INVENTORY CONTROL

VEDAPATTI RHC

Objectives..
1. 2.

Drug Inventory Control at Veda Patti, RHC Critique the prescription pattern

Inventory Control Inventory Analysis

Technique

Records and registers at the pharmacy of Veda Patti, RHC O.P Folders

What is an INVENTORY?
Stocks of the product a company is manufacturing for sale and the components that make up the product.

Sum total and costs of all the supplies, where ever they may be stored and that have not been used yet.

INVENTORY CONTROL
Management technique / tool used to maintain an economic minimum investment in materials / products for the purpose of obtaining a maximum financial return Method of Maintenance of stock at a level at which purchasing and stocking costs are the lowest possible without interference with the supply. Essentially about creating a state of happy situation without having to risk an out-ofstock situation.
The basic economic principle used is Stretching the limited means to meet the unlimited ends

Why Inventory Control?

Indiscriminate stocking could lead to..
Locking up of money Large storage space Drugs remaining unutilized beyond date of expiry Requires more staff Pilferage Better and Cheaper substitutes could become available.

Objectives of Inventory Control

Ensure a continuous supply of materials to facilitate uninterrupted production. Maintain sufficient stocks of raw material in periods of short supply and anticipated price changes Minimize the carrying cost and time. Control Investment in inventories and keep it at an optimum level

Optimal quantity Optimum stock Optimized costs

Principle
Pareto s law
In any series of elements to be controlled, only a small fraction in terms of elements will actually account for a large fraction in terms of results
Control and contain costs Items for which annual consumption is high, orders are placed frequently and for which annual consumption is low, orders are placed less frequently, such that sufficient stocks are maintained.

*WHEN TO ORDER? * WHAT & * HOW MUCH TO ORDER?

INVENTORY CONTROL COSTS

a. Purchase Cost b. Carrying Cost (Ca) Cost of money Cost of space Cost of additional manpower Cost of obsolescence Cost of deterioration Cost of pilferage (Shrinkage cost) Opportunity cost Insurance cost c. Ordering Cost (Cr) d. Shortage cost (Cs) e. Total Annual Inventory Cost = Cs + Ca+ Cr

Inventory carrying cost

Yearly carrying cost to be 20% -25%. Optimum stock A scientific system to be worked out considering the cost and essentiality

TERMINOLOGY
Lead time Buffer Stock [Safety Stock/ Reserve Stock] Reorder level Optimum safety stock Order quantity or Economic Order quantity

INVENTORY MODEL
LEAD TIME

WORKING STOCK

REORDER POINT

LEAD TIME USAGE

ORDER PLACED

ORDER RECEIVED

SAFETY STOCK

NIL STOCK

TIME PERIOD

Economic Order quantity or Order quantity

EOQ is the size of order which minimizes total cost of carrying inventories and cost of ordering. EOQ is the fixed quantity of materials for which the order is to be placed each time. In the Cyclic system it is the requirement of: EOQ = Review period and Lead time + Buffer Stock - Stock in hand.

Economic Order quantity or Order quantity

In the Two- bin system it is calculated by using a formula which takes into consideration the
Annual demand for the item [R] Cost of placing one order [S] Cost of one unit of item [C] and Number of units to be carried [I] Q = 2RS / IC

Economic Order quantity or Order quantity

Cost Vs Quantity Need for a equilibrium

Carrying Cost Cost

Ordering Cost

EOQ

Order Quantity

INVENTORY ANALYSIS
Systematic analysis of all items in stores for achieving the objectives of inventory control. Three levels of analysis: Overall analysis Category analysis Individual item analysis
ABC VED SDE FSN HML

Modern techniques.
ABC Analysis
Items categorised based on the annual expenditure incurred

VED Analysis
Items categorised based on the criticality in patient care

SDE Analysis
Items categorised based on the free availability

FSN Analysis
Items categorised based on the quantity and rate of consumption

HML Analysis
Items categorised based on the cost

Modern techniques [others].

GOLF Analysis: Govt ordinary, Local, Foreign
Items categorised based on the source of supply

XYZ Analysis
Items categorised based on the value of the Inventory stored

SOS Analysis
Seasonal, Off seasonal

ABC Analysis

Items categorised based on the annual expenditure incurred

100 90 70

ABC Analysis graph

item % of item % of monetary value

Percentage of annual consumption value

A B A B C
10 20 30

10% 20% 70%

70% 20% 10%

100

Percentage number of items

Utilisation of ABC and VED Analysis

Category 1 V A AV AV B BV BE BD Category 2 E AE Category 3 D AD

CV

CE

CD

Utilisation of ABC and VED Analysis

V AV E D AD Category 1

AE

BV

BE

BD

Category 2

CV

CE

CD

Category 3

Utilisation of ABC and VED and SDE Analysis

V S A D E S B D E S C D E 85% 75% 60% 95% 80% 70% 99.9% 90% 80% E 75% 70% 50% 85% 75% 70% 95% 85% 80% D 70% 60% 50% 75% 65% 50% 80% 70% 60%

Methods of Ordering
Cyclic system : Stock level is reviewed at definite intervals of time with regard to availability, consumption rate, etc.. Quantity ordered each time will vary The future requirements are based on the past years of consumption. Conventional EOQ Formula does not work. Function of lead time and review period. Fixed order quantity System

Two bin system Based on quantity ordered rather than time factor

INVENTORY MODEL - Two bin system

WORKING STOCK

LEAD TIME

REORDER POINT

LEAD TIME USAGE

ORDER PLACED

ORDER RECEIVED

SAFETY STOCK

NIL STOCK

TIME PERIOD

MUSIC -3D
Multi Level Selective Inventory Control 3 Dimensional
Criticality Availability Consumption value

Economic quantity order Level [EQOL]

Quantity at which the cost of ordering the annual requirement and the cost of carrying inventory are equal.

EQOL =

H2RS/ i*C

R = Annual consumption Level S = Cost of placing one order C = Cost of carrying one unit of item i = Number of units to be carried