Inventory management of pharmaceutical products

Inventory management of pharmaceutical products

1. By: Nimona B. (B.Pharm, MSc.) Managing inventory 6/7/2024 1

2. Out line At the end of this chapter: you will be able to: Define inventory Describe the purpose of inventory Describe the different type of inventory control system Discuss types of Max-Min inventory control systems with emphasis on pharmaceuticals mgt 6/7/2024 2

3. Definition Inventory as stocks of money sitting on forklifts, on shelves, and in trucks and planes while in transit. That’s what inventory is - money Inventory is stock of goods, which must be carried and stored through out the supply chain in order to ensure smooth and efficient running of affairs of production and business 6/7/2024 3

4. Definition… Inventory is typically classified Raw material inventory. Work-in-process (WIP) inventory. Finished product inventory. Component parts, supplies inventories(indirect inventories) In services, inventory generally refers to the tangible goods to be sold and the supplies necessary to administer the service. 6/7/2024 4

5. Why we keep inventory? Formulation of inventory policy requires an understanding of the role of inventory in production and marketing. Inventory services the following purposes with in the firm: To ensure availability (reduce the risk of stock outs) To maintain confidence in the system To avoid shortage costs ( avoid expensive emergency orders ) It balances supply and demand It provides protection from uncertainties in demand and order cycle It acts as a buffer between critical interfaces with in the channel of distributions 6/7/2024 5

6. Inventory Management Is a discipline concerned with the management of different inventory items for Maintaining expected level of customer service The smooth running of an organization Minimizing inventory cost Is the process of maintaining of stock properly at all levels of the supply chain and at all times A process of assuring that the right volume and movement are secured in order to ensure that the obtained pharmaceuticals have reached to the final consumer correctly. 6/7/2024 6

7. Cont’d Inventory Managers must balance inventory investment and customer service Good inventory management is a careful act between stock availability and holding cost Avoid stock out cost And Minimizing cost of handling 6/7/2024 7

8. Cont’d… 6/7/2024 8

9. Inventory Control Systems An inventory control system: is mechanism that informs the storekeeper/ SC managers when to order or issue, how much to order or issue, and how to maintain an appropriate stock level of all products to avoid shortages and oversupply Key Inventory Control Terms Max-Min inventory control system. A max-min inventory control system is designed to ensure that the quantities in stock fall within an established range 6/7/2024 9

10. Inventory control system… Max stock level/Max quantity . The max stock level is the level of stock above which inventory levels should not rise, under normal conditions. ? The max stock level is set as a number of months of stock (for example, the max level may be set at four months of stock). It indicates how long supplies will last . Min stock level/Min quantity. This is the level of stock at which actions to replenish inventory should occur under normal conditions. As with the max, the min stock level should be expressed in months of stock (for example, the min level is one month of stock); 6/7/2024 10

11. Inventory control system… Review period/review period stock. This is the routine interval of time between assessments of stock levels to determine if additional stock is needed. This term is also called the order interval or resupply interval Review period stock is the quantity of stock dispensed during the review period. Safety stock level. This is the additional buffer, or reserve stock kept on hand to protect against stock outs caused by delayed deliveries, markedly increased demand, or other unexpected events. 6/7/2024 11

12. Inventory control system… Lead time stock level. This is the level of stock used between the time new stock is ordered and when it is received and available for use. The lead time stock level is expressed in number of months of supply, or as a quantity. Emergency Order Point (EOP). This is the level of stock that triggers an emergency order; it can be reached at any point during the review period. The EOP must be lower than the min. 6/7/2024 12

13. Inventory control system… Table: Ethiopian Pharmaceuticals SCM, Max-Min Levels LEVEL MINIMUM MAXIMUM Center 3 6 Hub 3 5 Health Facility 2 4 6/7/2024 13

14. Inventory control system… STOCK LEVEL Q 4 Q3 Q2 Q1 Buffer Stock Level Minimum Level Maximum Stock Level Buffer Stock Level Minimum Stock Level Maximum Level 6/7/2024 14

