A virtual hospital pharmacy
inventory: An approach to support
Konstantinos Danas
Department of Mathematics
and Computing, ACT – The
American College of
Thessaloniki, Greece.
Tel: +3031 398226;
Fax; +3031 301076, FAO
Costas Danas;
E-mail:
cdanas@anatolia.edu.gr
# Henry Stewart Publications 1469–7025 (2002)
unexpected demand
Received: 1st October, 2001
Konstantinos Danas
is a lecturer of Information Systems, Mathematics and Computing Department, The American College of Thessaloniki. His
research interests include information systems in healthcare, intelligent agents in healthcare, healthcare logistics and hospital
pharmacy logistics and information systems. He is also a PhD candidate in the Centre of Measurement and Information in
Medicine, City University, London.
Panayiotis Ketikidis
is currently the President of the International Society of SOLEurope – The International Society of Logistics (Thessaloniki
Chapter). He was also the President of the Organising Committee for the 17th International Logistics Congress
(www.ilc2001.org). Dr Ketikidis’ publications include articles in the IEEE-SCAMC, MEDINFO and in various conference
proceedings. His research areas are Logistics Information Systems and Health Care Logistics.
Abdul Roudsari
is a senior lecturer in Medical Informatics and Course Director of the MSc Health Informatics at City University. He has a PhD
in Mathematics from King’s College, London. Dr Roudsari lectures on AI in Medicine and Telemedicine. Research interests
include development of decision suppport systems for management of diabetes and hypertension: computer assisted learning;
mathematical modelling in healthcare and time series analysis.
Keywords healthcare information systems, hospital pharmacy inventory, Just-In-Time,
pharmaceuticals supplies, unexpected demand support
Abstract As the escalated health-care costs are in the focus of governments the
science of logistics is considered as a tool for the provision of models that have been
applied in other industries successfully. This paper is focused on the logistics activities
of the hospital pharmacy and approaches a solution where these activities are
optimised. The solution is based on the Just-In-Time (JIT) concept and on an information
system that will replace the central hospital pharmacy with a virtual hospital pharmacy,
spreading the actual stock of pharmaceuticals in the clinics of all hospitals in the same
geographical area. The feasibility of the solution is demonstrated through the use of an
application scenario.
INTRODUCTION inventories, supply chain management;
In order to control the escalated health- that have already been applied successfully
care costs that continuously outpace in other industries. In the healthcare
inflation1,2,3 hospital management must industry, the science of logistics is
investigate ways to cut costs without concerned with the study of the supply
affecting the quality of healthcare. The chain of medical units including product
science of logistics is concerned with supply, packaging and storage, the
providing concepts, techniques and models provision of medical services and the
for the optimisation of systems, such as service of medical equipment. The science
material management and supplies, of logistics can provide solutions to
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Danas, Ketikidis and Roudsari
decrease the costs of healthcare without
affecting the quality of care, improving
supply chain processes with the use of
information systems especially Electronic
Data Interchange (EDI) and bar coding.
