Managing Materials through Perpetual Inventory System

Inventory is a very vital part of any hospital. It is  the major cost factor in any hospital. About 35- 40 per cent of the budgetary allocation is for procurement and management of Inventory. It is obvious that Inventory management holds a crucial key to the seamless functioning of the hospital which deals with human life every second. One of the most effective tool for the material management, which the material managers strongly advocate is the perpetual inventory system .

Perpetual inventory system is a technique of controlling stock items by maintaining  inventory records in a manner such that physical stock balances at any point of time matches with the stock in records. Records may be electronic or manual. The term perpetual inventory refer to the system of record keeping  and a continuous physical verification of the stocks, with reference to the store records.

  

The advantages of the perpetual inventory system are-

1) Allows setting up of accurate reorder levels : In a perpetual inventory system, changes in,   inventory levels are recorded in real time. This provides us with the information of when the   inventory is purchased and when it is sold. Regular inspection of the stock and cross verifying it with the stock in the HMIS ( Hospital Management Information System) provides exact stock levels and thus setting up of reorder levels(ROL) . It also prevents being out-of-stock and losing customers because of it.

 2) Prevents pilferages and shrinkages: In perpetual inventory system stock is verified physically very frequently  which in turn helps in the preparation of the provisional accounts .  It ensures a moral check on the store staff to maintain proper stock records. This masks any theft, shrinkage or even count  and remedial action can be taken quickly.

3) Creates More Accurate Interim Financial Statements : Because of continuous physical verification , inventory values do not change during the year. Both the inventory account on the balance sheet and the cost-of-goods-sold account on the profit and loss statement are incorrect throughout the year. A perpetual system keeps those balances correct and gives a more accurate set of financial statements throughout the year.

4) Better management of  Inventory Levels: The system exercises better control over all receipts and issues in such a manner so as to give a complete picture of both quantities and values of stock in hand at all times . This prevents a build-up of inventory that is not selling that can be costly to the business. Under the perpetual inventory system, the inventory levels are always correct and the inventory turnover ratio can be calculated correctly. The turnover ratio tells a business owner whether sales are slowing down or whether individual products are no longer selling quickly.

Ms. Neha   Bhagatkar

Assistant Professor

SIHS