of business.

The aim of a sound inventory control system is to ensure the best balance between two much and too little. Too much inventory carries financial rises and too little reacts adversely on continuity of sequence.

In health institutions such as UNTH Enugu, inventory control is more than just procurement and usage. The proper controls and processes can save millions in health care cost by enabling health institutions to efficiently order and store just the right amount of supplies needed for patient care while tackling cost, tier pricing and patient charges associated with supplies.

Inventory management and control helps facilities identify, control and manage their inventories by keeping accurate records of all inflow, outflow and movement of inventory (drugs) in a user friendly environment. The proper tracking data allows for accuracy in patient charges and on audit trail to identify cist charges.
The intention of this research work therefore aimed at studying the management and control of inventories (drugs) in government health institutions with special reference to University of Nigeria Teaching Hospital, Enugu.

1.2 Statement of the Problem

A large proportion of the government health institutions are faced with similar problems. These problems hinder the growth and development of institutions in this country. The problems include

Unsatisfied clients/patients arising from poor qualify drugs.
High rate of obsolescence, wastages and theft of drugs.
Poor quality of inventory control leading to out of stock of essential drugs in the hospital.

1.3 Objectives of the Study

To ensure an effective and efficient management and control of inventory (drugs) in government health institution leading to effective service delivery.
To reduce obsolescence and wastages of drugs.
To reduce out of stock syndrome prevalent in government hospitals.

1.4 Research Questions

To what extent has effective management and control of inventory aid in effective and efficient service delivery of hospitals?
How far do effective inventory management reduce obsolescence and wastages of drugs experienced in hospitals?
To what extent do good inventory management help in reducing out of stock syndrome prevalent in government hospitals?

1.5 Formulation of Hypotheses

Ho; proper management and control of inventory does not have a significant effect on effective and efficient service delivery of hospitals.
Hi; Proper management and control of inventory has a significant effect on effective and efficient service delivery on hospitals.
Ho; Proper management and control of inventory does not reduce obsolescence and wastages experienced in hospitals.
Hi; Proper management and control of inventory reduce obsolescence and wastages experienced in hospitals.
Ho; There is no relationship between inventory control and stock out experienced n hospitals.
Hi; There is relationship between inventory control and stock out experienced n hospitals.

1.6 Significance of the Study

The significance of the study is mainly attributed to the need for measuring result of inventory operations for a particular period such as month of year. This study will point out the importance of inventory control and management in government health institutions.

This study will also create an opportunity for existing and prospective employers and employees to benefit from the use of modern inventory control and management techniques that will be recommended. To students, it will improve their theoretical and practical knowledge of inventory management and control in government health institutions.

1.7 Scope of the Study

The management and control of inventories cover physical control, accounting control and management policies and procedures relating to inventory. This study is based on government health institutions but due to time, the school system and financial constraints, this research has selected a sample from eth population of health instructions.

The study sample selected for this study is University of Nigeria Teaching Hospital (UNTH) in Enugu, and the study shall cover their ordering method, procurement method, storage and issue of drugs including the cold chain system and the inventory management and control techniques that aid in the achievement of the organizational goal.

1.8 Limitation of the Study

The absence of any previous empirical study on the management and control of inventories drugs in the program of UNTH is a significant limitation to this study.

These absences of an existing body of study on this area in the institution posses a special problem of the absence of previous reference or primary data from the scratch through questionnaire administration and designed to supplement available secondary data. However, financial constraints are expected to present a very serious limitation to the study since it would limit the researcher’s data material and the presentation of existing evidence.

1.9 Definition of Operational Terms

Inventory

Stock of materials or product. In this, inventory refers to drugs.

Inventory Management

The official system designed by the management of a company to monitor control and manage the stock of inventories and assets under its possession.

Inventory Control

Supervision of the supply and storage and accessibility of items in order to incur on adequate supply without excessive supply.

Cold Chain System

A popular term for continuous maintenance of low temperature required for biological example vaccines from the time of manufacture to shipping, warehouse and storing before administration.

1.10 History of UNTH

The UNTH Ituku Ozalla, Enugu, has come a long way. The hospital began in the 20th century as a standard hospital for Africans built by the colonial administrators. It later metamorphosed into a general hospital on attainment of Nigeria’s independence in 1960.

However, at the end of the Nigerian civil war in 1970, the then government of east central state transformed it into a specialist hospital with effect from July 1, 1970.

At this time, the hospital has a total of 50 doctors, 10 wards and 300 beds and a chest bay of 60 beds. There are also 350 nurses working in the hospital. Today, the situation has changed drastically. The bed capacity of the hospital in the permanent is over 500 beds and the number of its personnel both professional and non professional has increased tremendously.

By decree number of 23 of 1974, the Federal Ministry Government took over the hospital, but left the management in the hands of the council of the University of Nigeria Nsukka. The University of Nigeria Teaching Hospital became independent in July 1976 with the appointment of autonomous management board.

