INVENTORY CONTROL

– VEDAPATTI RHC
Objectives……..

1. Drug Inventory Control at Veda Patti, RHC

2. Critique the prescription pattern

Inventory Control
Technique
Inventory Analysis

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-of–stock 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 ORDER
PLACED RECEIVED SAFETY STOCK
TIME PERIOD
NIL STOCK
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

ABC Analysis graph

100

90 item % of item %
of monetary value

70 A 10% 70%
Percentage
of annual B 20% 20%
consumption
value A A 70% 10%

10 20 30 100
Percentage number of items
Utilisation of ABC and VED Analysis

Category 1 Category 2 Category 3

V E D

AV AE AD
A

AV

B BV BE BD

C CV CE CD
Utilisation of ABC and VED Analysis

V E D

AV AE AD Category 1
A

Category 2
B BV BE BD

C CV CE CD Category 3
Utilisation of ABC and VED and SDE
Analysis
V E D
S 85% 75% 70%
A D 75% 70% 60%
E 60% 50% 50%
S 95% 85% 75%
B D 80% 75% 65%
E 70% 70% 50%
S 99.9% 95% 80%
C D 90% 85% 70%
E 80% 80% 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

LEAD TIME
WORKING STOCK

REORDER POINT LEAD TIME

USAGE

ORDER ORDER
PLACED RECEIVED SAFETY STOCK
TIME PERIOD
NIL STOCK
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