by Will Lockwood
VP | Senior Editor – Computer Talk Magazine
A pharmacy’s inventory is one of its biggest budget line items, and an area that requires daily attention. As such it can be one of two things. Managed poorly, it’s a drain on your time and cash flow. Managed intelligently, there is a wide range of positives. From finding the cash you need to invest back in your pharmacy, to ensuring the highest levels of patient service, pharmacists who look for ways to manage their inventory more intelligently are seeing gains. We’ll find out how three pharmacies are using advanced analytics, their pharmacy management systems, automation, and other services to ensure that their inventory is a valuable resource and not just bottles on the shelf.
Pharmacy Analytics for All
Whether you run an independent pharmacy or are charged with managing inventory at a chain, there’s an important set of tools that have come to the market in recent years: inventory analytics. This is a suite of tools that use your historical inventory data to train algorithms that in turn provide data-driven insights into your inventory — offering forecasts and recommendations, as well as keeping an eye on unusual activity.
Weis Markets is one example of a chain that’s made inventory analytics a central pillar of its operations, according to Rick Seipp, R.Ph., VP of pharmacy. Weis Markets operates 146 pharmacies in seven states, but primarily in Pennsylvania and Maryland, and has built pharmacy into a significant contributor to overall revenue over 35 years.
Still, as Seipp tells it, the company had some pretty antiquated inventory practices as recently as 2011, when the pharmacies were still filling out a paper order book. There was also a big problem, Seipp reports, with managing stock that was at risk of expiring. With these and other inventory challenges in mind, Weis Markets began working with Supplylogix and achieved full rollout in 2012. And while this partnership has been key for bringing in cutting-edge inventory management practices with impressive operational and financial results, Seipp notes that the most important benefits ultimately accrue to the patients. “Our number-one priority is making sure that we are everything to our customers and we have great customer service,” says Seipp. So from an inventory perspective, it’s absolutely critical that we’re making sure Weis Markets pharmacies are in stock appropriately and that patients are getting their medications when they need them.”
On the other end of the scale, George Fotis, Pharm.D., became the new owner of Drug City Pharmacy in Baltimore, Md., in 2018, but with some real work to do. The business is hardly that small, even with just one location. It’s been a cornerstone of the community since 1954, and Fotis reports very high prescription volumes and additional offerings that range from durable medical equipment to a post office to check cashing and a grocery and liquor department. “We’re really an all-purpose general store,” says Fotis.
But, Fotis realized, Drug City Pharmacy was also working with a very outdated inventory mindset. The standard practice before Fotis took over was to keep the shelves full of stock, buying based on the deals wholesalers were offering. That led to boxes of expired bottles on the shelves, sometimes with dust on them. “You may think you are buying right based on the specific deals,” explains Fotis, “but that ends up being a recipe for buying just way more than you need.”
Inventory analytics turned out to be just the remedy for this situation, and one of Fotis’s first orders of business as the new owner was to reach out to Datarithm about getting inventory and purchasing under control. What he found out was that he should be looking for a target number of around $600,000 for inventory. “I couldn’t believe it, because we were carrying close to $1.4 million in inventory at the time,” says Fotis.
And then there’s Osborn Drugs, which is a partnership of 18 independent pharmacies with 24 locations in Oklahoma, Kansas, Arkansas, and Missouri. President Bill Osborn, Pharm.D., reports that the group moved to perpetual inventory years ago, with an immediate positive impact of something on the order of a 30% reduction of inventory on hand. But the Osborn Drug pharmacies had then been looking for that next step, which ended up being software from OrderInsite, which has powered further gains from inventory..
Perpetual Inventory: Hard Work, But Worth It
Let’s pause, though, and talk about perpetual inventory a little more. Remember that one question you need to answer is, what do you actually have in stock? And the answer to this comes from the painstaking process of implementing and maintaining a perpetual inventory process. “That’s the foundation,” says Fotis. “Without it you’re up the creek.”