The physical constraints of the old site of the hospital mad eit impossible for needed expansion to be implemented. It was also appreciated that the old site was developed and used as a general hospital, and therefore, could not longer cope with the challenges of a teaching hospital.

Consequently, the approval of the then Federal Ministry Government for the construction of a new complex for the teaching hospital was ought and it came as welcome relief. Today, this site, which is the permanent site of the UNTH at Ituku Ozalla is permanent and gully functional. It is located 21 kilometers from Enugu capital city along Enugu, Port-Harcourt Express way.

All services rendered at the old site has now been moved into the permanent site with effect from 8the January, 2007. The hospital covers an area of about 200, acres while the entre parcel of land about 306 hectares (747acres).
There is now a room for expansion and this is hoped to assist in solving the accommodation needs of the hospital once and for all.

The new hospital complex is also better equipped under the Federal Government assisted by VAMED engineering equipment programme which has elevated it and some other teaching hospitals in the country to an international standard.

The UNTH has broad objectives of services, teaching and research. The hospital tries to achieve these through provision of in-patient and out-patient services to its clients through her highly trained staffs, provision of adequate clinical materials for service and training as well as equipment of research, provision of teac facilities for training her students and other persons in the health delivery team and conduct and promotion of research in all matters pertaining to health.

Altogether, there are 41 main departments in the hospital with three outpost. They are:

Comprehensive Health Centers at Obukpa near Nsukka Enugu State
Abagana in Njikoka Local Government Area of Anambra State.
Isuochi in Abia State.

There are 9 training school/programmes in the hospital they have school of nursing, midwifery, medical laboratory science, nurse anesthetists, community health, post ophthalmic nursing, pre-operative nursing, cardiothoracic nursing and medical records. These schools operate currently at the old site but plans are already on the ground to provide structure for them in the new site as soon as possible

Chapter Five

Summary of Findings, Conclusions and Recommendations

5.0 Introduction

This chapter gives a summary of the findings of the study, the conclusions and the recommendations for stakeholders to ensure effective and efficient management of inventory in healthcare institutions. These have been discussed in the next sub-sections.

5.1 Summary of Findings

In order to ensure achievement of the study objectives, the summary of the study findings is presented in relation to the objectives of the study. The discussion of the results in the previous chapter shows the following main findings.

5.1.1 Inventory Management Practices at UNTH, Enugu

The first objective of the study was to determine the inventory management practices at UNTH, Enugu. The study revealed that total inventories held by UNTH, Enugu constitute mostly medical consumables. The respondents all indicated in the affirmative that there is an inventory management policy. Stock is replenished manually at internal customer request and stocktaking is not done at a stipulated time intervals but rather as and when needed. The respondents also indicated that they are not used to any inventory model but rather they use the two-bin system and the requisition forms to manage inventory.

For ensuring lean inventory system as inventory management practice, UNTH, Enugu ensures agreements with supplier for short cycle deliveries (items which doesn’t take long to deliver), ensures accurate prediction of supplier delivery dates and operate materials Requirements planning system (MRP) – where bills of materials are 100% accurate. UNTH, Enugu vehemently ensures Strategic Supplier Partnerships as an Inventory management practice as responses indicated such. The findings finally revealed that UNTH, Enugu strictly uses Information technology as an Inventory management practice as responses indicated such.

5.1.2 Healthcare Service Delivery Level of UNTH, Enugu

The second objective of the study was to evaluate the service delivery level of the UNTH, Enugu. The study revealed that inventory management has immense benefit on the service delivery of UNTH, Enugu officials and the entity as a whole. It could be seen that the patient respondents agrees with the items used to measure service delivery of UNTH, Enugu. It was revealed that the responses were more towards satisfaction to almost all the items that the researcher used to measure patients perception of service delivery. However, the measures that patients deemed mostly satisfied about includes

“Reliability of Healthcare Service (24 hour service and full complement of Medical Staff)”,
“Completeness of Healthcare Service”, “Empathy of Healthcare Staff”, “Affordability of Healthcare Service (Payment)” and “Aesthetics (Physical Appearance of Healthcare Service)”.

5.1.3 Effect of Inventory Management Practices has on the Service Delivery Level of the hospital.

The third objective of the study was to determine the effect of inventory management practices has on the service delivery level of the hospital. It was revealed by the staff respondents agrees with the items used to measure the effect of inventory management practices on healthcare service delivery of UNTH, Enugu. This implies that inventory management practices of UNTH, Enugu has an effect on their healthcare service delivery level including inventory planning and scheduling improved customer service.

