1

1.1 Background of the study

Inventory is the physical stock of goods maintained in an organization for its smooth running. In
accounting language, it may mean stock of finished goods only. In a manufacturing concern, it
may include raw materials, work-in- progress and stores etc. in the form of materials or services.
In brief, inventory is unconsumed or unsold goods purchased or manufactured. Primarily, there
are three nature of inventory: raw material, work-in-progress and finished goods.The scope of
inventory management concerns the balance between replenishment lead time, carrying costs of
inventory, asset management, inventory forecasting, inventory valuation, inventory visibility,
future inventory price forecasting, physical inventory, available physical space, quality
management, replenishment, returns and defective goods, and demand forecasting. Balancing
these competing requirements leads to optimal inventory levels, which is an ongoing process as
the business needs shift and react to the wider environment.Inventory management involves a
retailer seeking to acquire and maintain a proper merchandise assortment while ordering,
shipping, handling and related costs are kept in check. It also involves systems and processes that
identify inventory requirements, set targets, provide replenishment techniques, report actual and
projected inventory status and handle all functions related to the tracking and management of
material.

In other words, inventory management is the management of inventory and stock. As an element
of supply chain management, inventory management includes aspects such as controlling and
overseeing ordering inventory, storage of inventory, and controlling the amount of product for
sale. Knowing when to restock certain items, what amounts to purchase or produce, what price to
pay as well as when to sell and at what price can easily complex become decision. Inventory
management has often meant too much inventor and too little management or too little inventory
and too much time there can be severe penalties for excesses in either direction .Inventory
problem have proliferated as greater qualities, faster and with multiple design variations. The
public has compounded the problem by its receptiveness to variations and frequent design
changes (Tersine,1982:5)

This study is about a health profession i.e. pharmacy. Pharmacy is a store preparing and
dispensing drugs along with other auxiliary medical services. Pharmacy holds a huge amount of
 2

drugs of different nature and purposes. As per the written prescription of the registered medical
officer of a hospital or a doctor, drugs are disbursed to the patients. Inventory management in a
pharmacy is found to be very from the very old times of health profession in Nepal.

Pharmacy inventory management is the complex but critical process within the healthcare
delivery system. Without adequate pharmacy inventory management practices, pharmacies run
the risk of not being able to provide patients with the most appropriate medication when it is
most needed. Unavailability of a product when needed may cause the community pharmacy to
lose a customer and predisposes inconvenience to the prescribing physician; and may adversely
affect patient’s wellbeing in hospital pharmacy settings, especially when the product is an
essential when the product is an essential lifesaving one.
1.2 Profile of Organization

Sankalpa Pharmacy is a locally renowned name at Attarkhel, Kathmandu Gokanashwor, Ward

No. 08., which is providing medicines and minor medical services to local people of the area.
The pharmacy's store is located at Attarkhel, in front of Nepal Medical College. Pharmacy is the
science and technique of preparing, dispensing, and review of drugs and providing additional
clinical service. It is a health profession that links health science with pharmaceutical science and
aims to ensure the safe, effective, and affordable use of drugs. The professional practice is
becoming more clinically oriented as most of the drugs are now manufactured by pharmaceutical
industries. Based on the setting, the pharmacy is classified as a community or institutional
pharmacy. Providing direct patient care in the community of institutional pharmacies are
considered clinical pharmacy.This pharmacy is dispensing medicines to the patients of several
health problems like headache, common cold, gastritis and many other health related problems
as per the prescription of the doctor or the direct supervision of the pharmacist. They also
provide medical services like weight measurement, blood pressure checkups, vaporizing, wound
dressing and many more.

Sankalpa Pharmacy was incorporated in the year 2068 BS at Finance Department and

Inland Revenue Department. This company is under sole proprietorship of Mr. Saroj KC. It
provides direct patient care services that optimizes the use of medication and promotes health,
 3

wellness and disease prevention. It also takes part in health promotion campaigns, locally and
nationally, on a wide range of health-related topics, and particularly on drug related topics.

1.3 Objectives of the Study

The objectives of this study are to analyze the inventory management system of Sankalpa
Pharmacy. The objectives of inventory management are to provide the desired level of customer
service, to allow cost-efficient operations, and to minimize the inventory cost and expenses.

The objectives of the study of this research are:

• To analyze the inventory position of the pharmacy.

• To analyze the techniques of inventory management acquired by the pharmacy.

• To determine the precise reorder level and reorder period as per the respective situation.
1.4 Rationale

This study provides some information to analyze the data and some recurring problems in
specific field. When we state the problems, the pharmacy be able to get several benefits from our
study.. The study is focused on the following

• To maintain precise inventory level.

• To find how to optimize the expenses of warehouse or store.

• To find out leaks and overstocking of the goods.

1.5 Literature Review

Inventories are company assets that are intended for use in the production of goods or services
made for sale, are currently in the production process, or are finished products held for sale in the
ordinary course of business. Inventory also includes goods or services that are on
consignment(subject to return by a retailer) or in transit.

There are three types of inventory: raw materials, work-in-progress, and finished goods. Given
the significant costs and benefits associated with inventory, companies spend considerable
amounts of time calculating what the optimal level of inventory should be at any given time.
Because maximizing profits means minimizing inventory expenses, several inventory-control
models, such as the ABC inventory classification method, the economic order quantity (EOQ)
 4

model, and just-in-time management are intended to answer the question of how much to order
or produce.
Inventory management also means maintaining effective internal controls over inventory,
including safeguarding the inventory from damage or theft, using purchase orders to track
inventory movement, maintaining an inventory ledger, and frequently comparing physical
inventory counts with recorded amounts.

Common inventory accounting methods include "first in, first out" (FIFO), "last in, first out"
(LIFO), and lower of cost or market (LCM). Some industries, such as the retail industry, tailor
these methods to fit their specific circumstances. Public companies must disclose their inventory
accounting methods in the notes accompanying their financial statements.

Inventory management makes its biggest mark on the inventory line item of the balance sheet.
That line item doesn’t just reflect the cost of the inventory; it also reflects cost directly or
indirectly incurred in readying an item for sale, including not only the purchase price of that item
but the freight, receiving, unpacking, inspecting, storage, maintenance, insurance, taxes, and
other costs associated with it.

1.6 Research Methodology

The process of sorting out the problems along with collection, analysis and interpretation of
factors and figures is known as to be research methodology. This study will be based on
descriptive research design. Descriptive research design involves the systematic collection and
presentation of data to give a clear picture of a particular situation. It will help to show the
relationship between the variables mentioned with behavioral characteristics of liquidity analysis.
It involves collection of data, arrangement, tabulation and present data set into clear charts and
figures.

1.7 Limitations of the Study

This study is for the partial fulfilment of BBS course of TU. So it may useful for other researcher
students. Every work has its own limitations. The limitations of the study can be categorized into
the following,

• The whole research will be based on Kathmandu district .

• Generalizability may be the issue as only one sample, i.e. Sankalpa Pharmacy has been
taken out of 4847 pharmacies.

• It covers data of only five fiscal years.

 5

• The quality of the report depends upon the reliability of the data provided by the
cooperative