INVENTORY MANAGEMENT

2019
 Learning Outcomes
• Identify visible(impact/see) and
invisible(insurance) costs of inventory
• Rationalize the benefits of inventory holding
• Illustrate consequences of poor drug
management
• Distinguish between allocation and
requisition systems
• Compare & contrast drug supply systems
The Logistics Cycle
 Inventory management

 1/3 of investments comprise of inventories

 Efficient inventory control- profitability of

business

 Examples of inventory in pharmacy

practice are: Raw materials , supplies and
consumables, drug products.
 Inventory Management
Heart of any Drug Supply System :
Distribution cycle:
-Order,e.g ……………..how done
-Receive e.g…………..
-Store e.g…………….. patterns
-Issue e.g……………..where,how
-Re-order , a limited supply of items
Use mathematical formulae to calculate OQs
 Poor inventory management
• Waste of financial resources
• Shortage of essential drugs e.g.
• Increased number of people who are sick
• Death of patients
• Uncontrolled diseases
• Prolonged hospitalizations
• Expiry of medicines
 Drug Supply Systems
Factors to be considered:
-Independent versus dependent demand
-Push versus pull logistics

Independent demand system

Typical drug supply system involved with
procurement and distribution of finished
products .Quantities based on
consumption history and forecasts
 Dependent demand system

Suitable for management of raw materials based

on what is needed for production. Quantities and
order intervals based on projected production
schedule. (e.g…………………..)
Pull system – Operating units order from a
warehouse according to their determined needs
Push system –Central authority orders drugs and
determines quantities for operating units based
on annual drug use patterns
In Botswana we use ______________________
 Reasons for Inventory
Carrying/holding/management
Alternative- Hand –to Mouth approach

• Alternative prohibitively expensive

• Alternative time consuming to follow

• Advantageous to order large quantities in

advance and stock them in the meanwhile.
Inventory holding
 REASONS
• To ensure stock availability
• Maintain Confidence in the system
• Reduce unit costs of drugs and raw materials
• Avoid shortage costs(minimize life
threatening shortages)
• Minimize ordering costs(facilitate
economies of scale)
• Minimize transport costs
• Allow for fluctuations in demand
 REASONS>>>
• Inventory carrying ensures safety against
certain emergencies like strike and transport
problems(increase transportation efficacy)
• When price rise is anticipated e.g. agro-
based seasonal raw materials(Protects
against seasonal price rise)
• Some raw materials need pre-operation
treatment before being used
• Production and control more effective if
inventories are available in the storeroom
 Costs of Inventory holding
Say whether visible or hidden cost ????
•Capital costs
•Expiration
•Spoilage
•Obsolescence/outdated/withdrawal
•Pilferage/theft of part of package
•Insurance
•……………………
 Assignment / Homework
Advantages and limitations of the following
drug supply systems, giving relevant
examples:
•Central Medical Stores
•Autonomous / Semi autonomous systems
•Prime Vendor System
•Private Sector involvement
( 40 marks )