Purchasing and inventory control in drug store

Purchasing and Inventory control in drug store
by Mrs. Anjua Parkhe and Mrs. Priyanka Kalamkar
Assistant Professor
Sraaswathi Vidya Bhavans College Of Pharmacy, Dombivli

1. Purchasing and Inventory control in drug store HOSPITAL PHARMACY AND DRUG STORE MANAGEMENT

2. PURCHASING AND INVENTORY CONTROL Good purchasing policies and inventory control are closely interrelated because one can not be effective without another. Old saying that “ Goods well bought are half sold” Inventory control The process of ensuring that appropriate amounts of stock are maintained by a store, so as To able to meet the customer demand without delay Keeping the cost associated with holding stock to minimum To give uninterrupted service towards the sales with minimum stock.

3. Purchasing Purchasing is an activity directed towards securing the materials , supplies, equipment and services required in the operations of an enterprise

4. The specific functions of purchasing are: Formulating effective buying policies Determining the demands or desires of the patrons Selecting the best source of supply Determining and negotiating the term of purchase Receiving , marking and stocking merchandise. Transforming the title of goods including payment in time to receive maximum discount. QUESTION EXPLAIN FUNCTIONS OF PURCHASING FOR DRUG STORE (4M) STATE IMPORTANCE OF PURCHASING POLICIES 2M

5. The specific functions of purchasing are: 1. Formulating effective buying policies Buying policies should be compatible with the general objectives of the drug store, which, in turn determined largely by the types of drug store and location. for example; a traditional drug store stock fewer merchandise lines and probably a lesser assortment of merchandise in each line than a super drug store . Three basic considerations

6. The specific functions of purchasing are: 1. Formulating effective buying policies 2. Needs and desire of the patrons must be recognized There is interrelationship between these basics two considerations. The type of the drug store has substantial influence on the patrons it attracts. The needs and desire of the patrons in particular market should be the basis for the establishing a particular type of drug store.

7. The specific functions of purchasing are: 1. Formulating effective buying policies 3. One primary drug wholesaler as the primary source should be selected Provides efficiency and lower merchandise cost by concentrating the bulk of the purchase from one source. One or two other drug wholesaler should be utilized to provide another source whenever the primary source is out of stock or does not carry the item. Sufficient trade should be given to secondary source to keep him interested in your business

8. Selection of Primary Source PRIMARY SOURCE SELECTION should not be selected on the basis of price offered alone Other criteria should include Promptness in delivery Frequency of delivery Return goods policy Frequency of out of stock situations Number of merchandise lines and assortment Goods service relation .

9. The specific functions of purchasing are: 2 . Determining the demands or desires of the patrons The need and demand of the customers of the drug store are determined by A) Prescriber’s preference which in turn are determined by the prevalence of disease entities the drug available to treat theses disease B) Promotional effort of the Manufacturers of these drugs. However it remains for the proprietor to determine whether certain needs such as home health credit, surgical appliance, cosmetics and toiletries etc. are to be met.

10. The primary sources where the proprietor of drug store finds information on kinds ,types and prices of goods his customers want are: Inside source : Past sale trend Return goods and adjustments data Customers inquiries Outside sources Salesman offering and suggestion Trade journal and magazines Survey of customer’s desire and needs National and local advertisement of manufacturer Offering of other drugs.

11. The specific functions of purchasing are: 3. Selecting the source of supply: Basically there are 4 sources which can be adopted by a Pharmacist for purchasing the goods for his drug store A] Direct purchasing B] Indirect purchasing C] Co-operative purchasing D] Purchasing from specialty wholesaler. To select the best source of supply one needs to assess all the advantages and Disadvantages of that particular source.

12. Direct Purchasing : (From Manufacturer) If the saving in extra discount warrants direct purchasing, it is better to buy in this way Decision can be made after studying the economic order Quantity Often leads to overstocking, delay in delivery If the policy of direct purchasing is regularly followed , stocks must be great enough to permit this delay Indirect Purchasing (From Wholesaler) Is prompt in Delivery of goods Helps the pharmacist in keeping very low inventory and making quick replacement as they are needed.