The relationship between buyers and
sellers is also in focus as the compatibility
of information systems and processes, the
understanding of mutual business needs,
communications, commitment, flexibility
and trust are factors that can reduce
operating costs.1
The health-care industry is considered
operationally different from other business
organisations and some concepts of
logistics like the Just-In-Time (JIT), have
been considered for application but have
not been fully applied. Many researchers,
based on the fact that the patient mix
cannot be accurately predicted, state that
concepts like JIT cannot be considered for
the health-care industry, even though there
are many examples of successful JIT
applications in other industries with many
benefits such as the reduction of inventory
levels,1,4 improved firm performance and
better understanding of internal and
supplier performance.5 There are many
circumstances that this statement is proven
true, such as the emergency situations
which hospitals face. Other concepts based
on JIT have been evolved for the health-
care industry, such as the stockless
inventory system that has already been
applied in hospitals in the USA and has
been proven very cost effective.3 Modern
information and communication systems
facilitating the exchange of information
within the health-care supply chain and
among hospitals can provide the basis for
other concepts based on JIT. Having
shared access to other hospitals’ stocked
items, the fear of facing out of stock
situations is greatly reduced.6
Although hospital pharmacies are best
suited for efficient logistics cost
minimisation, there is little evidence that
effective inventory strategies are used.7 The
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focus of this study is on the hospital
pharmacy and its logistics activities. The
hospital pharmacy must be able to provide
pharmaceutical support under all
circumstances. Although there are some
emergency cases and other surgical
procedures that require therapy, supplies
used in routine everyday care can be
estimated, based on forecasts.1 There are
also procedures scheduled in order that the
pharmaceutical supply can be
programmed. Unexpected demand of
medicines in emergency situations could be
supported by an information system which
can locate the amount of required
medication in different hospitals in the
same geographical area and which could
be shipped as emergency shipments to the
appropriate hospital. Using such a tool, a
virtual hospital pharmacy inventory could
be formed, which consists of the medicines
stored in all hospitals in the same
geographical area. As a result, however,
the amount of medicines required in order
to face an emergency situation could be
distributed from the hospitals, and their
own stock levels could drop dramatically,
as emergency shipments reduce stock levels
dramatically in other industries.8
The aim of this study is to introduce the
concept of the virtual hospital pharmacy
(VHP) and demonstrate the feasibility of
such a solution using an information
system. The logistics activities of the
hospital pharmacy are investigated and an
application scenario is used to demonstrate
the successful use of such a system.
MOTIVATION
In a recent survey conducted by the
researchers in hospitals in the area of
Northern Greece, the logistics activities of
the hospital pharmacy were investigated.
These activities were found to be
inefficient, mainly in the ordering, storage
and delivery procedures.9 There are
differences in the way that these activities
are carried out in the public and the
 A virtual hospital pharmacy inventory

private sector. In private clinics a ‘just in Automated ordering systems would be

case’ method of ordering and delivering required, with the aid of EDI and bar
medicines is used, based on the fact that coding, as suggested by Danas and
each treatment is scheduled and they do Ketikidis3,9,10 in order to minimise the
not face unexpected or other emergency time and effort spent on bureaucratic
situations. This way they keep a minimum procedures.
amount of medicines. The main difference There are many hospitals that have
with public hospitals in this respect is that successfully implemented the above
private ones do not face emergency concept, eg, University of Michigan
situations. On the other hand, in the Hospitals, Escambia Hights, Tempa
public sector there are many occasions General etc.3
when medicines are destroyed because they There are also some suppliers, eg, Baxter
have exceeded their expiration date and Healthcare Corporation, offering
there are thus many also out of stock distribution management systems, which
incidents. In a previous work,10 a ‘just in help hospitals by holding their stock until
case’ system was proposed, based on the it is needed and then delivering directly to
use of a Web portal to handle the the appropriate clinic.7 This proves the fact
pharmacy procurement procedure and the that suppliers are willing to adapt to the
flow of medicines within a hospital. In new way of doing business with the
order to be applied in public hospitals hospitals.
effectively, another portal supporting
unexpected demand situations must The proposed solution
complement this system. Based on the stockless inventory system, a
virtual hospital pharmacy (VHP) could be
THE CONCEPT OF STOCKLESS formed providing information of all
HOSPITAL INVENTORY pharmaceuticals stored in the clinics of the
According to Wilson and Cunningham3 hospitals in the same geographical area.