At Drug City Pharmacy, Fotis started with completely zeroing inventory and then going back and loading everything in again. It was a lot of work, but a clean current inventory has to be the starting point. From there, Fotis has leveraged his inventory analytics and EDI (electronic data interchange) ordering to set order points and maintain an accurate current inventory within his PioneerRx pharmacy system.
“If anything is below the reorder point our algorithms set, it goes on an order,” says Fotis. “Then I get an EDI transaction from the wholesaler directly back into PioneerRx that updates my stock numbers based on what’s actually being delivered. So I don’t have to do any sort of manual receiving whatsoever.”
With this process, inventory is never going to be off — in a perfect world. Of course, any pharmacist will tell you that things happen, and so keeping a perpetual inventory requires ongoing effort.
This is where cycle counts come in, according to Fotis. This means that you physically count around 30 products every day to ensure that the actual stock on hand matches the inventory numbers in your systems. Every couple of months you’ll have counted through your entire inventory. Fotis is using Eyecon tabletop counters to make this cycle count process quick and accurate.
What You Have and What You Need
In fact, it’s important to start any dive into inventory with two questions: What do you have right now, and what you need to order? Packed into this simple one-two is a pile of data reflecting shifting demand based on seasonality, generic rollouts, payer preferences, and more. And the closer you can keep inventory to a just-in-time ordering model, the better for your pharmacy’s cash flow. As George Fotis notes, you fill a prescription and you don’t get paid for it for four to six weeks. So if you’ve paid for that inventory and it’s been sitting on the shelf for weeks already, well, it’s easy to see how you can end up with hundreds of thousands of dollars tied up.
The work doesn’t end with answers to these two questions, though. As Rick Seipp explains, you also need to ensure that you don’t end up with excessive returns or expiring stock. This is a major, ongoing focus at Weis Markets pharmacies, according to Seipp. As you can see, inventory management is complex and needs to be data driven, making it a prime area to let technology carry the burden.
In Bill Osborn’s view, there’s another wrinkle here, too. The power of combining analytics and perpetual inventory is that not only can you use it to set reorder points intelligently, but you can also unload the burden of deciding when it makes most sense for those points to trigger a purchase. For example, reports Osborn, let’s say you’ve got a patient on an expensive medication that you buy in bottles of 100 and dispense in 30 counts. “OrderInsite can set the perpetual inventory reorder point for us at 29,” says Osborn, “but it can also look at our dispensing data and identify the next patient who’s going to need this medication. That way we’re not restocking the drug immediately after dispensing it, but instead we are smart and wait until just before we need to dispense it again to actually place the order.”
This keeps the cash for that buy invested elsewhere until the right time. It’s something that would be almost impossible to manage at any scale without technology. “This is one example of why we had a 25% decrease in inventory within the first three months of using OrderInsite,” says Osborn.
Look Back, Look Forward
Returning to the topic of software-driven analytics then, the question Rick Seipp suggests asking yourself is, how do you repeat off of what you know happened in the past, whether it’s in the most recent trends or in deeper historical data that can reflect seasonality and longer-term prescription cycles? “We’re on a 30-day prescription cycle,” says Seipp, “and we’re looking for our inventory system to work hand-in-hand with our medication adherence system and our dispensing system to identify opportunities and make sure that we have that right product come in when we need it. And when we have the right product in stock, our other processes work smoothly too, such as communicating to the patient that her medications are ready.”
Supplylogix gives Weis Markets pharmacies the foundation to execute successfully day in and day out, according to Seipp, and it also provides flexibility to change. “A great example is that in the last three months, we’ve looked at our entire algorithm and asked, do we have the right products in stock?” says Seipp. “Are we investing our money appropriately in inventory? We are constantly vigilant to make sure that we’re not overspending or underspending on inventory.”
Getting Smart About Inventory
George Fotis makes minimizing out-of-stocks a major goal at Drug City Pharmacy. It goes back to that desire to provide the best service to patients, as noted by Rick Seipp. But you can’t fall into a better-safe-than-sorry mentality, Fotis notes, and this is where he’s found that analytics is making him much more intelligent about his inventory.