13. Direct vs indirect purchasing Purchase from Manufacturer Purchase from Wholesaler Inventory size Larger Smaller Turnover Less Greater Delivery Slower, Less Frequent Faster more frequent Return of Goods More Difficult Less Difficult Availability of Goods Only source for certain lines More lines Product Information More complete Less complete Available credit Readily in more cases Readily if not in default Cost of Handling More Less Cost of Product Lower in some cases Higher in some cases

14. 3. Selecting the source of supply: C] Co-operative purchasing: Promotes the economic welfare of independent drug store by utilizing their united efforts for efficient and economical distribution through buying and advertising of products sold in the member pharmacists. Large number of drug stores combines their purchase order to buy merchandise at low price for each member

15. Advantages of co-operative purcahsing Maximum discounts available through quantity buying Advertising and promotional programmes at much lower cost Exchange of ideas among members Consulting service providing new methods and techniques of drug store operation Development of a group logo for advertising and drug store identification , while the individual member retains his individual drug store name.

16. Speciality Wholesalers Other sources of supply that nearly all pharmacists use, depending on scope of operations. Usually relatively small wholesalers dealing in limited line of Merchandise but with wide assortments within this lines.

17. The specific functions of purchasing are: 4. Determining in terms of purchase : The major points in purchase include discounts of various kinds , the due date of payment policy on credit extension, and return good policy. Discounts: D iscounts are probably the most frequently discussed aspects of the terms of a sale. Buyers want large discounts. Trade Discount: The trade discount is given to firm which perform marketing activities. For example Pharmaceutical wholesaling and pharmaceutical retailing is part of Pharmaceutical marketing. Trade discount to wholesaler is 5 to 10% Trade discount to retailer is 15 to 20 %

18. 2. Quantity Discount Quantity discount is given on quantity It may be in terms of quantity or converted into cash discount The policy will differ from manufacturer to manufacturer. In Pharmaceutical marketing usually 10 to 20 % quantity discount is given If any retailer is collecting 20 boxes then 10% of 20 boxes is 2 boxes free If one box is ordered (10 X 10 tablets) 1 strip is free.

19. The specific functions of purchasing are: 4. Determining in terms of purchase: 3. Cash Discount : Smallest discount of all but most valuable one. A cash discount is given to a purchase for payment within a time period specified on invoice of statement. Range is 1 to 2% Suppose every month your invoice is Rs . 20000/- 2% cash discount is offered i.e. 400 per month Credit Facility In Pharmaceutical marketing for established business in b/w wholesaler and pharmaceutical manufacturer a 45 days credit facility on payment of invoice bill is given from manufacturers side. Wholesaler usually give 21 days credit facility to retailers For new retail drug store , such facility are not available initially.

20. 5. Receiving , Marking and Stocking Goods with Title Once an order is placed and the goods arrive at the store , each invoice has to be checked for the appropriateness , quality and quantity of the medical item, the terms of the sale and the accuracy of the extension of the cost Goods are then marked with the proper code number, classified according to various storage system(alphabetical/disease wise) Expiry date of each product is checked. Fresh products are placed behind the older

21. The specific functions of purchasing are: Purchasing for new store: When stock of drug is placed on shelves of a new store the pharmacist cannot have the record of the past experience to use as a guide. He may be generally familiar with needs of the community through past experience in it the take of determining just what should be stocked is not an easy one. He knows that he must carry number of kinds of cough medicines but the determination of brands the market will best sell in his location may be serious problem.

