Purchasing and Inventory Management 395
indicates whether the inventory is being used efficiently
to make a profit. Pharmacy managers desire to have a
ratio greater than 20 percent.
Factors to Consider in Inventory Management
Pharmacy managers must consider multiple factors
when evaluating their inventory:
e
Selection of generic products. Generic drug products
usually have a lower acquisition cost, and therefore,
by stocking generic products, the amount of money
invested in inventory is reduced (Carroll, 1998).
For example, a pharmacist may decide not to stock
brand-name Lasix because generic furosemide is less
expensive, thereby reducing the amount of money
invested in inventory.
e
Reduction of inventory size. A pharmacist may decide
to have a small front end in his or her store to reduce
the amount invested in inventory. He or she may
carry only basic product lines (i.e., a smaller numbers
of brands and items) as opposed to full product lines
(i.e., every brand and every item).
e
Returned-goods policies. One critical component is
the evaluation of returned-goods policies. Many
manufacturers and wholesalers have established poli-
cies regarding merchandise that may be returned. In
exchange for returning unsalable goods, these ven-
dors may provide credit on future purchases, replace-
ment goods, or even cash back to the pharmacy.
An example of wholesaler returned-goods policies is
provided in Table 22-1. Pharmacy managers should
monitor products closely that qualify for the various
returned-goods policies, making certain that such
returns are made on a regular, periodic basis before
time limitations take effect. It is advised to have a
staff member responsible for checking the shelves
periodically for out-of-date items or items that are
not selling. Because the management of return goods
is critical, some pharmacies use returned-goods ser-
vice companies to assist them with managing their
returned goods. These companies will evaluate the
pharmacy’s inventory, return the appropriate prod-
ucts, and often return money from the returned
products within 30 to 60 days. These companies
charge a fee based on the amount of returns. One
major advantage to these companies is that they are
aware of each manufacturer’s and wholesaler’s spe-
cific policies and can quickly identify product to be
returned.
e
Management of unclaimed prescriptions. Approxi-
mately 1.5 percent of all prescriptions received
and/or filled in community pharmacies remain un-
claimed (McCaffrey et al., 1998). A pharmacist must
be aware of the amount of inventory that has been
used to fill these unclaimed prescriptions. It is im-
portant for pharmacists to monitor these unclaimed
prescriptions and after a specified period (e.g., 14
days) return the stock to the shelf.
e
Monitoring shrinkage. Inventory shrinkage includes
losses owing to shoplifting, employee theft, and rob-
bery. It is estimated that 0.7 to 4.5 percent of sales
are lost to shrinkage (Garner, 1994). The largest
source of shrinkage for most retailers is employee
theft. It is important to recruit honest personnel and
monitor their activities, especially those working in
the prescription area of a pharmacy, because theft
of controlled substances in pharmacies is increas-
ingly problematic. Equally important; however, is
for the pharmacy staff to be observant, say hello to
customers, keep displays neat, install security mirrors
and cameras, and remove high fixtures to minimize
shoplifting. Some pharmacies use technologies such
as inventory-control bars to prevent loss of product
from theft.
e
Use of formularies. As stated previously, institutional
pharmacies commonly use formularies to facilitate
inventory management (Pearce and Begg, 1992). A
formulary allows the pharmacy manager to carry one
therapeutic equivalent within a class of drugs instead
of each drug product within the class. This allows
pharmacy managers to lower their overall investment
in inventory.
Methods of Inventory Management
Three methods are used commonly in pharmacy to
manage inventory: the visual method, the periodic
method, and the perpetual method (Carroll, 1998;
396 M A N A G I N G T R A D I T I O N A L G O O D S A N D S E R V I C E S
Tootelian and Gaedeke, 1993; West, 2003). The visual
method requires the pharmacist or designated person to
look at the number of units in inventory and compare
them with a listing of how many should be carried.
When the number falls below the desired amount, an
order is placed. The periodic method requires the phar-
macist or designated person to count the stock on hand
at predetermined intervals and compare it with mini-
mum desired levels. If the quantity is below the mini-
mum, the product is ordered.
Usually, a designated person is responsible for
checking the shelves and placing orders. The pharmacy
manager may have a specific checklist, indicating that
the person should conduct a stock review weekly or
look for expired products monthly, in addition to plac-
ing orders and keeping inventory orders to a specific
level. This purchasing person will learn the turnover
rates for specific products and will develop a skill for
purchasing for the pharmacy. This method allows the
purchasing person to account for fluctuations in supply
and demand. Today, the purchasing person is likely to
use a hand-held electronic device into which item num-
bers and quantities are entered or a hand-held scanning
device that scans the barcodes on the product packag-
ing or shelf labels (Carroll, 1998; West, 2003). These
devices then can be used to submit an order electroni-
cally.
Although the visual and periodic methods are still
used today, perpetual inventory systems are common
in all pharmacy settings. These perpetual systems are
computerized inventory management systems. Perpet-
ual inventory management systems are the most effi-
cient method to manage inventory. This method allows
the inventory to be monitored at all times. The entire
inventory may be entered into the computer, and with
the filling of each prescription, the appropriate inven-
tory can be reduced automatically. A perpetual system
can tell precisely the amount of inventory on hand for
any product at any time. Moreover, the pharmacy man-
ager can quickly assess the value of current inventory.
Computer systems can be used to calculate the
EOQ and reorder point so that a product is reordered
automatically when the inventory falls below a mini-
mum standard (West, 2003). This type of system re-
duces procurement costs significantly. Although the
computer can be programmed to order products auto-
matically, it is important for pharmacy staff to monitor
inventory daily and to make corrections for variances
owing to fluctuations in supply and demand.
To maintain a perpetual inventory system, all pur-
chases and sales must be entered into the computer
system (Carroll, 1998; West, 2003). A clerk can enter
data from purchases, or the computer dispensing sys-
tem can be interfaced with the computer order system.
The interface allows for the inventory to be reduced
when a product is dispensed. The sales data can also be
entered at the point of sale by devices that use optical
scanning and barcode technology. Point-of-sale (POS)
devices are advantageous in that they improve the accu-
racy of pricing and inventory data. They eliminate the
need for price stickers, reduce the frequency of pricing
errors, and automatically track inventory.
Regardless of which method is used, most phar-
macies also conduct a physical inventory at least an-
nually. This encompasses counting or scanning every
item in the pharmacy. Pharmacy staff then can com-
pare the product on-hand quantities in the computer
or the value of inventory on the financial statements
with what is actually on the shelves. It is important to
conduct a physical inventory to verify periodically the
accuracy of the pharmacy’s financial records. Addition-
ally, pharmacy managers should follow state board of
pharmacy regulations with respect to inventory counts
and control with respect to controlled substances, es-
pecially narcotics.
Role of Technology
Based on the preceding description of the purchasing
process and perpetual inventory systems, one can rec-
ognize the value of technology in inventory manage-
ment. Thus computerized inventory management sys-
tems are common today in pharmacies in all practice
settings. Technology enables pharmacists to manage
inventory faster and more accurately.
These computer systems can integrate the man-
agement of inventory, information, and costs. The