Inventory Management and Prevention of Stock-out_03112022.pptx

Buffer Stock and Safety Stock are often used interchangeably. However, this often creates confusion. Buffer Stock and Safety Stock are different from each other. Buffer stock distinguishes it from Safety stock. Buffer Stock protects the Provider from the Supplier when there is delay in receiving supply. On the other hand, the Safety Stock protects the Provider from Consumer in probabilities like an abrupt change in the demand for a particular product or uncontrollable delay in the delivery of the material from supplier

1. November 3, 2022 1 Inventory Management and Prevention of Stock-out

2. The problems of stock-out, inadequate or excess stock can be avoided if a M inimum or Maximum inventory control system is implemented. Forecasting of the requirement of drugs and consumables is done by using scientific methods. 1. Cyclic or Fixed Order method Stock of various items are checked with certain periodicity and orders are placed at Fixed Interval (indent cycle) to bring up the stock to the desired level. Ex- District Drug Store, Hospital Main Drug Store, 2. Two Bin system The drugs which are indented can be kept in two bins i.e. 1 st bin for working stock and 2 nd bin for Minimum stock . Orders are placed when the stock of the item reaches a certain predetermined level or Reorder Level . Ex- Departmental Drug Store Two Methods of Indenting/Ordering and Stocking : The order level or the number is predetermined and indents are placed accordingly. Both methods should be adopted to prevent stock-outs at every level

3. Two-Bin System & Bin Card Two-bin system is an inventory control method used to determine when drugs or items or materials used should be replenished. When items in the first bin have been depleted, an order is placed to refill or replace them. The second bin is then supposed to have enough items to last until the order for the first bin arrives. In short, the first bin keeps Working Stock or working material, and the second bin keeps Reserve S tock or Minimum Stock or Remaining material . When items in the first bin have been depleted, an order is placed to replace them. During the Waiting period or Lead Time, items from the second bin are used. B in card is prepared and maintained separately for each item. Large stores or Warehouses maintain and track stock by Bin Card Method. Bin cards and Store ledger cards are used to record the inventory. A Bin Card is a record of Receipt, Issue and Stock-at-hand. On verification: No difference between the stock recorded in the Bin Card and physical stock.

4. Inventory Terms : Order Levels and Stocks Working Stock Buffer Stock Safety Stock Maximum Stock or Maximum Order Level ( MxOL ) Minimum Stock or Reorder Level (ROL) Safety stock Safety Order Level ( MnOL ) Read Operational definitions and observe the indent register carefully given in next slide Indent Cycle Maximum Daily Consumption (MDC) Average Daily Consumption (ADC) Lead Time (LT) Maximum Lead Time (MLT) Average Lead Time (ALT)

5. Operational Definitions Remark Indent Cycle (in days) Defined as a fixed time period when stock of various items are checked, and orders are placed at fixed interval Maximum Daily Consumption (MDC) The highest number of daily consumption of any item which is recorded during a week/month/quarter/ year Average Daily Consumption(ADC) (in Number/in ampules/in KG) [Total Monthly Consumption ÷ (Number of days in a month/week ─ Number of stock-out days in given month/week)] Maximum Lead Time (MLT) (in days) Longest time interval recorded between date of placement of order and date of receipt of any item Average Lead Time (ALT) (in days) Average of all Lead Times recorded in a year Working Stock (WS) Amount of stock used between two cyclic orders. WS = Average daily Consumption X Cycle interval in days Buffer Stock (BS) Average daily Consumption X Max Lead time Safety Stock (SS) It is the Exigency stock or Cushion stock or Least stock against emergencies, SS = (Max Daily Cons X Max LT) Minus (Avg Daily Cons X Avg LT) Reorder Level or Minimum Stock ( MnS ) It implies the Minimum amount that you should have in your stock, or the level which, when reached initiates a re-order ( MnS = Buffer Stock + Safety Stock) Maximum Order Level or Maximum Stock ( MxS ) It is the Minimum stock plus amount of the stock used between two cyclic orders. MxS = Working Stock + Buffer Stock + Safety Stock

