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Inventory Management and Prevention of Stock-out_23082022.pptx
1. March 27, 2024 1
Inventory Management and Prevention of
Stock-out
2. The problems of stock-out, inadequate or excess stock can be
avoided if a minimum/maximum inventory control system is
implemented.Forecasting of the requirement of drugs and
consumables is done by using scientific methods.
1.
1. Cyclic or Fixed Order method
Stock of various items are checked
with certain periodicity and orders
are placed at fixed periods (indent cycle) to bring
up the stock to the desired level.
Ex- Hospital Main Drug Store, District Drug Store
2. Two Bin system
Orders are placed when the stock of
the item reaches a certain
predetermined level or Reorder
Level. Ex- Departmental Drug Store
Two Methods of Indenting or Ordering : The order level or the number
is
pre-determined and placed accordingly
3. Inventory Terms : Order Levels and Stocks
• Working Stock
• Buffer Stock
• Safety Stock
• Maximum Stock
• Minimum Stock
• Maximum Order Level (MxOL)
• Reorder Level (ROL)
• Minimum Order Level (MnOL)
Read Operational definitions and observe the indent register carefully given in next slide
• Indent Cycle
• Maximum Daily Consumption
(MDC)
• Average Daily Consumption (ADC)
• Lead Time (LT)
• Maximum Lead Time (MLT)
• Average Lead Time (ALT)
4. Operational Definitions
Indent Cycle (in days) Defined as a fixed time period when stock of various items are checked,
and orders are placed at fixed interval
Maximum Daily Consumption (MDC)
The highest number of daily consumption of any item which is recorded
during a week/month/quarter/ year
Average Daily Consumption (ADC)
(in Number/in ampules/in KG)
[Total Monthly Consumption ÷ (Number of days in a month/week -
Number of stock-out days in given month/week)]
Maximum Lead Time (MLT)
(in days)
Latest time interval recorded between date of placement of order and
date of receipt of any item
Average Lead Time (ALT)
(in days) Average of all Lead Times recorded in a year
Working Stock (WS)
Amount of stock used between two cyclic orders.
WS = Average daily Consumption X Cycle interval in days
Buffer Stock (BS) Average daily Consumption X Max Lead time
Safety Stock (SS)
It is the exigency stock or cushion stock against emergencies,
SS = (Max Daily Cons X Max LT) Minus (Avg Daily Cons X Avg LT)
Reorder Level or Minimum Stock
(MnS)
It implies the least amount that you should have in your stock, or the level
which, when reached initiates a re-order (MnS=Buffer Stock + Safety Stock)
Maximum Order Level or Maximum
Stock (MxS)
It is the minimum stock plus amount of the stock used between two
cyclic orders. MxS=Working Stock + Buffer Stock + Safety Stock
6. Calculate Order levels and Stock amounts from indent register
given in previous slide
Name of the Drug Inj Oxytocin Calculation
Duration of Indent Cycle (in days) 15 Indent is placed on 1st and 16th January
Maximum Daily Consumption (in number) 33 Recorded on 5
th
January
Average Daily Consumption (in number) 24 (20+22+24+28+33+20+22) ÷ (7-0)= 24.14
Maximum Lead Time (in days) 7 Interval between 8th Jan and 1st Jan
Average Lead Time (in days) 5 (7+ 5) ÷ 2 = 5
Working Stock (WS) 360 24 X 15 = 360
Buffer Stock (BS) 168 24 X 7 = 168
Safety Stock (SS) 111 ( 33 X 7) – (24X5) = 111
Reorder Level 279 168 + 111 = 279
Maximum Order Level 639 360 + 168 + 111 = 639
7. Working Stock = Quantity of inventory required for use in one Indent Cycle
To calculate working stock we need two variable s e.g. Average Daily
consumption of an inventory and the interval of placing the indent in
days
For example, a Labour Room/Departmental store places regular indent
in every 15 days to Hospital Main Store
Working Stock = Average Daily Consumption X Interval of Indent Cycle
in Days
Working Stock of Inj Oxytocin = 24 (Average Daily Consumption) X 15
(Interval of Indent Cycle in Days) = 360 ampules
* It is important that the indenter and supplier should understand and agree
8. LEAD TIME
• Time interval between the date of placement of order for supply of
an item and the date of receipt of the item
• If Lead time is less than 24 hours, consider lead time as one day for
calculation purposes
• Lead time may be Maximum and Average. In our example Max LT =
7 days and Avg. LT = 5 days. For simplicity of calculation, one can
consider Maximum Lead Time and ignore Minimum LT
9. Buffer Stock / Lead-Time Stock : Amount of stock which is
used in the time between placing and receiving an order
Also called Lead-Time Stock / Buffer Stock = Average daily
consumption of the item X Maximum lead time in days
Here average daily consumption of Inj Oxytocin = 24 ampules
Maximum Lead time = 7 days
Buffer Stock = 24 ampule per day X 7 days = 168 ampules
* It implies that whenever one places indent, they should not ask for
less than this number also called Minimum Order Level
10. Safety Stock – Extra quantity of inventory required beyond
average demand
• In addition to the Buffer Stock, we need to have something
in extra to meet out any exigency or unexpected rise in
consumption or sudden increase in demand or
uncontrollable delay in the delivery of the material.
