Perpetual Inventory Can Benefit Your Pharmacy

One of the most basic retail skills is that of inventory management. No matter the retail business, it is necessary to know what is available to sell and how much of those products are on hand. Order management and timing is undoubtedly a key factor. It is also important to know what is available for working supplies as well as personnel needs, but those are different concerns. Today the focus is on managing the retail pharmacy inventory.

Pharmacy products represent a multi-billion dollar per year industry. Pharmacies sell much more than prescription drugs every day. Items such as physical aids, recovery supplies, dietary supplements, general health and beauty products, and so much more comprise the stock in trade. Individual product quantity estimates range from 1,500 to over 3,000 specific items in the average pharmacy. Add in the continually shifting requirements to accurately fill patient prescriptions, and a pharmacy owner or manager has an inventory nightmare!

Two primary inventory systems can be used and most pharmacies use one or the other. The most traditional, periodic inventory, expects that starting inventory and orders are known as well as a method of tracking sales to produce a stock quantity that is supposed to be confirmed by a regular physical count (usually annually) of products. With the advent of computerized point-of-sale systems, another inventory system called perpetual inventory is coming into more common use.

Traditional periodic inventory is not necessarily the best system to use, particularly with products that have tight expiration dates or in situations of rapid product turnover. The periods between physical inventory events are often too long to accurately account for shrink (invoice errors, theft, or improper discounts to customers), errors recording sales or shelf count errors. It is also challenging to manage current changes in the cost of goods sold.

In a perpetual inventory system, the initial inventory received product orders, and counter sales are all tracked by a software program. The program updates inventory quantities in real time and allows reports to be run that can help improve customer service by identifying low or out of stock situations. Expected on-hand inventory (minus shrink and damage) is confirmed by regularly scheduled physical counts of some items. This is called “cycle counting.” Combining both computerized and physical systems ensures that your inventory reports are as accurate as possible. This gives the best information to track pharmacy profitability, both long-term and short-term.

Pharmacies that use a perpetual inventory system rely on cycle counting to maintain accuracy. Usually, cycle counting is done with a specific set of items being counted at a specific period. By calculating a portion of inventory regularly and comparing those numbers against inventory records, it is possible to investigate discrepancies in records and shelf quantities quickly. Potential discrepancies between “book inventory” and actual shelf count can highlight problem areas in the retail pharmacy or the storage facility. Problems could be due to simple paperwork or numerical errors but could also be the result of actual loss (whether theft, damage, or another situation). Solving any of those problems quickly is one easy way to increase profitability.

Perpetual inventory paired with cycle counting is a system that has detractors. Criticisms such as the need for specialized software, a higher cost of implementation, additional training expenses, and the need to continue physical counting have all been raised. However, the same criticisms could also be said of point of sale registers yet almost every retail location has adopted that technology. The need for accuracy certainly outweighs the perceived negatives. Increased accuracy generally leads to increased profitability. After all, no one operates a retail business to lose money!

There are actually a number of significant benefits to maintaining a perpetual inventory system in any single pharmacy or pharmacy chain. Inventory records are as accurate and up-to-the-minute as possible. Purchasing and staffing considerations can rely on inventory records for easier decision-making. Inventory turnover ratio can be correctly calculated at any time. A pharmacy effectively gains a buying assistant without increasing personnel payroll. Data analysis allows a close study of purchasing trends, the likelihood of reducing unsold inventory, and more efficiently returning expiring items. Cost of goods sold, reserve stock calculations, and profit and loss statements are all easily tracked, which allows for faster corrections to improve the bottom line. Actual product counting within the established cycle validates and confirms the inventory records. Overall, more time can be spent on real customer service and ensuring the profitability of the business.

Here at Datarithm, we offer a robust, full-featured perpetual inventory system that seamlessly integrates with major pharmacy management systems. Pharmacy inventory records, drug sales trend analysis, and specifically targeted algorithms are combined with individual management preferences to create a truly customized program for a single pharmacy or chain. We help make the best decisions for any pharmacy’s specific needs. Just like any retail owner, our goal is to increase store profits while enhancing customer service. Contact us today so that we can discuss the possibilities of a partnership.

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