427 3 SLP. Working Capital, Material Management, and Evaluating Financial Health.
WORKING CAPITAL, MATERIALS MANAGEMENT, AND EVALUATING FINANCIAL HEALTH
In the majority of healthcare organizations, materials (including pharmaceuticals and expendable supplies) comprise the largest portion of the non-labor costs in the operating budget – thereby making it deserving of our focus and study. Correct management and control of your inventory has a direct and significant effect on your financial operating costs, and therefore, the total net income of your organization.
The process of materials management (the control of an organization’s inventory, services, and equipment from acquisition to disposition) allows for cost control and also allows the organization to operate correctly – having enough of each needed supply (medical, administrative, housekeeping, and/or clerical) on hand at the precise time it is needed. Once you’ve read the assigned background readings, as well as completed some peer-reviewed research of your own, please answer the following:
What are the best practices in inventory management that healthcare managers should implement and be consistent in using?
How are each of the four methods of valuing inventory used by healthcare organizations?
Choose one expendable item used in the healthcare setting, and show the value calculation for 500 of that particular item, using one of the methods of inventory valuation. Investigate a current-day cost of the expendable item to make your calculations as accurate as possible.
How do we best prepare for uncertainties in our inventory, and what would a correct re-order point be for expendable medical supplies?
SLP Assignment Expectations
Conduct additional research to gather sufficient information to support your analysis.
Provide a response of 3-5 pages, not including title page and references
As we have multiple required items to be addressed herein, please use subheadings to show where you’re responding to each required item and to ensure that none are omitted.
Support your paper with peer-reviewed articles and reliable sources. Use at least two peer-reviewed sources. For additional information on how to recognize peer-reviewed journals, see http://www(dot)angelo(dot)edu/services/library/handouts/peerrev.php and for evaluating internet sources:
https://www(dot)library(dot)georgetown(dot)edu/tutorials/research-guides/evaluating-internet-content
You may use the following source to assist in your formatting your assignment: https://owl(dot)english(dot)purdue(dot)edu/owl/resource/560/01/. Paraphrase all source information into your own words carefully, and use in-text citations.
Working Capital, Material Management, and Evaluating Financial Health
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Working Capital, Material Management, and Evaluating Financial Health
Inventory management is the handling and controlling of stocks and other items with a useful life of less than one year. In contrast, material management is the management of services, stocks, and equipment from purchase to obsolesce or disposal. Healthcare providers classify inventories into two broader categories- administration and patient care items. Administration items include office supplies, housekeeping supplies, and other items not directly used by patients. Patient care items include surgical supplies, medical supplies, food, linen, and drugs (Nowicki, 2018). The main focus of material management is to reduce material costs while ensuring the quality is maintained and continuous availability of adequate materials to be used in the healthcare facility.
Best practices in inventory management
Healthcare organizations are faced with tight budgets; hence they always strive to be cost-effective and without compromising quality. They always put in place cost-cutting measures to assist in managing costs. Therefore, inventory management is crucial in ensuring that the hospital minimizes inventory costs (Wild, 2017). The following are four best inventory practices.
Inventory Optimization
An organization should be sure of the right quantities to be ordered to synchronize with the amount being used to avoid purchasing excess inventory but ensuring that there is sufficient stock to avoid jeopardizing the hospital operations. Once the inventory has been ordered and delivered, it essential that the supplies are delivered to each department on a timely basis to ensure smooth service delivery. However, it is also significant to keep low stock levels to minimize holding costs and "dead" revenue and avoid carrying excess stocks from month to month. Excess inventory, especially medical supplies, may take a long time before they are utilized, and some might expire, forcing the organization to write off, resulting in losses and wastages (Banker, 2016). It also causes congestion in the storage areas. Therefore, the management must understand the inventory department's operations so that if there are any changes to be made, they should be addressed immediately to enhance efficiency in stores, reduce wastages, and holding costs.
Gathering Data Across Departments
Health care facilities should always strive to collect sufficient inventory information to streamline the hospital's supply chain department by understanding areas that need improvement and any trends. The inventory department should be evaluated based on cost-saving. That inspires them to join hands with other parties to provide business intelligence that encourages accumulation and cost-saving mechanisms. It occurs in the form of service engagements bought, consumable, and capital savings. Publishing and tracking cost savings on purchases by the inventory department will encourage other departments to emulate the mechanisms in place (Broman, 2018). Control measures ensure uniformity in pricing by ensuring that there is no price discrimination when purchasing supplies, i.e., paying different prices for similar commodities or supplies. Therefore, health care facilities should create a central location for tracking all purchases and ensuring that they obtain all market information to understand pricing well and meet the supply chain department's objectives. When a hospital applies these practices early on or re-establish this practice in the inventory department, it will improve the department's efficiency and lay a strong foundation from now on, which will help the department progress to a better level in the organization.
Create strategic sourcing of materials and supplies
Strategic sourcing generates excellent value for a medical institution because the responsibility of purchasing is becoming a huge role in the supply chain department. Traditionally, purchasing departments could only manage consumables and capital, but currently, the purchasing department's responsibilities have broadened to include several functions such as service contracts and IT. It is essential to understand the role of the organization group purchasing and review all local agreements to ensure that you obtain strategic sources(Broman, 2018). These strategic sources ensure that the organization has easier access to supplies and at favorable prices and of good quality. These will help the organization enjoy economies of scale, reducing the cost of purchasing supplies, and obtaining quality supplies and materials of good quality, which facilitate quality medical service delivery.
Examine Purchasing Controls and Patterns
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