Published by: Diana Luai Awad, Dr Pharmacist on Monday 25.July.2022
Managing any retail assortment is not an easy task. It becomes much more complicated when it comes to managing stocks of drugs, including prescription ones. How to optimize stocks and control them successfully?
Inventory Management: What is It?
Management of resources (money, materials, personnel, time, information) – is one of the most important skills of a pharmacist, which is a key factor in professional success. Inventory is the biggest asset of a retail pharmaceutical business. Its cost is slowly but surely growing due to rise in prices, as well as an increase in the range of pharmaceutical products. Inventory management in a pharmacy has two main aims:
• reducing purchasing and operating costs
• maintaining an optimal inventory to meet the needs of customers and the requirements of the doctor.
From a financial point of view, effective inventory management improves gross and net profit by reducing operating costs. The optimized cash flow can be invested in other services and areas of the pharmaceutical business. It is also important that effective inventory management meets the needs of customers. Obviously, the unavailability of the drug can lead to client loss and the negative feedback from the attending physician, especially in situations where the drug is vital for the patient. In this regard, it is very important to optimize inventory:
• minimize the number of refusals
• ensure the optimal availability of drugs in accordance with the needs of clients and doctors
• exclude the presence of drugs with an expired shelf life
• keep from counterfeit batches in the pharmacy
• change inventory for larger turnover.
Inventory management is defined as the process of planning, organizing and controlling inventory, aimed at minimizing the investment in inventory while balancing supply and demand.
Formation of Stocks Taking Into Account a Turnover
Fast-moving medications, such as antihypertensive drugs, are usually in the low-price segment and do not require large financial investments. Therefore, pharmacies can ensure their availability in accordance with the demand, without the risk of “freezing” monetary assets. When purchasing drugs in this category, you need to consider:
• expiration dates
• availability of appropriate conditions for the storage of certain inventories.
Slow-moving medications are usually expensive and/or rare drugs. When forming their stocks, it is important to take into account information about the demand at a particular pharmacy, and, based on it, make a decision about the amount of drugs on the balance, and whether they are really needed in the assortment.
To successfully manage fast and slow-moving inventory, pharmacies need a flexible, automated scheduling system that takes into account various factors, including demand, cost, expiration date of a particular batch of drugs, and so on.
Basic Inventory Management Techniques
There are three inventory management methods in pharmacy:
• visual
• periodic
• automatic.
The first involves a visual assessment of drugs’ availability in accordance with the list of drugs, as needed. A pharmacist orders a product when the stock falls below a certain level.
The periodic method of management is based on the fact that the pharmacist counts the reserves and compares them with a list of desired reserves on a regular basis at predetermined periods. When the inventory level falls below the minimum, an order is posted.
An automated control system is the most common technique in developed countries, the most effective way to optimize reserves. It is based on the work of a computer software product that automatically generates orders based on various factors.
The so-called hybrid method is often used, when the pharmacist regularly checks the real product balances (using visual and periodic methods) with those recorded in a computerized system.
Automated Control System
Unfortunately, it is impossible to establish centralized rules for managing inventory for all pharmacies: each pharmacy has its own unique conditions that must be taken into account. For example, a pharmacy located in a busy area with high traffic and with small backrooms has conditions that are fundamentally different from the pharmacy with low traffic and large storage facilities. So the order management system must be configured individually, taking into account factors such as:
• local features
• changes in state subsidies, requirements of the insurance company
• updating of drugs’ instructions
• new approved drugs.
An effective automated inventory management system can accommodate data on lost sales – for example, pharmacists can record "refusals" on the drug’s availability so that in the future its stocks will increase to the optimal level. Such a program can help in deciding whether certain slow-movers should be included in the inventory, or whether it is better for a pharmacy to abandon them altogether as products that are not in demand. So, with four recorded requests, it is quite reasonable to include the drug in the pharmacy assortment.
Inventory management system also should take into account replacements. The pharmacist has the right to replace packages of prescription drugs of different sizes, for example, instead of one package of 100 tablets, dispense two packages of 50 tablets. In some cases, the pharmacy staff will need to contact the doctor to determine if a replacement is acceptable. Of course, it is better to minimize the frequency of replacement in pharmacies. The automated management system plans stocks, increasing the stock of medicines that had to be changed due to the lack of a pharmacy in the assortment.
Individual inventory management system must constantly calculate forecasts and reserve stocks to constantly replenish product balances based on the data entered by the pharmacist, as well as sales data.
Inventory Management Assessment
Inventory management is critical to the successful competition of a pharmacy and its operation in general. To help you analyze how well you manage inventory, you can calculate the inventory turnover rate (ITOR). It can be defined for the entire pharmacy or a specific department, for example, parenteral drugs, cardiac drugs, and so on. The ITOR is calculated as the ratio of the cost of products sold to the average inventory. Average inventory is calculated by averaging beginning inventory and ending inventory values during a specified period of time.
ITOR = Cost of goods sold / Average inventory
Average inventory = ½( Beginning inventory values + Ending inventory values)
ITOR should be compared to a previous period (for example, the same period last year) to infer how well you manage inventory. Economists offer the following interpretation of the ITOR. Value of 10 or more is average and indicates that the pharmacy sold stock a total of 10 times during the specified time interval. Higher values indicate a high turnover of goods over a certain period of time. A low level of ITOR indicates inefficient inventory management, their low turnover and sales level. In such a situation, an additional assessment of the orders' correctness is necessary.
Bibliography
- Ali A. K. Inventory management in pharmacy practice: a review of literature //Archives of pharmacy practice.2011;2(4):151.
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