Read More ⇒ Looking to Improve Your Inventory Counts?
“Software algorithms take the guesswork out of deciding on-hand numbers for your stock,” he says. “We can set, for example, a 30-day look back and a goal of maintaining a day’s supply in stock. This data is then what sets the ordering parameters within our pharmacy system. These algorithms do the hard work of weeding through your inventory for things like that bottle that was used once in the last 30 days, but was never used before. It keeps us from making the very natural mistake of reordering it based on that recent but unusual usage.” Likewise, it’s easy to train algorithms to look for the dispensing of certain medications that’s ramping up or down — for example, when a new generic comes out. Overall, Fotis finds that analytics is keeping him from being caught off guard by demand.
Move It, Don’t Lose It
Reducing the financial risk of returns and expired stock is one of the cornerstones of Weis Markets pharmacies’ partnership with Supplylogix, reports Rick Seipp. But what if you were able to find a way to use your at-risk stock, rather than return it? This is where Supplylogix Pinpoint Transfer has come to play a critical role for Weis Markets, providing data-driven recommendations for moving stock between locations. “Pinpoint Transfer has really helped us dramatically in this space,” says Seipp. “Over the last several years we’ve transferred around $67 million worth of product between our stores using Supplylogix’s Pinpoint Transfer technology, which is a pretty amazing number.”
This is so important because once a product is in stock, the best outcome operationally and financially for Weis Markets is to dispense it. Seipp reports that the Pinpoint Transfer algorithms are highly reliable, with about a 75% approval rate for recommended transfers and, even more importantly, close to 90% of what is transferred is then dispensed. “When we transfer a product, we’re moving it very successfully,” says Seipp.
Bill Osborn speaks to the importance of using transfers as well. Osborn reports that he and other pharmacy staff use the OrderInsite dashboard daily, pulling up views that can be arranged in a variety of ways, from a single store to groups of stores to all the pharmacies together. “I can tell you everything about the inventory in our stores from this dashboard,” says Osborn. “It’s incredible.” And from here he’s also able to get actionable data on product that could benefit from a transfer to a location where it’s in demand. “We’re moving significant amounts of inventory from store to store this way,” says Osborn.
You don’t have to have multiple locations to get the benefits of moving at-risk stock. George Fotis has successfully leveraged a service from MatchRX to sell to other pharmacies the excess product that he couldn’t return, because the bottles were opened, for example. “I would always see this one bottle of Glumetza on our shelves, which is a metformin extended release and about $10,000 a bottle,” he says. “We had half a bottle sitting there, and we weren’t going to use it. I put it up on MatchRX, and it sold almost instantly to someone who didn’t need a full bottle either. I think we’ve been able to move about $100,000 in open product on MatchRX.”
The Constant Is Change
The need for software to do the heavy lifting in managing inventory is heightened by the fact that the issues that impact inventory literally never stop changing. For just one example, Rick Seipp explains that when a generic first comes out, the brand can still be maintained on formularies for some time, differing payer by payer. Weis Markets is able to leverage its transfer program to make sure that product moves out of an area where it’s fallen out of favor and into an area where it’s still on formulary and in demand, reducing the risk of it ending up outdated.
Bringing algorithms to bear on your inventory brings other benefits as well, according to Seipp. For one, Weis Markets has important audit capabilities through Supplylogix that help to identify areas of risk and ensure processes are working the right way. The ability that analytics has to sift through the data and find suspicious activity is an important part of Weis Markets’ efforts to protect its assets and remain in compliance.