22. Return goods policy: Important sales term Very crucial for pharmaceutical products because many drugs have expiry date and during transportation many of them get broken. Some companies do not accept return goods while some of them accept it for a particular period and give replacement or the cut price from invoice bill. Most goods are returned due to broken packages, damaged labels or cartons, mishandling , etc Separate area and register should be maintained weekly

23. The specific functions of purchasing are: Purchasing of established store: Problem of buying to maintain an established stock are somewhat easier in nature. Experience: If stock record of any kind are kept they may be well used as a guide. Reference to one’s last inventory , a check of purchase since that time and knowledge of the stock now on the shelves will enable a pharmacists to decide what his sales have been for different products. Past experience may be misleading unless the pharmacist notes changes in demand.

24. The specific functions of purchasing are: Purchasing of established store: Consumer Changes: Changes in the buying power of his community may be equally significant. Quality of toiletries most in demand varies with the income of customers as do the most popular sizes. Forecasting the change will follow increase or decrease in the income. Competition: It is dangerous to be continually behind the competition and to stock only what the competitors are selling. It is not hard to know what success a near by competitor is having with a modern stock of cosmetics carried at an artificially arranged shelves with modern fixtures.

25. The specific functions of purchasing are: Purchasing of established store: Want Book: No pharmacist can operate without the use of some form of want book. Such book should provide convenient pages for listing the items that are to be purchased to replenish exhausted or low stocks. The pharmacist should however look through the current list at frequent intervals to discover which items have been listed by his salesman and which may be best to discontinue or to order in reduced quantities. Concentration: The supplier list should be as less as possible i.e. the pharmacist has to concentrate only on few wholesalers for his purchasing . Which establish a relationship b/w wholesaler & retailer

26. Inventory Control Methods of inventory control; 1. Systematic Want book Method 2. Economic Order Quantity 3. Open to buy budget system 4. VED 5. Perpetual Inventory Method 6. Turnover 7 . ABC analysis UNIV Question DEFINE INVENTORY CONTROL AND ENLIST ANY FOUR INVENTORY CONTROL METHODS 2M

27. Inventory Control Want book is maintained wherein items are recorded. When the number of units in stock reaches one to three, items are ordered. It is normally applicable to small pharmacies but less effective.

28. Inventory Control Systematic Wantbook Method: Applicable to small pharmacies. Want book is maintained for each product and each major wholesaler. A card is attached for each product The card contains information regarding minimum quantities, maximum quantities, the number at which the item is to be ordered and quantity to be ordered The consumptions of items is updated in the want book and accordingly orders are placed.

29. Inventory Control Open to buy budget system: Simplest and easy method. By this method , purchase budget of whole items and individual items is made. It is made by considering the following factors A.] Increase or Decrease in the sales of the previous month in comparison to the corresponding monthly sales a year ago. B.]Adjustment of overbuying or under buying during previous month

30. Inventory Control When purchase is made it is subtracted from balance of the purchase budget maintained on a separate purchase journal or register. So the owner will come to know whether he buying too much or too little by referring to his budget Only drawback of this method is that , to calculate each months purchase budget is difficult.

31. Economic Order Quantity(EOQ) Analysis This method helps to determine how much to pay and when. EOQ method also illustrates the amount that needs to be spent on buying to keep costs at minimum.

32. EOQ ANALYSIS There are two sets of cost in purchasing PROCUREMENT COST CARRYING COST Procurement cost vary with the number of orders and may be reduced for any given item by placing fewer and larger orders. However the result is an increase inventory and consequently increases in inventory carrying cost. Procurement cost vary directly with the number of orders and inversely with the amount of investment.

33. EOQ ANALYSIS Procurement costs Procurement cost consists of Expenditure connected with the following Communication media cost Checking , purchasing , receiving goods Marketing and stocking goods Paying for goods Carrying (or Holding ) Costs: Carrying cost consists of Expenditure connected with the following Interest on Capital Investment Cost of insurance and property tax Damage and obsolescence(outdated) Cost of storage, up keep of material

34. EOQ ANALYSIS This also provides the level of inventory at which the combined cost of procurement and carrying inventory are at minimum. For any item the reduction in one set cost can increase in the other set. The application of EOQ to any group of stock items will cause the sum of the two cost to be lower than under any other system of purchasing. This will happen in one of the following ways: By balancing or equating the two set of cost By reducing one set of cost without increasing the other

35. EOQ ANALYSIS The EOQ equation is difficult to derive but not difficult to use. The EOQ will determine the optimum quantity to order in term of either rupees or physical units and optimum turnover rate.