15. Cont’d… The three types of a max-min inventory control system that are applicable to Pharmaceuticals logistics systems are: Forced-ordering, Continuous review, and Standard. The basic difference between the systems is the trigger for ordering or issuing , i.e., when the order should be placed or an issue made. 6/7/2024 15

16. Cont’d… In a forced-ordering system, the trigger for ordering is the end of the review period . In a continuous review system , the trigger for ordering is when the facility reaches the minimum level . In a standard system , the trigger for ordering is the end of the review period for the commodities that are at the minimum level. 6/7/2024 16

17. Cont’d… Forced-ordering max- min system store keeper decision rule At the end of each review period, review all stock levels and order or issue enough stock to bring the levels up to the max. Place an emergency order if the stock level for any item falls below the emergency order point before the end of the review period. 6/7/2024 17

18. Advantages and disadvantages of forced-ordering max-min system Advantage: The storekeeper’s decision rule is simple: order/issue every item at the end of the period. Because orders are placed at regular intervals (i.e., the end of each review period), transportation can be scheduled for specific times, making it easier to ensure the availability of transport resources. Every facility orders or is resupplied at the end of every review period Because all items are ordered/issued at the end of every review period, storekeepers do not need to constantly assess stock status , unless they think a potential stock out is possible. 6/7/2024 18

19. Cont’d… One disadvantage of a forced-ordering system is that orders for some items may be for small quantities; because all items are ordered, regardless of the stock on hand. Forced-ordering variation: delivery truck system One variation of a forced-ordering max-min system is the delivery truck system, sometimes called a topping up or bread truck system. 6/7/2024 19

20. 2. Continuous review max-min system Continuous review max-min inventory control is probably the least appropriate for most health programs; but when it is appropriate, it can be very effective. Continuous review max-min system storekeeper decision rule 6/7/2024 20 Review the stock level of each item every time you make an issue. If the stock level is at the min, or has fallen below the min, order enough stock to bring the level up to the max.

21. Continuous review…. In a continuous review system The review period is not fixed; a decision about whether to order is made each time a product is issued. The storekeeper does not need an emergency order point, why?... Because an order can be placed any time stock is needed. The storekeeper must assess stock status each time an issue is made. In a system with many items, this means that the storekeeper’s workload increases;. The storekeeper must be able to order (pull) stock from the higher level, because the storekeeper is the only one who can determine whether the min stock level has been reached. A continuous review system must be a pull system 6/7/2024 21

22. Advantages and disadvantages. Advantages The storekeeper’s decision rule is simple. The system is more responsive and flexible because orders can be placed at any time. Small orders are eliminated because stock levels are at the min when an order is placed (in terms of quantity single item) Disadvantages Transportation resources are harder to schedule because orders can be placed at any time; a single facility can order a single pill. In facilities with a large number of products, or a great deal of activity, the storekeeper’s job is harder because the stock status must be assessed every time stock is issued . 6/7/2024 22 when it is appropriate, it can be very effective [How & Why?], Ideally in which types of store we can use it?

23. 3. Standard max-min system Theoretically, the standard version of the max-min system is the most effective because it combines the decision rules of both forced-ordering and continuous review and, therefore, shares the advantages of both. Store keeper decision rule 6/7/2024 23 Review all stock levels at the end of each review period. for products that are at or have fallen below the min, order/issue stock quantities up to their max levels.

24. Advantage and Disadvantage Advantages: Small orders are eliminated because an order is placed only when stock levels are at or below the min. In programs with many products, standard systems eliminate the need to assess stock status continually. Reduce the number of calculations that must be made because fewer products will be ordered or issued than in forced-ordering. Because orders are placed at regular intervals (end of each RP), transportation can be scheduled for specific times, making it easier to ensure the availability of transport resources. 6/7/2024 24

25. Cont’d… Disadvantages: The min stock level and buffer stock are higher , increasing the likelihood of expiry and requiring more storage capacity, both of which mean increased costs. Storekeepers must learn the max, min, and EOP; know how to assess stock status; and be able to calculate the order or issue quantity. More training for the storekeepers may be required because their decision rules are more complex. 6/7/2024 25

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