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

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

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:
1. Formulating effective buying policies
2. Determining the demands or desires of the
patrons
3. Selecting the best source of supply
4. Determining and negotiating the term of
purchase
5. Receiving , marking and stocking
merchandise.
6. Transforming the title of goods including
QUESTION
EXPLAIN FUNCTIONS OF PURCHASING FOR DRUG STORE
(4M)

5. The specific functions of purchasing are:
1. Formulating effective buying policies
1. 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

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
1. Maximum discounts available through quantity
buying
2. Advertising and promotional programmes at
much lower cost
3. Exchange of ideas among members
4. Consulting service providing new methods and
techniques of drug store operation
5. Development of a group logo for advertising
and drug store identification , while the
individual member retains his individual drug

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: Discounts are probably the most
frequently discussed aspects of the terms of a sale.
Buyers want large discounts.
1. 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)

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

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 .

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

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

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:

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

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.

39. 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

40. 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.

41. 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

42. 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.

43. 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.

44. 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.

45. 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

46. 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.