Inventory Control

Introduction

The advice presented in this post are solely based on my three-year experience in inventory management at my hospital. Hopefully, these will serve as some tips when you are new to inventory management.

As the rule of thumb, we should practice FEFO principle (i.e. First Expiry First Out).

• When receiving new stocks, remember to compare the expiry date of new and existing stocks.
• Storing medications with different expiry date at different location to avoid confusion is a handy measure. This is because humans are forgetful.

NOTE: For the details in inventory management in logistics pharmacy at government facilities, you may refer to Garis Panduan Pengurusan Farmasi Logistik Kementerian Kesihatan Malaysia.

Monthly Usage

As the rule of thumb, when comes to inventory management, the decision should not be based on one's intuition. The important parameter that we should always refer to will be monthly usage. However, monthly usage is a fluctuating figure, hence I usually tabulate the data to make informed decision.

• The average monthly usage of the past 3 months, and also
• Trying to identify if there is any noticeable trend in the 3 individual monthly usage (either has been fairly stable or on an increasing/decreasing trend) - possibly a change in clinical management or clinical practitioner at your facility?

The fluctuation in monthly usage will be seem as much larger when a slow-moving item suddenly has a surge in usage.

• In these cases, you should identify the cause where possible: Is it a once-off surge or a real increase in usage?
• Should we factor the increment into average monthly usage calculation?

NOTE: In certain inventory software system, the average monthly usage can be auto-calculated, but it does not take into account seasonal fluctuations in demand or supply chain disruptions.

Minimum Stock Level

Next, we will set a minimum stock level where we will do a stock ordering once the stock level is below this figure. Few considerations in setting this minimum stock level should include:

• How soon we will receive the stock after ordering?
• How frequent do we plan to make an order?

Depending on whichever the longer time needed for the two considerations above, we will use it as the basis of minimum stock level.

• For convenience reason, I normally set my stock level to 1 month usage.
• Remember, we do not want to do ordering and re-stocking too frequently, because all these processes consume time (ordering, unpacking and filling up the stocks).

At community pharmacy, when comes to an item that is so slow-moving yet expensive, it might be wise to only purchase upon customer request (with deposit if needed).

• On the other hand, for a cheap slow-moving item, it might not be a bad idea to purchase a certain quantity (few months usage) at each stock ordering.

NOTE: Do not do stock reordering when the stock is well above the minimum stock level, except with a justifiable reason (such as promotion price or the item is fast-moving).

Maximum Stock Level

Logically, there is no issues in stocking up as many stocks in your facility as long as you can finish them by the expiry date.

• Few key considerations should include cash at hand, storage space at your facility, item movement and item expiry.
• Given the constraints of shelf space in some community pharmacies, it may be advantageous to stock a limited number of items, enabling more space for a wider range of brands.

Stock at hand is ONLY stock at hand if it is not supplied or sold to patients (customers).

• We should prioritize our spending in much needed and urgent areas.
• In a community pharmacy setting, we would like to have a constant cash flow, NOT stock overload. Plus, there are customers who are unwilling to purchase too short-expired medications and their definition of short expiry could be 6 months from today.

For fast moving items, it is justified to purchase few months stocks in advance (for example, 2-3 months). However, be careful when setting up maximum stock level for slow-moving items.

• If needed, the maximum stock level for slow-moving item could be the same as minimum stock level.
• In other words, the stock is kept for a (or few) regular customer (patient).

Projecting Future

Inventory management involves projecting future item movement.

• We are trying to predict how much stocks we need for a certain period of time, based on current data.
• To better foresee the trend of medication usage, it is just as important for logistics pharmacist to be updated with latest clinical management and medical news.

Regardless, predicting is only an estimation and to have an accurate prediction, the monthly usage should always be recalculated based on the latest 3 months, NOT to use an old monthly usage data.

• You may be surprised to see how vastly different the monthly usage is compared to a year ago.
• In fact, the longer the period that you would like to project based on current usage, the higher the risk of variation in real usage in actual period later.

