Supply Chain and Inventory Control
Introduction:
Supply chain and inventory control are essential management concepts in pharmacy practice, hospital pharmacy, and pharmaceutical industries. They ensure uninterrupted availability of medicines and materials while minimizing wastage, shortages, and financial losses.
An efficient supply chain ensures that the right drug is available at the right time, in the right quantity, and at the right cost, whereas inventory control focuses on managing stock levels scientifically.
Supply Chain Management:
Supply chain management refers to the coordination and control of all activities involved in the movement of materials from suppliers to end users.
In pharmacy, the supply chain includes:
- Selection of suppliers
- Procurement of drugs and materials
- Transportation and storage
- Distribution to pharmacies, wards, or patients
Objectives of Supply Chain Management:
- Ensure continuous availability of medicines
- Reduce stock-outs and overstocking
- Minimize procurement and storage costs
- Maintain drug quality and safety
- Improve patient care and satisfaction
Inventory Control
Inventory control is the systematic approach of managing drug stocks to ensure optimum availability while minimizing investment and wastage.
In pharmacy, inventory includes raw materials, finished formulations, surgical items, and medical supplies.
Objectives of Inventory Control:
- Maintain adequate stock levels
- Avoid expiry, pilferage, and damage
- Reduce carrying and ordering costs
- Ensure uninterrupted patient care
- Improve financial efficiency
Types of Inventory Costs:
1. Ordering Cost:
Cost involved in placing and receiving an order, such as administrative expenses, transportation, and documentation.
2. Carrying Cost (Holding Cost):
Cost of storing inventory, including storage space, refrigeration, insurance, expiry, and capital investment.
3. Shortage Cost:
Cost incurred due to non-availability of medicines, leading to treatment delay or loss of goodwill.
Inventory Control Techniques
1. ABC Analysis:
ABC analysis categorizes items based on their annual consumption value.
- Category A: High-cost items, small quantity, strict control
- Category B: Moderate-cost items, moderate control
- Category C: Low-cost items, large quantity, simple control
2. VED Analysis:
VED analysis classifies drugs based on their criticality.
- Vital: Life-saving drugs
- Essential: Necessary but not life-saving
- Desirable: Used for minor conditions
3. ABC–VED Matrix:
This combines cost and criticality to prioritize inventory control decisions.
4. FIFO and FEFO:
- FIFO (First In First Out): Old stock is issued first
- FEFO (First Expiry First Out): Stock with earlier expiry is issued first
Economic Order Quantity (EOQ)
EOQ is the optimum quantity of items to be ordered that minimizes total inventory cost.
EOQ Formula
EOQ = √(2DS / H)
Where:
- D = Annual demand (units per year)
- S = Ordering cost per order
- H = Holding cost per unit per year
Reorder Level
Reorder level is the stock level at which a new order should be placed.
Reorder Level Formula
Reorder Level = Maximum consumption × Maximum lead time
Minimum Level
Minimum level is the lowest stock level below which inventory should not fall.
Minimum Level Formula
Minimum Level = Reorder Level − (Average consumption × Average lead time)
Maximum Level
Maximum level is the highest quantity of stock that should be held.
Maximum Level Formula
Maximum Level = Reorder Level + EOQ − (Minimum consumption × Minimum lead time)
Safety Stock
Safety stock is the extra inventory kept to prevent stock-outs due to unexpected demand or supply delays.
Importance of Supply Chain and Inventory Control in Pharmacy
- Prevents medicine shortages
- Reduces wastage due to expiry
- Improves financial management
- Ensures uninterrupted patient care
- Enhances efficiency of pharmacy operations
Summary:
Supply chain and inventory control are critical components of pharmacy management. Scientific inventory techniques and proper use of formulas like EOQ and reorder level help pharmacists maintain optimal stock, reduce costs, and ensure patient safety. Effective inventory control directly contributes to quality healthcare delivery.
Frequently Asked Questions (FAQs)
1. What is supply chain management in pharmacy?
It involves procurement, storage, and distribution of medicines from suppliers to patients efficiently.
2. Why is inventory control important?
It prevents stock-outs, reduces wastage, and minimizes financial losses.
3. What is EOQ?
EOQ is the ideal order quantity that minimizes total inventory cost.
4. What is the difference between FIFO and FEFO?
FIFO issues older stock first, while FEFO issues stock with earlier expiry first.
5. Which inventory method is best for hospital pharmacy?
A combination of ABC and VED analysis is most effective for hospital pharmacy inventory control.