36. ABC analysis: The   ABC analysis  is a business term used to define an inventory categorization technique often used in material management. It is also known as "Selective InventoryControl . " Policies based on  ABC analysis : A ITEMS: very tight control and accurate records. B ITEMS: less tightly controlled and good records. C ITEMS: with the simplest controls possible and minimal records.

37. ABC analysis: A’ category those items are taken which are very important and small in quantity , ’ B’ category includes relatively less costly and important items as compared to ‘A’ category ‘C’ category includes those items which are large in number and are low priced. 

38. ABC analysis: A ’  items – 20% of the items accounts for 70% of the annual consumption value of the items. ‘B’  items - 30% of the items accounts for 25% of the annual consumption value of the items. ‘C’  items - 50% of the items accounts for 5% of the annual consumption value of the items. Another recommended breakdown of ABC classes: "A" approximately 10% of items or 66.6% of value "B" approximately 20% of items or 23.3% of value "C" approximately 70% of items or 10.1% of value

39. VED Analysis :- It attempts to classify the items used into three broad categories, namely Vital, Essential, and Desirable. The analysis classifies items on the basis of their criticality for the industry or company. Vital: Vital category items are those items without which the production activities or any other activity of the company, would come to a halt, or at least be drastically affected. Essential: Essential items are those items whose stock – out cost is very high for the company.

40. 8.VED Analysis :- Desirable : Desirable items are those items whose stock-out or shortage causes only a minor disruption for a short duration in the production schedule. The cost incurred is very nominal. VED Analysis is very useful to categorize items of spare parts and components. In fact, in the inventory control of spare parts and components it is advisable, for the organization to use a combination of ABC and VED Analysis. Such control system would be found to be more effective and meaningful.

41. Inventory Control Perpetual Inventory Method: This method utilizes computer. This system tells you precisely the amount of inventory in hand for any product in the system at any time, and the system is programmed to provide a list and quantities of products to be ordered to maintain the inventory at designated level.

42. Inventory Control Turnover: The term turnover means the rate at which the goods are sold or the pace at which goods moves from the shelves. It is also defined as the number of times an article is sold and replaced in a given period usually a year. The rate of turnover may be determined either retail or cost prices. It is essential to know how the rate of turnover compares with the rate that are normal for the other drug stores. By knowing the current turnover rate the pharmacist can make comparison with his own records in the past years.

43. Inventory Control The term turnover means the rate at which the goods are sold or the pace at which goods moves from the shelves. It is also defined as the number of times an article is sold and replaced in a given period usually a year. The rate of turnover may be determined either retail or cost prices. It is essential to know how the rate of turnover compares with the rate that are normal for the other drug stores. By knowing the current turnover rate the pharmacist can make comparison with his own records in the past years.

44. In this method a parameter Inventory turnover which is the number of times the inventory has been turned during the fiscal period. Inventory Turnover in the range of four times to six years a considered as satisfactory Low values of turnover are obtained in following cases: 1. Duplication of stock 2.Large purchase of slow moving Items 3.Dead Inventory High turnover are obtained due to small volume purchasing

45. REFERENCES: 1 . Hospital Pharmacy, W. E. Hassan, Edition, Lea and Febiger , Philadelphia. 2. Hospital Pharmacy, Dr. H. P. Tipnis and Dr. Amrita Bajaj, Career Publication, Maharashtra. 3 . Drug Store and Business Management, A. P. Battasse , Unique Publication.

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