Reorder quantity level,

Economic order quantity

and method used for the
analysis of the drug
expenditure.

Name - Chetna Shivlal Rajpurohit

Roll no – 4087.
Div-B
Inventory management
 Inventory management is defined as the scientific
Method of finding out how much stock should be
maintained in order to meet the production demands and
be able to provide right type of material at right time in
equal quantities at competitive prices.
 Inventory is actually money which is available in the
shape of materials , equipment’s, storage space ,work
time etc.
Reorder quantity method

 The quantity of items is to be ordered so as to continue

production without any interruption in future
 Some of the method employed in the calculation of
reorder quantity are described below:
1. Fixed quantity system
2. Open access bin system
3. Two – bin system
Fixed quantity system

 The reorder quantity is a fixed one

 Time for order varies
 When stock level drops to reorder level then oder is
placed
 Calculated using EOQ formula.
Reorder level quantity
ROL = Safety stock+ (usage rate + lead time)
Open access bin system

 Bin is filled with items to maximum level

 Operators use items without making a record
 Items are replenished at fixed time
 Eliminates unnecessary paper work and saves time.
Two –bin system

 Two bins are kept having items at different level.

 When first bin is exhausted , it indicates reorder.
 Second bin is a reserve stock and used during lead –
time period.
 Thisis normally applicable to hospital and community
pharmacies.
EOQ (economic order quantity)

 It is defined as the quantity of the material to be ordered

at one time.
 This quantity is fixed in such a manner as to minimize
the cost of ordering and carrying the stock so that only
correct quantity of the material is to be purchased.
 There should be no over stock or understock and
balance should be made between the cost of carrying
and the cost of carry out .
 EOQ formula is widely used for computing the
minimum annual cost for ordering and stocking each
item.
 Basically, EOQ helps you identify the most economical
way to replenish your inventory by showing you the
best order quantity.
EOQ depend upon two type of cost:
A. Procurement cost –
 Receiving quotation
 Follow up and expending the purchase order
 Receiving the item and inspecting the items
B. Carrying cost
 Interest on the capital investment
 Cost of the storage facility
 Cost involved in deterioration
Behaviour of EOQ system

 When the ordered quantity is received the inventory

level increases.
 Asdemand for the inventories item occurs the inventory
level drops
 Theinventory level drops to the critical point the order
point the ordering process is triggered. Count ordered
each time an order is placed is fixed or constant.
Model one: BASIC EOQ

 One product is involved

 Annual demand requirements known
 Demand is even throughout the year
 Lead time does not vary
 Which order is received in the single delivery.
 There is no quantitative discounts.
Assumptions

EOQ = √ 2DS/C
Where,
D – annual demand
S- cost of placing an order, regardless of size
C – cost
Thank you