6. Name of Drug Inj Oxytocin Maximum Order Level = WS + BS + SS   639  Reorder Level = Buffer Stock + Safety Stock   279  Buffer Stock (BS) 168 Date Opening Balance (Closing Balance + Number Received) Number Issued Closing Balance Remark 1-Jan 231 20 211 Indent order placed for 639 2-Jan 211 22 189 3-Jan 189 24 165 Reminder 4-Jan 165 28 137 given  5-Jan 137 33 104 Reminder 6-Jan 104 20 84 given  7-Jan 84 22 62   8-Jan 701 26 675 Indent Received 9-Jan 675 32 643   10-Jan 643 16 627   11-Jan 627 30 597   12-Jan 597 18 579   13-Jan 579 29 550   14-Jan 550 19 531   15-Jan 531 23 508   16-Jan 508 25 483 Indent order placed for 156 17-Jan 483 20 463 18-Jan 463 22 441 19-Jan 441 24 417 Indent of 156  20-Jan 417 28 389  Received 21-Jan 389 33 356   22-Jan 356 20 336 23-Jan 492 22 470 24-Jan 470 26 444 25-Jan 444 32 408   26-Jan 408 16 392   27-Jan 392 30 362   28-Jan 362 18 344   29-Jan 344 29 315   30-Jan 315 19 296   31-Jan 296 23 273  Indent order 1-Feb 273 25 248 placed for 391 Cyclic Method of 15 days by LR dept.

7. Calculate Order levels and Stock amounts from Indent-Stock register given in previous slide Name of the Drug Inj Oxytocin Calculation Duration of Indent Cycle (in days) 15 Indent is placed on 1 st and 16 th January Maximum Daily Consumption (in number) 33 Recorded on 5 th January Average Daily Consumption (in number) 24 (20+22+24+28+33+20+22) ÷ (7-0)= 24.14 Maximum Lead Time (in days) 7 Interval between 8 th Jan and 1 st Jan Average Lead Time (in days) 5 (7+ 3) ÷ 2 = 5 Working Stock (WS) 360 24 X 15 = 360 Buffer Stock (BS) 168 24 X 7 = 168 Safety Stock (SS) 111 (33X7) – (24X5) = 111 Reorder Level 279 168 + 111 = 279 Maximum Order Level 639 360 + 168 + 111 = 639

8. Working Stock = Quantity of inventory required for use in one Indent Cycle To calculate working stock we need two variable s e.g. Average Daily consumption of an inventory and the interval of placing the indent in days For example, a Labour Room/Departmental store places regular indent in every 15 days to Hospital Main Store Working Stock = Average Daily Consumption X Interval of Indent Cycle in Days Working Stock of Inj Oxytocin = 24 (Average Daily Consumption) X 15 (Interval of Indent Cycle in Days) = 360 ampules * It is important that the indenter and supplier should understand and agree upon the interval of the indent cycle for an inventory

9. LEAD TIME Time interval between the date of placement of order for supply of an item and the date of receipt of the item If Lead time is less than 24 hours, consider lead time as one day for calculation purposes Lead time may be Maximum and Average. In our example Max LT = 7 days and Avg. LT = 5 days. For simplicity of calculation, one can consider Maximum Lead Time and ignore Minimum LT

10. Buffer Stock / Lead-Time Stock : Amount of stock which is used in the time between placing and receiving an order Also called Lead-Time Stock / Buffer Stock = Average daily consumption of the item X Maximum lead time in days Here average daily consumption of Inj Oxytocin = 24 ampules Maximum Lead time = 7 days Buffer Stock = 24 ampule per day X 7 days = 168 ampules

11. Safety Stock – Extra quantity of inventory required beyond average demand In addition to the Buffer Stock, we need to have something in extra to meet out any exigency or unexpected rise in consumption or sudden increase in demand or uncontrollable delay in the delivery of the material. Safety stock = ( Maximum daily consumption X Maximum Lead Time in days) – (Average daily consumption X Average Lead Time in days)

12. Safety Stock In our example for Inj Oxytocin Maximum daily consumption = 33 ampules Average daily consumption = 24 amp Maximum Lead time = 7 days Average Lead Time = 5 days Safety stock = (33 X 7) – (24 X 5) = 231 - 120 = 111 ampules #At any time, stock must not go below Safety Stock