• Safety stock = (Maximum daily consumption X Maximum
Lead Time in days) – (Average daily consumption X
Average Lead Time in days)
11. Safety Stock
In our example for Inj Oxytocin
Maximum daily consumption = 33 ampules
Average daily consumption = 24 amp
Maximum Lead time = 7 days
Average Lead Time = 5 days
Safety stock = (33 X 7) – (24 X 5) = 231 - 120 = 111 ampules
#At any time, stock must not go below Safety Stock
12. Buffer Stock and Safety Stock are different from each
other
• Buffer Stock and Safety Stock are often used
interchangeably. However, this often creates confusion.
Buffer stock distinguishes it from Safety stock. Buffer
Stock protects the Provider from the Supplier when there
is delay in receiving supply. On the other hand, the
Safety Stock protects the Provider from Consumer in
probabilities like an abrupt change in the demand for a
particular product or uncontrollable delay in the delivery
of the material from supplier
13. Reorder Level = Buffer Stock + Safety Stock = Minimum Stock
Here for Inj Oxytocin, Reorder Level = 168 (Buffer Stock) + 111 (Safety Stock) =
279 amp. An indent should be placed when Oxytocin stock touches 279.
• Reorder Level or Point is set in such a manner when the stock of material
reaches this point or level in normal circumstances, order is placed for fresh
supplies to come to the store just before the level falls down safety level.
• It is the amount of stock which will be used in the time between placing and
receiving the order, plus the Safety stock. The minimum stock level is the level
below which stock should never drop without having placed an order.
14. Maximum Stock (Maximum Order Level)
= Working Stock + Minimum Stock
= Working Stock + Buffer Stock + Safety Stock
• It implies the largest amount of the stock that one should have. It is the
minimum stock plus amount of the stock used between two cyclic orders.
• The problems of stock-out, inadequate or excess stock can be avoided if a
minimum/maximum inventory control system is implemented.
• This system ensures that the quantity in hand should be less than the
Maximum Stock to avoid excess stock and unwanted expiry
• This system ensures that the quantity in hand should be aways more than the
buffer stock to avoid stock-out
• Under this system, quantity –in-hand must not touch or go below Safety Stock
15. Sl
No
Name
of the
Drug
Duratio
n of
Indent
Cycle
(in
days)
{A}
Maximu
m Daily
Consump
tion {B}
Average
Daily
Consump
tion {C}
Maximu
m Lead
Time (in
days) {D}
Average
Lead
Time (in
days) {E}
Working
Stock
(WS)
{A X C}
Buffer
Stock
(BS)
{C X D}
Safety
Stock
(SS)
{(BXD) –
(CXE)}
Reorder
Level
(BS + SS)
Maximu
m Order
Level
(WS+BS+
SS)
1
Inj
Oxyto
cin
15 33 24 7 5 360 168
231 –
120=
111
168 +
111=
279
360+168
+111=
639
2
Tab
Parac
etam
ol
15 200 150 7 5 2250 1050
1400 –
750=
650
1050 +
650=
1700
2250+
1050+
650=
3950
3
16. Graphical Presentation of Order Levels and Stocks
Buffer Stock
Working Stock
Safety Order Level
Maximum Stock
Minimum Stock
Working Stock = Maximum Order Level – Reorder Level
Buffer Stock = Reorder Level – Safety Order Level
17. BIN CARD.
A Bin Card which is a record of receipt, issue and
stock at hand.
