What Makes an Effective Drug Inventory
Management System
Drug Accountability Conference
May 12, 2010
Goal
• Explore the importance of effective
inventory management
Inventory
• Product
• Single largest expense
• Poor management negatively effects
– Service
– Morale
– Patient lives
Inventory Management
Minimizing
Cost
Supply and
demand
Inventory Management
• Purchasing
– Right product
– Right time and amount
– Right price
Inventory Management
Space
New
Initiatives
Past Usage
Right
Product
Industry
Changes
Seasonal
Factors
Formularies
Other factors?
•
•
•
•
Accountability
Theft reduction
Reduce waste
Budget analysis
Inventory Management
Right time and
amount
Inventory Management
• Ordering Process
– ABC inventory method (Manual)
– Perpetual inventory (Automated)
ABC Inventory Method
• Classifies inventory items to determine
level of control needed
• Rank items by annual purchases cost
• A = 70% (10% of all products) - tight control
• B = 20% (20% of all products) - mod. control
• C = 10% (70% of all products) - least control
Inventory Cost
• Ordering Cost: The costs of placing and
receiving and order.
Examples: clerical costs and documents
• Carrying Costs: The costs of keeping inventory.
Examples: space costs, expiration, damage,
shrinkage
• Out of Stock Costs: The cost of not having
sufficient inventory.
Examples: Cost of expediting, taxi, cost of
alternate therapy
•
Safety Stock
• Variability of demand
• Lead time (Delivery Schedule)
• Importance of therapy
Demand Forecasting
• Demand Forecasting – Weighting
factors are applied to past purchases to
calculate trends.
• Reorder Point (ROP) = Safety Stock
• Reorder Quantity (ROQ) = Economic
Order Quantity
The Inventory Cycle
Profile of Inventory Level Over Time
Q
Quantity
on hand
Usage
rate
Reorder
Quantity
(ROQ)
Reorder
Point or
Safety
Stock
(ROP)
Receive
order
Place Receive
order order
Lead time
12-14
Place Receive
order order
Time
Ordering Intervals
• A items will be inventoried and ordered
a minimum of 2 times weekly.
• B items will be inventoried and ordered
a minimum of weekly.
• C items will be inventoried and ordered
once every 14 days.
• Do no overlook efficiencies from being
organized.
McKesson Inventory Management
Shelf Tag System
• A, B, C items are identified based on
your ordering history (Orange-A, Blue-B, Yellow-C)
• ROP (Reorder Point)
• ROQ (Reorder Quantity)
• System also calculates ROP and ROQ
based on your ordering history
Mean Absolute Deviation Percentage
 Mean Absolute Deviation Percentage (MADP) can be
used as an indication of the accuracy.
 Range of MADP
 0.01 - 0.25
Very reliable
 0.26 - 0.5
Reliable
 0.51 - 0.75
Irregular but useful
 >0.76
Unreliable due to variance in purchases
 Facilities should look for products that have a MADP
under 0.5 and a low turn. These would be prime
suspects for improvement.
*Found in 12 month Inventory Turns Forecast Report Detailed
Inventory Turn
Measured by dividing
total cost of products
purchased by inventory
value. Lower inventory
turnover is a sign of
inefficiency and
inflexibility. Upward
trends in inventory
turnover can be indicative
improved inventory
management.
15.00
14.50
14.00
13.50
13.00
12.50
12.00
11.50
11.00
10.50
10.00
9.50
9.00
8.50
8.00
7.50
7.00
6.50
6.00
5.50
5.00
4.50
4.00
3.50
3.00
14.00
9.00
6.00
18
18
Diversion Issues
•
•
•
VAMC pharmacist was arrested after an OIG investigation and charged
with stealing 10,000 tablets of non-controlled prescription medication from
the pharmacy over a 2-3 year period.
Defendant Pleads Guilty to Pharmaceuticals Theft at VAMC: A coconspirator involved in a scheme to steal VA pharmaceuticals pled guilty
to misbranding of drugs. An OIG investigation determined that the
defendant was involved with two other subjects in a conspiracy to steal
drugs estimated at $250,000 from the VAMC pharmacy and resell them at a
retail pharmacy. The primary conspirator, a former VA pharmacist, was
previously sentenced in this case.
VAMC Pharmacy Technician Indicted for Drug Theft: Pharmacy technician
was indicted for acquiring a controlled substance by fraud and using the
U.S. Mail to unlawfully distribute controlled substances. An OIG and VA
Police investigation determined that the defendant, who worked as a
prescription refill telephone operator, used the pharmacy profiles of
unsuspecting Veterans to steal prescription narcotics by mailing the
prescriptions to himself or family members’ residences.
Comments
• Use math to settle most disputes.
• Remember all inventories systems are
frequently incorrect.
• We still need intelligent workers to
make the process work.
• We are here to serve the patients.
Inventory Management
• Questions