3. DEFINITION
Inventory management
It is a scientific method of finding out how much stock should be maintained in order to
meet the production demands and be able to provide the right type of material at right
time, in the right quantity, and at competitive prices.
Inventory control
• Stocking adequate number and kind of stores, so that the materials are available
whenever required.
• Scientific inventory control results in optimal balance
3/18
4. Objectives of Inventory Control:
1.To enable each organization schedule in operation independently of
another.
2.To reduce material handling costs.
3. To obtain a reasonable utilization of people and equipment.
4.Maximize customer service.
5.Longer production runs.
6.Flexibility in production scheduling
7.To avoid stockout and storage.
4/18
5. In a pharmaceutical industry, inventories are categorized based on the nature of items as:
Materials used are chemicals such as active ingredients and excipients needed to manufacture the finished
products that is dosage form. Components are the finishing supplies such as equipment containers, labels, caps
and shippers needed for the packaging of the dosage forms.
Maintenance, Repair and Operating supplies)
Parts or subassemblies are needed for the final assembly of the end product.
For example, assembling arrangements made for packing the bulk tablets such as strip packing and blister
packing
5/18
7. Work in process materials and components are the items on which work is to be done
further. These are semi-finished goods.
Examples are granules for compression.
Finished goods such as saleable items, dosage forms, bulk drugs , and physician’s
samples are held in inventory awaiting customer’s orders or made for specific customers.
7/18
8. 1 . ABC Analysis
2 . VED Analysis
3 . EOQ Analysis
4 . Perpetual Inventory System
5. Lead time
6 . Buffer stock
8/18
9. 1. ABC Analysis: Always Better Control :
It is an inventory categorization method used for the analysis of a range of items that
have different levels of significance and should be controlled differently.
As per the analysis , the inventories is grouped into 3 categories based on material and
money value consumptions.
The investment in inventory can be regulated and funds can be utilized in the best
possible manner.
There is a closer and strict control on those items which represent a major portion of
total stock value.
The scientific and selective control helps in the maintenance of a high stock turnover
rate.
9/18
10. 2. VED Analysis:
They are very useful and important in daily patient care. Maximum
levels of such drugs should be maintained always in order to have a continuous
supply.
These are such items which can affect the pharmacy services to
some extent. They require a lesser stock level when compared to vital drugs. Essential
items are those items whose stock-out cost is very high for the company.
These are required by the pharmacy but they do not affect the
quality of service to the patient. Desirable items are those items whose stock-out or
storage causes only a minor disruption for a short duration in the production schedule.
Should be controlled differently.
10/18
11. 3. EOQ Analysis:
EOQ (Economic Order Quality) deals with both how much to purchase and the
appropriate recorder point or when to buy.
EOQ is the quality of the materials to be ordered at one time, which minimizes the cost.
The correct quality to buy is the quantity at which the ordering cost and inventory cost
is minimum.
E= √2AB/C
Where, A- annual requirement
B- ordering cost
C- carrying cost
11/18
12. Perpetual inventory method is the most efficient method of inventory control provided
the pharmacist has the necessary technology for this method, which is a computer.
This means that the system can tell you precisely the amount of inventory on 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 a designated level.
12/18
4. Perpetual inventory system:
13. 5. Lead time:
It is the time taken between the placing of order and receipt of drugs to the department.
The longer the lead time, longer the safety stock, resulting in excess of investment in
inventory.
Is used in the emergency to meet the unseen demands that is the minimum quality of
particular item which must be kept in stock at all the time.
Buffer stock needs the following factors to be taken into consideration like:
• Lead time • Nature of items, rate of consumption
• Availability of substances • Re-order level
• Stock-out cost
13/18
14. Inventory control systems
Inventory control system controls the level of inventory by determining how
much to order and when to order
Two basic types of inventory system:
1.Fixed order quantity system (continuous system)
2. Fixed period system (period system)
14/18
15. 1.An order is placed for the same constant amount whenever the inventory in hand
decreases to a certain level.
2. Whenever the inventory on hand decreases to a certain level, referred as recorder
point a new order is placed to replenish the stock of the inventory. The order is
placed for a fixed amount that minimizes the total inventory costs.
An order is placed for a variable amount after specific regular intervals.
Also known as periodic inventory system.
15/18
16. This includes material requirement planning that is followed in a pharmaceutical industry.
Material requirement planning:
MRP is a computational technique that converts the master schedule of production into a detailed
schedule for the materials and components used in production.
MRP determines the quantity of materials and the date on which these are needed for each phase of
production.
Advantages:
1.MRP system is more useful when there is sudden change in demand in the market.
2.Effective method for minimizing unnecessary inventory investment.
Disadvantages:
1.In MRP system , procurement costs are high because each item is processed separately.
2.Close monitoring of the material stocks is essential.
16/18