It’s All in the History: An Introduction to Inventory Forecasting

Are there still pharmacies relying on a single person to manage inventory manually? Does that single person have a great deal of head knowledge and experience in this process? Are they still using a spreadsheet-style “database”? Pharmacy owners and managers should be concerned that this is leaving the business open to an untold number of manual inputs, manual data and formula manipulation, and an increasing lack of specificity. In other words, errors creep in over time making it very difficult to find and remove those errors.

This approach could be costing any pharmacy a great deal of profit. Someone is performing multiple jobs, using manual efforts to promote simple plans, and overall organizational inputs are bypassed. What concerns exist for catastrophic data loss due to accident, injury, or retirement? There must be a better way! It’s all in the history.

Using a manual approach to inventory and ordering makes the process much more difficult. The ability to research order and sales history is very limited, often to the previous one or two cycles. Limits include the lack of ready data, the difficulty of comparing any evidence manually, and the specific knowledge of what may be driving anomalous sales spikes. It’s just too hard to wade through what information is available.

It has been said that the further into the past accurate records extend, the more precise the basis for predicting trends. Digging back into the inventory history often returns a number of patterns that could give insight into the future. Usually it is easy to identify some regular historical patterns such as allergy season or a holiday sale period. However, more than a manual approach is needed to drive a specific ordering strategy and maintain appropriate store stock levels to produce the most substantial profit through appropriate inventory management.

Dispensing history matters when considering specific items and quantities to stock. It is also essential for determining the timing of an order. The process by which these factors are evaluated can make or break efficiency and profit. In the vast majority of situations, it is generally more efficient and cost effective to remove the opportunity of introducing human error as much as possible.

No matter what inventory and ordering system a pharmacy uses, it is virtually impossible to predict the first time a medication is dispensed. Whether the medication is new to the market or a change of some kind in a current patient’s prescription, any pharmacy may need a little time to obtain it. This is also an opportunity to begin establishing the patterns necessary in the order/inventory cycle and to determine the extent to which order automation can be used for this item.

No one can truly predict the first use of a product. However, it is effortless to predict seasonal patterns. For example, during the spring and summer, it is much more likely that there will be a significant recurring customer need for allergy medications, both OTC and prescription. It is important to remember that these types of patterns exist year-round and it is usually possible to plan for them. With manual ordering and inventory, this process is a bit more difficult. The ability to predict needed products and quantities becomes less effective because of the need to compare data that may be found in multiple locations. Inventory forecasting software can streamline the process.

Sporadic product sales can be comparably easy to consider. Usually, there is a known need for an item but not necessarily in large quantities or in a regular rotation. Unfortunately, this often means that products are on the shelf or a storage location waiting to be sold. The difficulty in this situation is tracking products that have an expiration date or those that can be returned to the supplier based on purchase date. This requires some mechanism for following up on that information, whether it is done by manual means or by an electronic inventory control program.

Inventory is a pharmacy’s most valuable asset, but also the primary determining factor in overall profitability. Indeed, a specific driver of profit is the ability to manage ordering and inventory appropriately. The easiest way to account for that potential profitability is through the proper management of inventory. Controlling inventory requires efficiency and visibility on many levels. With so many moving parts it is often difficult to keep that control.

No matter how inventory is managed, there is going to be some risk, such as out of stock/overstock situations, potentially expiring products or loss due to shipping damage. There are several methods to manage that risk, such as spreading product needs out over multiple locations or carrying more than one similar product. These methods can reduce variability and uncertainty.

Another method to reduce inventory risks is the use of algorithm software. This is a more automated process that accounts for product use over time, as well as inventory and order history. Often in an automated system, there are the control mechanisms of cycle counting and preset parameters which can be adjusted based on specific needs. Advanced algorithms can take much of the guesswork out of inventory management while still allowing pharmacy owners and managers flexibility.

Here at Datarithm, our advanced algorithms account for trend analysis, historical dispensing patterns, and adjustable preferences to generate reliable forecasts for single or multiple location pharmacy operations. The customizable program integrates with leading pharmacy management systems which are likely already in place. We work with pharmacy owners and managers to create uniquely flexible decision-making tools to help achieve service, return, and profit objectives.

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