Prepared and maintained separately for each item.
On verification - no difference between the stock
recorded in the Bin Card and physical stock.
18. BIN CARD
Drug Name Reorder level
Drug code Buffer stock
Received Issued Balance
Date Qty Batch No. Expiry date Date Qty Date Qty
19. Tips
• Hospital Main Store and District Drug Store should follow cyclic
method and should calculate Maximum Order Level and always
maintain Maximum Stock at that level
• Departmental stores like LR, OT, Medicine IPD, etc should follow
Two Bin System and should calculate Reorder Level and always
maintain Minimum Stock at that level.
• In both cases, stock level should never go below Buffer Stock Level
• For easy calculation Maximum Lead Time can be considered
ignoring Minimum Lead Time.
• See, two methods of indenting practice in next slide e.g. A: Cyclic
Method and B:Bin Method.
21. Name of Drug Inj Oxytocin
Reorder Level=Buffer Stock + Safety Stock 279
Buffer Stock (SS) 168
Date
Opening Balance
(Closing Balance +
Number
Received)
Number
Issued
Closing
Balance
Remark
1-Jan 231 20 211 Indent order
placed for
279
2-Jan 211 22 189
3-Jan 189 24 165 Reminder
Given
4-Jan 165 28 137
5-Jan 137 33 104
6-Jan 104 20 84
7-Jan 84 22 62
8-Jan 341 26 315 Indent
Received
9-Jan 315 32 283
10-Jan 283 16 267
Indent order
placed for
279
11-Jan 267 30 237
12-Jan 237 18 219
13-Jan 219 29 190
14-Jan 190 19 171
15-Jan 171 23 148 Reminder
Given
16-Jan 148 25 123
17-Jan 402 20 382 Indent
Received
18-Jan 382 22 360
19-Jan 360 24 336
20-Jan 336 28 308
21-Jan 308 33 275 Indent order
placed for
279
22-Jan 275 20 255
23-Jan 255 22 233
24-Jan 233 26 207
25-Jan 207 32 175
26-Jan 175 16 159 Reminder
Given
27-Jan 159 30 129
28-Jan 329 18 311
Indent
Received
29-Jan 311 29 282
30-Jan 282 19 263 Indent order
Two Bin
Method
22. March 27, 2024 22
# Name of
Medicine
Balance
Quantity
Consumption** Stock
out
days
Total
Consumption
Average daily
consumption
Maxim
um
Lead
Time
Maxm
Daily
Consu
mption
Jan-
2020
Feb-
2020
Mar-
2020
A B C D E F G H=D+E+F I J K
1 Gentamy
cin
200 200 210 220 30 630 630/60=10.5 7 30
Requirement
for next 3
months by
adjusting stock
out days
Buffer stock
(Avg. Daily
Consumption X
Max Lead Time)
Safety Stock (Max. Daily Cons X
Max Lead time) – (Avg. Daily
Cons X Avg. Lead Time)
* Maximum lead time is taken
as Average Lead Time here
Total
projected
quantity
Total
quantity
for indent
Round off
quantity
L = I X 90 M = I X J N = KX7 – I X 7 O = L + M + N P = O – C Q
10.5 X 90=945 10.5 X 7 = 73.5 (30 X 7) – (10.5X7) = 136.5 945+73.5 +
136.5= 1155
1155-200=
955
1000
Essesntial drugs क
े मात्रा की गणना क
ै से करें (for a Hospital Drug Store)
**यदि दकसी िवा का उपयोग दपछले क
ु छ दिनोों या महीनोों से ना हुआ हो हो तो भी
प्रसव कक्ष में सभी Emergency िवाओों की दमदनमम स्टॉक हमेशा रखना है
Cyclic
Method of
3 Months