13. Buffer Stock and Safety Stock are different from each other Buffer Stock and Safety S tock are often used interchangeably. However, this often creates confusion. Buffer stock distinguishes it from Safety stock. Buffer Stock protects the Provider from the Supplier when there is delay in receiving supply. On the other hand, the Safety S tock protects the Provider from Consumer in probabilities like an abrupt change in the demand for a particular product or uncontrollable delay in the delivery of the material from supplier

14. Reorder Level = Buffer Stock + Safety Stock = Minimum Stock Here for Inj Oxytocin, Reorder Level = 168 (Buffer Stock) + 111 (Safety Stock) = 279 amp. An indent should be placed when Oxytocin stock touches 279. Reorder Level or Point is set in such a manner when the stock of material reaches this point or level in normal circumstances, order is placed for fresh supplies to come to the store just before the level falls down safety level. It is the amount of stock which will be used in the time between placing and receiving the order, plus the Safety stock. The Minimum stock level is the level below which stock should never drop without having placed an order.

15. Maximum Stock (Maximum Order Level) = Working Stock + Minimum Stock = Working Stock + Buffer Stock + Safety Stock It implies the largest amount of the stock that one should have. It is the minimum stock plus amount of the stock used between two cyclic orders. The problems of stock-out, inadequate or excess stock can be avoided if a minimum/maximum inventory control system is implemented. This system ensures that the quantity in hand should be less than the Maximum S tock to avoid excess stock and unwanted expiry This system ensures that the quantity in hand should be aways more than the buffer stock to avoid stock-out Under this system, quantity –in-hand must not touch or go below Safety Stock

16. Graphical Presentation of Order Levels and Stocks Buffer Stock Working Stock Safety Order Level Maximum Stock Minimum Stock Working Stock = Maximum Order Level – Reorder Level Buffer Stock = Reorder Level – Safety Order Level

17. Name of Drug Inj Oxytocin Maximum Order Level = WS + BS + SS   639  Reorder Level = Buffer Stock + Safety Stock   279  Buffer Stock (BS) 168 Date Opening Balance (Closing Balance + Number Received) Number Issued (Bin 1) Closing Balance (Bin 2) Remark 1-Jan 231 20 211 Indent order placed for 639 2-Jan 211 22 189 3-Jan 189 24 165 Reminder 4-Jan 165 28 137 given  5-Jan 137 33 104 Reminder 6-Jan 104 20 84 given  7-Jan 84 22 62   8-Jan 701 26 675 Indent Received 9-Jan 675 32 643   10-Jan 643 16 627   11-Jan 627 30 597   12-Jan 597 18 579   13-Jan 579 29 550   14-Jan 550 19 531   15-Jan 531 23 508   16-Jan 508 25 483 Indent order 17-Jan 483 20 463 Placed for 156 18-Jan 463 22 441 19-Jan 441 24 417   20-Jan 417 28 389   21-Jan 389 33 356   22-Jan 356 20 336 Indent of 156  23-Jan 492 22 470  Received 24-Jan 470 26 444 25-Jan 444 32 408   26-Jan 408 16 392   27-Jan 392 30 362   28-Jan 362 18 344   29-Jan 344 29 315   30-Jan 315 19 296   31-Jan 296 23 273  Indent order 1-Feb 273 25 248 placed for 391 Cyclic Method of 15 days by LR dept.

18. Name of Drug Inj Oxytocin Maximum Order Level = WS + BS + SS   639  Reorder Level = Buffer Stock + Safety Stock   279 Buffer Stock 168 Date Opening Balance (Closing Balance+ Number Received) Number Issued Number Issued Closing Balance Remark 1-Jan 231 20 20 211 Indent order placed for 639 2-Jan 211 22 22 189 3-Jan 189 24 24 165   4-Jan 165 28 28 137 5-Jan 137 33 33 104   6-Jan 104 20 20 84   7-Jan 84 22 22 62   8-Jan 701 26 26 675 Indent of 639 Received 9-Jan 675 32 32 643 10-Jan 643 16 16 627   11-Jan 627 30 30 597   12-Jan 597 18 18 579   13-Jan 579 29 550   14-Jan 550 19 531   15-Jan 531 23 508   16-Jan 508 25 483 Indent order placed for 639*  17-Jan 483 20 463   18-Jan 463 22 441   19-Jan 441 24 417   20-Jan 417 28 389   21-Jan 389 33 356   22-Jan 356 20 336   23-Jan 975 22 953 Indent  Received  24-Jan 953 26 927 Received  25-Jan 927 32 895   26-Jan 895 16 879   27-Jan 879 30 849   28-Jan 849 18 831   29-Jan 831 29 802   30-Jan 802 19 783   31-Jan 783 23 760 Order is not   1-Feb 760 25 735* Placed* Cyclic Method of 15 days