5.1.4 Challenges of Inventory Management at UNTH, Enugu

The last objective of the study was to identify the challenges encountered in the implementation of the inventory control policies and practices at UNTH, Enugu. Notwithstanding the best practices in inventory management at UNTH, Enugu, there were some challenges which hinder the effective and efficient of the various types of inventory that they hold. The study revealed that some of these challenges include delays in delivery of drugs leading to insufficient inventories, bureaucratic process in procurement, loss of drugs through inventory shrinkages, conflict of interest, weak management system and insufficient funds for procurement, etc. which were indicated as either occasional problems, major problems or threats to the implementation of effective inventory control practices.

5.2 Conclusions

Effective inventory management is upheld to be a potential driver for enhancing profit margins. Minimizing total inventory of cost through identifying an optimum level of inventory that an organization holds is the way forward. A well-functioning inventories management will bring both economic benefit in terms of profitability and bring good image to the company. It will enable the company to undertake projects on time and bring out quality finished products of the company. When a company implements effective inventories management systems, the firm’s efficiency is enhanced. This has an impact on the level of performance in terms of turnover, growth, management and ultimately profitability as purported by previous studies by Oballah et al. (2015), Anichebe and Agu (2013) and Ogbo et al. (2014).

Inventory management ensures that the firm does planning ahead of time to avoid shortages and make sure that right quality of materials are at the right place at the right time. Inventory management is very important since it enables firms to avoid locking their money in inventories and help build good and permanent relationship with suppliers.

To ensure that the inventory management plans and policies are being followed, it is important to set up effective and efficient monitoring systems. This would include recruiting well qualified personnel to manage the inventory system and set up functioning information systems which will be used to manage the system. Inventory management should not be the preserve of the management and stores or logistics department only but every staff must be made to understand the importance of inventory management.

This study sought to investigate the inventory management practices on healthcare service delivery. It can be concluded from the study that UNTH, Enugu has been practicing inventory management. However, its effectiveness and how those practices were adhered to by management and staff were somehow with some challenges. Therefore, pragmatic measures should be put in place to curb such challenges to ensure effective and efficient inventory control in healthcare institutions.

5.3 Recommendations

In light with challenges of inventory management revealed in the study, the researcher recommends the following guidelines to necessary to enhance efficiency in the current practices adopted by the company in management its inventory:

There is a need for management to emphasize the importance of inventory management. Inventory management should not be the preserve of only the staffs of the warehouse, stores or logistics department. Each person in the hospital must appreciate the importance of inventory control and adhered to related processes, including documenting inventory movements and storing items where they belong not just where there is open space. Dedicating one individual to full-time inventory management provides continual attention to that function, while rotating various oversight responsibilities among other individuals broadens their understanding of inventory control processes. Such practices also promote accountability and ownership. If this is done, other major problems such as handling materials, shortage of materials etc. of UNTH, Enugu as revealed by the study will be minimized if not removed.

There should be the use of an integrated information system by UNTH, Enugu to connect and distribute projects related information particularly between staffs in the organization, or that links the company with its suppliers. To this ends, the adoption of enabling technologies such as a Logistics Information System (LIS), often in the form of Electronic Data Interchange (EDI) or Value Added Network (VAN) or the internet are desirable so that different parties in the supply chain can gain access to the needed information for decision making, thereby meeting the market requirements responsively.

Improvement of demand forecasting should be the basis for the company to plan their internal operations and to cooperate among departments to meet market demand. These should define which products will be required, what amount of these products would be called for, and when they will be needed. All forecasting must deal with four major variables that combine to determine what the market condition will be like. Those variables are demand, supply, product characteristics and competitive environment.

There should be improvement of relationships with suppliers. The most important purchasing activity is to select and keep close relationships with several reliable and high quality suppliers in order to reduce product cost, maintain good product quality and customer services. UNTH, Enugu should improve their relation with their suppliers by paying them on time, ensuring early placement of orders, free flow of information, and also being honest with them. This is because, it was discovered from the study that some of the suppliers were reluctant to supply materials when orders are made in situations where the company is indebted to them.

From the findings the company does not use any recognized inventory management model. The organizational corporate inventory policy must incorporate in its inventory policies efficient and effective inventory models. In an organization like UNTH, Enugu where demand is not known with certainty because of improper forecasting, a combination of two or more efficient and effective models are needed to be able to approximate the future with degree of accuracy. The determination of what to order, how much to order and when to order depend on a flexible model. The existence of effective communication infrastructure prepares a fertile ground for Vendor Managed Inventory (VMI) which will instill in the organization operational efficiency. Regressing and simulation models could determine optimum lot-size.

5.4 Recommendations for Further Studies

The findings of the research agree with existing literature that there is little practice of inventory management in public institutions in Nigeria. The private sector especially healthcare institutions should make sure that there is an effective inventory management system in their firms as this will bring much benefit to them.

Finally, future research in this field should be carried out in respect of effective relationship building with suppliers and its impact on inventory management, as well as the use of integrated information systems in the inventory management of various inventories in the public sector.