What Makes an Effective Drug Inventory

Management System
Drug Accountability Conference
May 12, 2010

Goal

Explore the importance of effective

inventory management

Inventory

Product
Single largest expense
Poor management negatively effects
Service
Morale
Patient lives

Inventory Management

Minimizing
Cost

Supply and
demand

Inventory Management

Purchasing
Right product
Right time and amount
Right price

Inventory Management

Other factors?

Accountability
Theft reduction
Reduce waste
Budget analysis

Inventory Management

Right time and

amount

Inventory Management

Ordering Process
ABC inventory method (Manual)
Perpetual inventory (Automated)

ABC Inventory Method

Classifies inventory items to determine

level of control needed
Rank items by annual purchases cost
A = 70% (10% of all products) - tight control
B = 20% (20% of all products) - mod. control
C = 10% (70% of all products) - least control

Inventory Cost

Ordering Cost: The costs of placing and receiving and

order.
Examples: clerical costs and documents
Carrying Costs: The costs of keeping inventory.
Examples: space costs, expiration, damage, shrinkage
Out of Stock Costs: The cost of not having sufficient
inventory.

Examples: Cost of expediting, taxi, cost of alternate

therapy

Safety Stock

Variability of demand
Lead time (Delivery Schedule)
Importance of therapy

Demand Forecasting

Demand Forecasting Weighting

factors are applied to past purchases
to calculate trends.
Reorder Point (ROP) = Safety Stock
Reorder Quantity (ROQ) = Economic
Order Quantity

The Inventory Cycle

Q
Quantity
on hand

Profile of Inventory Level Over Time

Usage
rate

Reorder
Quantity
(ROQ)

Reorder
Point or
Safety
Stock
(ROP)
Receive
order

Place Receive
order order

Lead time

12-14

Place Receive
order order

Time

Ordering Intervals

A items will be inventoried and ordered

a minimum of 2 times weekly.
B items will be inventoried and ordered
a minimum of weekly.
C items will be inventoried and ordered
once every 14 days.
Do no overlook efficiencies from being
organized.

McKesson Inventory Management

Shelf Tag System

A, B, C items are identified based on

your ordering history (Orange-A, Blue-B, Yellow-C)
ROP (Reorder Point)
ROQ (Reorder Quantity)
System also calculates ROP and ROQ
based on your ordering history

Mean Absolute Deviation Percentage

Mean Absolute Deviation Percentage (MADP) can be
used as an indication of the accuracy.
Range of MADP
0.01 - 0.25
Very reliable
0.26 - 0.5
Reliable
0.51 - 0.75
Irregular but useful
>0.76
Unreliable due to variance in purchases
Facilities should look for products that have a MADP
under 0.5 and a low turn. These would be prime
suspects for improvement.
*Found in 12 month Inventory Turns Forecast Report Detailed

Inventory Turn

Measured by dividing
total cost of products
purchased by inventory
value. Lower inventory
turnover is a sign of
inefficiency and
inflexibility. Upward trends
in inventory turnover can
be indicative improved
inventory management.

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Diversion Issues

VAMC pharmacist was arrested after an OIG investigation and charged with
stealing 10,000 tablets of non-controlled prescription medication from the
pharmacy over a 2-3 year period.
Defendant Pleads Guilty to Pharmaceuticals Theft at VAMC: A co-conspirator
involved in a scheme to steal VA pharmaceuticals pled guilty to misbranding
of drugs. An OIG investigation determined that the defendant was involved
with two other subjects in a conspiracy to steal drugs estimated at $250,000
from the VAMC pharmacy and resell them at a retail pharmacy. The primary
conspirator, a former VA pharmacist, was previously sentenced in this case.
VAMC Pharmacy Technician Indicted for Drug Theft: Pharmacy technician
was indicted for acquiring a controlled substance by fraud and using the
U.S. Mail to unlawfully distribute controlled substances. An OIG and VA
Police investigation determined that the defendant, who worked as a
prescription refill telephone operator, used the pharmacy profiles of
unsuspecting Veterans to steal prescription narcotics by mailing the
prescriptions to himself or family members residences.

Comments

Use math to settle most disputes.

Remember all inventories systems are
frequently incorrect.
We still need intelligent workers to
make the process work.
We are here to serve the patients.

Inventory Management

Questions