Inventory Management Flashcards
Principles
● Maximizing the efficiency in product distribution
● Inventory is needed to obtain sales / provide patients with medications
● High inventory values
○ Issues: cash flow, shelf space, product expiring, product damaged, theft
● Low inventory values
○ Issues: lost sales, negative patient experience, patient harm
Inventory Measures
Inventory Turn Over Ratio
● The number of times the dollar value of inventory is “replaced” in a year
Cost of Goods Sold (COGS) over 1 year
/
Average Inventory Value
Cost of Goods Sold (COGS) = cost of getting the inventory that was sold
(matched to the sale of the products)
Average Inventory Value = (Starting Value + Ending Value) / 2
Inventory Turn Over Ratio
● Inventory value (Jan.1) = $150,000
● Inventory value (Dec. 31) = $160,000
● COGS (Jan. 1 – Dec. 31) = $1.5M
○ COGS = Starting inventory + purchased inventory - ending inventory
Cost of Goods Sold (COGS)
/
Average Inventory Value
1,500,000
/
(150,000 + 160,000) / 2
= 9.7
Average community pharmacy inventory turn over ratio (prescription drugs)
Average community pharmacy inventory turn over ratio (prescription drugs)
○ 10.7
● Top 25% of performing pharmacies (prescription drugs)
○ 11.7
● Front of store
○ Benchmark 8-9
Inventory value (Jan.1) = $150,000
● Inventory value (Dec. 31) = ????
● COGS (Jan. 1 – Dec. 31) = $1.5M
○ COGS = Starting inventory + purchased inventory - sold inventory - ending inventory
1.5 M/ (150 000 + ?) = 11.7
$106,410
Inventory Management
Other Measures
● Do you have new products on the market ● Stock outs ● Unable to fill full prescription quantities for patients ● Restocking the product every day ● No room on shelves ● Not enough money in the bank account
Managing Inventory Purchasing decisions (Dispensary)
● Identifying prescribing patterns ○ Adding new products ○ Identifying changes to prescribing patterns ○ Outbreaks of illnesses ○ New prescribers
● Dealing with new interchangeable products
○ Are multiple vendors required?
○ Formulary changes
○ Drug shortages (supply issues)
Purchasing decisions (Front Store)
● Identifying purchasing patterns
○ Adding new products
○ Identifying changes to purchasing patterns
○ New product launches / promotions
● Shop the Competition
○ Are there products you do not sell that you could / should?
● Support Business Promotions
○ Banner / franchise / corporate marketing promotions
○ In store specials
Product Mix
● Identifying fast moving (selling well) and slow moving (selling poorly) products
○ Use point of sale systems (front store) to identify slow moving items
○ Discontinue slow moving items (i.e. ensure you do not reorder)
○ Consider discounting slow moving items to clear out
○ Make more space for better selling products
○ Do not reorder expired products (esp. Rx products)
● Products to match your place in the market (and your vision)
○ Are there products you do not want to sell?
○ Does market demand in your market impact your choices?
Product Quantities
● You cannot sell a product that you do not have in stock (brick & mortar)
● Image on the shelf is important
○ Facing shelves: marketing and promotion, th emore facing = more exposure means they are more likely to be bought than ones with less facing
○ Not enough (empty space) decreases sales to the section (and makes shoplifting easier)
○ Too much (stacking) decreases sales to the product
● Balance - re-stocking the same product everyday is inefficient (costly)
● Pharmacy information management systems and Point of Sale Systems can
assist in determining ideal stock levels
● Patient related - ordering in advance
Managing Inventory
Suppliers
● “Just In Time” inventory management
● Wholesalers (banners / independents / some chains / secondary suppliers)
○ Same day / next day order delivery
○ System to system ordering
○ Web based orders
○ Electronic scanners
○ Narcotic and controlled drugs
○ Negotiated wholesale “mark-up” / minimum orders
● Distributors
○ Owned by pharmacy operators, only selll to specific pharmacies
● Manufacturers - can only buy their pdts ○ Single source ○ Longer lead time ○ No upcharge ○ Minimum order requirements
distribution centres
drug shortages
● Manufacturers ○ Brand ○ Generic ● Distribution Centres ○ Jean Coutu, Loblaws / Shopper Drug Mart, Lawtons, London Drugs ● Wholesalers ○ Gamma Wholesale, Imperial Distributors, Kohl & Frisch, Mckesson Canada, Reliepharma, Unipharm
Regulated by Health Canada (wholesaler / distributor) - federal F&D Act
Drug Shortages - Canada Reporting Site
Inventory Management Tools
● Manual
○ Short lists
○ Visual inspection
● Perpetual computer assisted
○ Min / Max
■ Manually set by item
■ Automated based on past purchasing / selling history
○ Scientific
■ Calculated ordering logic to account for inventory carrying costs, supplier lead time
(shipping) and forecasted demand (seasonal)
Manual
● Advantages ● Disadvantages Perpetual Computer Assisted ● Advantages ● Disadvantages
Manual
● Advantages
● Disadvantages: mistakes can happen, entering it, inventory number wrong
Perpetual Computer Assisted
● Advantages
● Disadvantages
Inventory Verification
● Comprehensive Annual Physical Count
○ Correct pharmacy system values
○ Correct “ghost” inventory (*count by physical location)
○ Account for “unfilled” products
○ Account for products “owed” to patients
○ Caution: CD&S adjustments
● Cycle Count
○ Supplement to or instead of annual physical count
