What Is Pharmacy Inventory Management?
Inventory is the single largest investment and ongoing expense every pharmacy has. Best practices for inventory management include maintaining accurate on-hand stock positions as well as establishing when and how much to replenish the stock to meet anticipated demand while avoiding overstock or out-of-stock situations. Both of which can negatively impact a pharmacy’s bottom line.
Therefore, an inventory management system is implemented to provide better stock control, replenishment, and drug dispensing. In return, your operating costs will decline, while profits, cash flow, and customer service will all improve through stronger operational efficiency.
There are 3 recognized types of inventory management:
Visual Method
The Visual Method of pharmacy inventory management requires staff members to manually inspect or eyeball the inventory. If the inventory level of any item appears insufficient to cover upcoming fills, replenishment is triggered. Unfortunately, the pharmacist or technician is typically too busy to place the order and will often write a note or commit the needed reorder to memory. Far too often stock issues are not realized until it is too late i.e. when the last of the drug’s inventory has been dispensed.
This method is not effective, because it’s nearly an impossible task to keep up with a pharmacy’s constantly changing inventory stock and demand. Additionally, surplus inventory identification that could suggest potential wholesaler returns or store-to-store transfers for chains which would elevate a pharmacy’s cash flow not recognized.
Periodic Method
Similar to the Visual Method, the Periodic Method focuses more on performing basic inventory management tasks at scheduled and routine intervals. This method may incorporate basic technology that removes the need for manually updating inventory status, and incorporate the use of barcode scanning. This means the pharmacy’s technicians inspect the inventory at specific periods; either weekly, monthly, or annually.
While this method is more systematic than the Visual Method, status inaccuracies can surface after status updates, and it still relies on pharmacy personal to make decisions based upon their observations, experience, and analytical knowledge. Unfortunately, inventory management can be left to inexperienced staffers or time-pressed pharmacists who don’t understand the potential value of that wholesaler returns and possible inventory transfers, the true cost of dead inventory, or how to properly identify and calculate exact reorder points across all of the drugs in a pharmacy’s formulary.
Perpetual Method
The Perpetual Method measures inventory continuously in real-time through a computer system that automatically updates on-hand quantities upon delivery and dispensing.
It incorporates an automatic replenishment system that ensures that drugs are identified for reorder once the stock level reaches or falls below a calculated replenishment point. Items identified, are then reviewed and accepted or adjusted by the pharmacy staff. Items are then ordered manually or electronically via EDI through the pharmacy management system.
Of the 3 Inventory Management Methods, Perpetual is clearly the best solution and provides the following benefits:
- On-Hand inventory is always accurate
- Financial conditions (inventory investment and profitability) are readily available
- Theft/fraud/diversion—shrink is easy to spot when PMS and shelf disagree
- Free up working capital
- Choice of manual or automatic EDI ordering
While the benefits of the Perpetual Method are clear and substantial, without automation, it does come with inherent problems. Maintaining reorder points for thousands of drugs, while recognizing fluctuating demand, is nearly impossible without the proper pharmacy inventory management technology.
Benefits of Automation
- Monthly re-order point optimization—always in lockstep with changing demand and the preferences of management/owners
- Automatic return and transfer recommendations
- Improved fill-rates and inventory turns
- Intelligent cycle counting
- Data analysis allows a close study of purchasing trends
- Reduced ordering time—more time for your patients
Observations
An inventory management system is a must for every pharmacy.
While the multitude of benefits provided by the Perpetual Method far outweighs the initial investment in dollars and time required to implement this system, automation takes Perpetual to the highest level.
Datarithm’s intuitive, cloud-based software is the perfect solution to implement perpetual inventory management for pharmacies of all sizes. It allows pharmacies to take complete control of their inventory with a simple-to-use dashboard and helps to free up pharmacy staff from time-consuming tasks. Datarithm’s® automated system meshes seamlessly with most leading pharmacy management systems. Datarithm uses algorithms that forecast demand, recognizes trends, automatically resets reorder points, and surfaces potential wholesaler returns and store-to-store transfer (chains). Pharmacies deploying Datarithm typically experience stronger profit, cash flow, inventory turns, and customer service.