19.   Name of Drug Inj Oxytocin Reorder Level = Buffer Stock + Safety Stock Reorder Level = Buffer Stock + Safety Stock   279   Buffer Stock (BS) Buffer Stock (SS) Buffer Stock (SS)   168 Date Number Received Opening Balance (Closing Balance + Number Received) Number Issued Number Issued Closing Balance Remark 1-Jan 231 231 20 20 211 Indent order placed for 279 2-Jan 211 211 22 22 189   3-Jan 189 189 24 24 165 Reminder Given 4-Jan 165 165 28 28 137   5-Jan 137 137 33 33 104   6-Jan 104 104 20 20 84   7-Jan 84 84 22 22 62   8-Jan 341 341 26 26 315 Indent Received 9-Jan 315 315 32 32 283   10-Jan 283 283 16 16 267 Indent order placed for 279 11-Jan 267 30 237   12-Jan 237 18 219   13-Jan 219 29 190   14-Jan 190 19 171   15-Jan 171 23 148 Reminder Given  16-Jan 148 25 123   17-Jan 402 20 382 Indent Received  18-Jan 382 22 360   19-Jan 360 24 336   20-Jan 336 28 308   21-Jan 308 33 275 Indent order placed for 279 22-Jan 275 20 255   23-Jan 255 22 233   24-Jan 233 26 207   25-Jan 207 32 175   26-Jan 175 16 159 Reminder Given 27-Jan 159 30 129   28-Jan 329 18 311 Indent Received 29-Jan 311 29 282  Indent order 30-Jan 282 19 263 placed for 279 31-Jan 263 23 240   ROL Method of indent by Point of Care

20. BIN CARD (At Labour Room Store) Drug Name Oxytocin Maximum Order Level (MS) 639 Drug code Working Stock (WS) in Bin-1 360 Reorder level (BS + SS) in Bin-2 279* Received Issued (to Bin 1 or crash cart) Balance (in Bin 2 in LR store) Date GRN No Qty Batch No. Expiry date Date Request No. Qty Date Qty 07/1/2022 62 08/1/2022 A12 639 Def/68 4/2023 08/1/2022 A111 26 08/1/2022 675 23/1/2022 B12 156 Xyz /65 6/2023 23/1/2022 B222 22 01/4/2022 470 *LR store can also place order, if stock reaches Reorder Level.

21. BIN CARD (At Labour Room Store) Drug Name Oxytocin Maximum Order Level (MS) 639 Drug code Working Stock (MS) in Bin-1 360 Reorder level (BS + SS) in Bin-2 279 Received Issued (to Bin 1 or crash cart) Balance (in Bin 2 in LR store) Date Qty Batch No. Expiry date Date Qty Date Qty 07/1/2022 62 08/1/2022 639 Def/68 4/2023 08/1/2022 26 08/1/2022 675 09/1/2022 32 09/1/2022 643 10/1/2022 16 10/1/2022 627 11/1/2022 30 11/1/2022 597 12/1/2022 18 12/1/2022 579

22. BIN CARD (Hospital Main Store) _Quarterly Indent Drug Name Oxytocin Working Stock (WS) 2160 Drug code Reorder level (BS + SS) 279 Buffer stock (BS) 168 Received Issued (to Bin 1) Balance (in Bin 2) Date Qty Batch No. Expiry date Date Qty Date Qty 31/12/2021 279 01/1/2022 2200 Abc /67 4/2022 2479 08/1/2022 639 08/1/2022 1840 19/1/2022 156 17/1/2022 1684 08/2/2022 391 08/1/2022 1293 23/2/2022 700 11/1/2022 593 01/4/2022 2200 Def/68 4/2023 2793