And then there’s the wild, complicated world of generics ordering. This is another prime example of how powerful inventory management software can make an impact. Here’s what’s happening at Weis Markets, as reported by Rick Seipp. The pharmacy tracks generic inventory based on the generic product identifier (GPI), which is a 14-character hierarchical classification system that identifies drugs from their primary therapeutic use down to the unique interchangeable product, regardless of manufacturer or package size. Supplylogix allows Weis Markets to look across inventory at all pharmacy locations and roll up the quantity on hand by GPI. This means ordering is then done based on this higher-level identifier, rather than by individual generic NDC. This, in turn, ensures that Weis Markets is transitioning smoothly to the generic NDCs within a GPI with the best availability and pricing, and ensuring that they’re delivered to the right locations. “It’s a key way for us to be nimble in our ordering,” says Seipp. “It’s so important to take a dynamic approach to how you stock NDCs — especially these days, since formularies vary so much across our locations and change so frequently.”
Advanced algorithms come into play with generics at Osborn Drugs as well. The pharmacies have their own generic warehouse, and contract every year for committed generic purchase volumes from Osborn Drugs’ primary wholesaler, McKesson. As such, it’s important for store orders for generics to be fulfilled both to make best use of the Osborn Drugs warehouse and to ensure that it meets its committed purchases requirements.“We send each store order to OrderInsite every day,” says Bill Osborn. “They look at these and use the logic that we give them to determine where the generics come from.” If it’s a product that Osborn Drugs warehouses, then that has priority. If the warehouse is out of stock, then the order goes to McKesson. And the algorithms are also reviewing whether McKesson has a significantly less expensive generic in stock that’s preferable to the contracted item. “This process has increased dramatically our compliance with our committed purchases while improving our warehouse utilization at the same time,” says Osborn.
Managing Cash, Managing Risk
Using software analytics to run inventory management frees up not just cash, but time as well. Weis Markets staff are focusing less now on the nuts and bolts of inventory and more on the practice of pharmacy through clinical opportunities, immunizations, medication therapy management, and more. “We’re not having to make decisions on inventory or trying to coordinate all our locations throughout the day.” says Seipp. “We’ve got the confidence to let SupplyLogix run things on the whole, with the need for only targeted input from our staff.”
But let’s not forget that cash. Healthy cash flow is the lifeblood of a business. The cash that George Fotis was able to free up from inventory was incredibly valuable to him as a new owner. He reports seeing his cash flow improve immediately, and subsequently reinvested in his pharmacy by purchasing a lot of needed technology. “I bought an RxSafe, a few Eyecons, and we brought in PioneerRx as our new pharmacy management system,” he says. “Essentially, all that extra inventory turned out to be the cash we really needed to put back into the pharmacy to bring it up to date.” That’s an example for any pharmacist on an ownership path and any pharmacy looking for the resources to make its strategic goals possible.
Getting your inventory rightsized and under control is not an impossible task. It just takes the right tools, and the payoff is impressive when you tally it up. “Inventory is down 41% since I started using analytics in February of 2017,” says George Fotis. “Our turns improved by 51%. So to me there’s no question that you have to bring analytics in if you want results. People will say, ‘I can do this on my own,’ butyou just can’t achieve the same level of sophistication and keep up with the ongoing effort required.”
To Bill Osborn, getting an inventory analytics package into your pharmacy technology suite is the next level. “We are more efficient in getting our patients the medications they need, and that’s helping them be more compliant,” he says. “In addition to that, we’ve freed up truly significant dollars in inventory capital for our pharmacies to use in different ways. So the ability to work with our inventory data this way has already made a huge impact. I think there are going to be more and more ways that it will benefit us and our patients as we go forward, because we’re going to be able to see opportunities that, frankly, we haven’t even thought of yet.”
Rick Seipp concurs that finding the right inventory management partner is the way to create the correct inventory level, by absorbing the information provided and allowing you to make a difference for pharmacy operations and for your patients. “I will say that getting a handle on our inventory has been a big part, very frankly, of Weis Markets pharmacies being able to go from 118 locations eight years ago to 146 now,” he says. “It’s allowed us to have our capital invested in the right places, to have the right inventory, and to service our patients the right way.” CT
Will can be reached at email@example.com
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