In short, staying alert with item movement in our daily work is important to pick up new trends.

• Once a trend is noticed, we should work on it if needed (e.g. ordering more stocks).

Inventory Decisions

In starting up a new pharmacy, we might keep a larger range of products but only restricting it at a later stage. To determine the range of products to be kept in a pharmacy, we should consider carefully

• Customer demographics such as gender, age distribution, socioeconomic status
• Trend of demands
• Seasonality (e.g. gifts, cough and cold products, influenza vaccines and sunscreen products)
• Sales promotion by manufacturers of specific products.

However, when deciding to discontinue a product, the decision should not be made solely on item movement.

• Bear in mind that if a product is always nil in stock, the item movement will be zero too because no purchasing by customers can occur.

NOTE: Different from government hospital and clinic, community pharmacy keeps a few brands for a single medication. Normally, proprietary brands will be kept along with few local population or pharmacist preferred generic brands.

Outliers

Life is never as rosy as we wished. There are quite a number of circumstances which are just as important but out of our control:

• Promotion price for a period of time or above certain quantity
• Minimum delivery order
• Stock disruption
• Change in practice management

However, the underlying principle remains the same: To order what you need, NOT to overstock.

Managing Stock Disruption

Medication stock disruption is a serious problem that pharmacists have to face from time to time. For patients, shortages can potentially lead to

• Harm
• A patient may be forced into noncompliance with their medication regimen, which could lead to their condition worsening.
• Inconvenience
• A patient may have to travel to multiple pharmacies in order to find the medication they need, or they have to return to his doctor to be prescribed with an alternative drug.
• Uncertainty
• Insufficient supplies of a medicine can cause anxiety about long-term management of a medical condition. Patients may worry about whether or not they will be able to get the medication they need in the future.
• Dissatisfaction

There are many potential reasons for shortage or unavoidability of medicines.

• Local stock management issues
• e.g. Stock ordering levels are wrong, rarely used medicines have expired by the time they are needed.
• Regulatory
• e.g. Drug recall due to failure of quality assurance, new manufacturing standards being implemented.
• Manufacturing failure
• e.g. Catastrophes at factory, raw material shortage.
• Unexpected increased national or local demand
• e.g. Evidence-based changes in practice, sudden changes to the use of an infrequently used product due to shortage of the first-line choice).
• Distribution and logistical problems
• e.g. Delays in shipment, problems with the supply chain.
• Product discontinuation by manufacturer.
• Due to manufacturer going out of business or the product becoming unprofitable.

When this happens, government healthcare facilities have to take immediate actions to minimize the impact of the problem on patients' healthcare.

• First, estimate how long can the stocks at hand last based on current usage trend.
• If the stocks are insufficient, try to borrow medications from other healthcare facilities to bridge the gap until the stock is resumed.
• When the stock level is limited, start restricting the amounts of medications supplied to patients at each supply (e.g. every 1-2 weeks) to prevent medication wastage.
• If the stock disruption is prolonged, discuss with doctors to devise alternative medications plans.
• Stay in constant communication with suppliers to keep updated with medication arrival news.

NOTE: Beware there could be still further delays on stock resumption based on the earliest time arrival from the supplier.

Summary

Inventory management is the process of ordering, storing, and using a company's inventory.

• It is important to manage inventory effectively to avoid stockouts, overstock, and waste.

There are a number of factors to consider when managing inventory, such as:

• Demand: How much inventory is needed to meet demand?
• Cost: How much does it cost to store and carry inventory?
• Risk: What is the risk of stockouts or overstock?

External Links

• Garis Panduan Pengurusan Farmasi Logistik Kementerian Kesihatan Malaysia, 2020
• Why Drug Shortages Occur, 2015
  
• Royal Pharmaceutical Society's Best Practice Standards for Managing Medicines Shortages in Secondary Care in England