23. District Central Store ( Inj Oxytocin) for 10 hospitals Working Stock : 240 per day X 90 days = 21,600 Buffer Stock : 24 per day X 10 days = 2400 Safety Stock: (330 X 10) – (240 X 5) = 2100 Maximum Stock = WS + BS + SS = 21,600 + 2,400 + 2,100 Maximum Order Level ( MxOL ) = 26,100 Minimum Stock or Reorder Level (ROL) = BS + SS = 2,400 + 2,100 = 4,500 Read Operational definitions and observe the indent register carefully given in next slide Indent Cycle : 90 days Maximum Daily Consumption (MDC) : 33 Average Daily Consumption (ADC) : 24 Maximum Lead Time (MLT): 10 days Average Lead Time (ALT): 5 days

24. BIN CARD (At District Central Store) Drug Name Oxytocin Maximum Order Level (MS) 26,100 Drug code Working Stock (MS) in Bin-1 21,600 Reorder level (BS + SS) in Bin-2 4,500* Received Issued (to Bin 1) Balance (in Bin 2) Date Qty Batch No. Expiry date Date Qty Date Qty 01/1/2022 27000 Abc /67 4/2022 08/1/2022 7000 08/1/2022 20000 4/2023 08/2/2022 7000 17/1/2022 13000 4/2023 08/3/2022 8500 08/1/2022 4500* 01/4/2022 17000 Def/68 4/2023 01/4/2022 27,500 6000 Xyz /65 4/2023 08/4/2022 7000 20000 01/5/2022 7000 13000

25. Summary of 15 Days’ Cyclic method Sl No Name of the Drug Duration of Indent Cycle (in days) {A} Maximum Daily Consumption {B} Average Daily Consumption {C} Maximum Lead Time (in days) {D} Average Lead Time (in days) {E} Working Stock (WS) {A X C} Buffer Stock (BS) {C X D} Safety Stock (SS) {(BXD) – (CXE)} Reorder Level (BS + SS) Maximum Order Level (WS+BS+SS) 1 Inj Oxytocin 15 33 24 7 5 360 168 231 – 120= 111 168 + 111= 279 360+168+111= 639 2 Tab Paracetamol 15 200 150 7 5 2250 1050 1400 – 750= 650 1050 + 650= 1700 2250+ 1050+ 650= 3950 3

26. November 3, 2022 26 # Name of Medicine Balance Quantity Consumption ** Stock out days Total Consumption Average daily consumption Maximum Lead Time Maxm Daily Consumption Jan-2020 Feb-2020 Mar-2020 A B C D E F G H=D+E+F I J K 1 Gentamycin 200 200 210 220 30 630 630/60=10.5 7 30 Requirement for next 3 months by adjusting stock out days Buffer stock (Avg. Daily Consumption X Max Lead Time) Safety Stock (Max. Daily Cons X Max Lead time) – (Avg. Daily Cons X Avg. Lead Time) * Maximum lead time is taken as Average Lead Time here Total projected quantity Total quantity for indent Round off quantity L = I X 90 M = I X J N = KX7 – I X 7 O = L + M + N P = O – C Q 10.5 X 90=945 10.5 X 7 = 73.5 (30 X 7) – (10.5X7) = 136.5 945+73.5 + 136.5= 1155 1155-200= 955 1000 Essesntial drugs के मात्रा की गणना कैसे करें (for a Hospital Drug Store) ** यदि किसी दवा का उपयोग पिछले कुछ दिनों या महीनों से ना हुआ हो हो तो भी प्रसव कक्ष में सभी Emergency दवाओं की मिनिमम स्टॉक हमेशा रखना है Cyclic Method of 3 Months

27. Tips Hospital Main Store and District Drug Store should follow cyclic method and should calculate Maximum Order Level and always maintain stock at Maximum Stock level. When they will place indent, they should ask for Maximum Stock minus Stock-in-hand to prevent excessive stocking. Hospital Main Store and District Drug Store should also practice two bin system of stock management. While practicing Bin method, FEFO rule must be followed to prevent wastage of short expiry drugs. Departmental stores like LR, OT, Medicine IPD, etc who have little space for storing drugs should calculate Reorder Level and always maintain Minimum Stock at that level so that there should not be excess stock. Departmental store with little space for stocking should follow ROL method of indent In both cases, stock level must not go below Safety Stock Level At point of care like Labour Room, OT, etc for easy calculation 7 days’ consumption can be maintained as Safety Stock to prevent complete stock out.