the method of stockless hospital inventory The central hospital pharmacy inventory
encompasses the shifting of some of the could be replaced with the use of VHP. A
material management functions further up health-care system could be formed
the distribution supply chain. The purpose consisting of all the hospitals in the same
of the concept is to eliminate inventory area, based on the VHP being the central
completely in the central storeroom. The inventory of the whole system and stock
objective is to shorten the time periods pharmaceuticals in the clinics of each
that the materials are stored at particular hospital. The role of the hospital
links in the chain and the time spent in pharmacist could be focused on the specific
ordering procedures. The suppliers are scientific duties and not the duties of an
called to make frequent deliveries to inventory manager. Based on an intelligent
hospitals and break down lots to the size agent, a VHP could determine the
to be used for each clinic. The supplier minimum stock level and reorder points of
would agree to provide a pick and pack all pharmaceuticals at each clinic, using
service, as services provided by suppliers forecasts and prescribed medication for
are responsive to the needs of hospital scheduled procedures, and then produce
pharmacies.7 The concept requires the order forms ready to be verified by the
commitment of all partners in the supply pharmacists. Clinics would be able to
chain. The supplier numbers would be exchange pharmaceuticals that were not
reduced to a minimum resulting in more used and needed in other clinics in the
business from the remaining vendors. system. The VHP would be able to locate

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Danas, Ketikidis and Roudsari
products that are near their expiration date
within the system, and offer them where
they are needed. Pharmaceuticals that are
stored in order to face unexpected demand
would be stored in one physical place
within the system and be available to go
to wherever they are needed. Even though
some procedures would be changed by the
use of a VHP, the basic principles of
hospital pharmacy ordering would remain
the same. All changes would be focused
on inventory management procedures and
other logistics activities, such as ordering,
delivering and capturing the flow of
pharmaceuticals in the system. The VHP
could also use simulation to check the
virtual inventory if it can support all
unexpected demand situations and produce
reports. Reports could also be produced to
be in the hand of every hospital
pharmacist, providing information on
location and availability of products, in
case the actual system was not available
under emergency situations. Technically, a
VHP could be based on an intranet/
extranet infrastructure using EDI messages
through the Internet, and on a logistics
information system that captures the flow
of pharmaceuticals from the supplier to the
point of care. The role of the intelligent
agent in the system would be focused in
the scheduling, stock level control within
the system, monitoring expiration dates
and possible out of stock incidents, and
daily order formation. The calculation of
the reordering point could be based on the
statistical process control method.11 The
system could test itself, simulating
emergency cases of unexpected demand,
and reports could be produced to check
the readiness of the system in support of
all situations.
Expected benefits
Using a VHP, the concept of the stockless
inventory system could be complemented.
Using a VHP as a part of a logistics
information system in the healthcare
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environment handling ordering and
monitoring the flow of products within
the supply chain, could be the basis for
many improvements. Out of stock
incidents and expired medicine incidents
could be eliminated or at least minimised.
The role of the health professionals could
be focused on the delivery of health-care
and not on bureaucratic or other
managerial activities. Many
pharmaceuticals could be ordered on a
‘just in case’ basis or on a re-order point
basis, covering the whole geographical
area and minimising the amount of stock
that is stored. More frequent deliveries
from suppliers of shipments ready to be
used in the clinic that ordered them,
would be the requirement of the suppliers.
The cost of a central hospital inventory
would be eliminated. The hospital
pharmacist would have in hand a tool to
verify the orders for pharmaceuticals
received by each clinic in the hospital and
be able to forward them to suppliers, or
check for availability of specific medicines
within the virtual inventory. Emergency
situation pharmaceuticals could be stored
in one physical location and not in all
hospitals in the same area. For example, in
certain food poisoning situations, certain
antidotes are required. These antidotes
may or may not be used in their product
life, but an emergency situation such as a
widespread food poisoning may require a
large number of them. In order for a
hospital to be able to support such
situations, these antidotes must be available
for use and their useful life must be
monitored so that they can be replaced
before reaching their expiration date.
CONCLUSIONS
This study has outlined the inefficiencies of
the logistics activities in the hospital
pharmacy. Careful examination of other
studies provided the basis for the
introduction of the conceptual virtual
hospital pharmacy inventory system (VHP)

that was presented through an application
scenario and the expected benefits have been
outlined. The VHP would replace the
central hospital pharmacy inventory of all
hospitals in the same area. In the future, a
prototype will be constructed and
simulation is going to be used in order to
validate its expected benefits.
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