INVENTORY CONTROL TECHNIQUES

PRESENTED BY ANJALI RARICHAN M.PHARM, FIRST YEAR PHARMACY PRACTICE

The term inventory is defined as the itemised list of goods with their estimated worth specifically annual account of stock taken in any business.

All the materials , parts, suppliers, expenses and in process or finished products recorded on the books by an organization and kept in its stocks, warehouses or plant for some period of time.

Inventory means…

Definition of inventory control

Inventory control is the technique of maintaining the size of the inventory at some desired level keeping in view the best economic interest of an organization.

OBJECTIVES OF INVENTORY CONTROL

To reduce investment in inventories and made effective use of capital investments.

To supply drugs in time. Efforts are made to procure goods at minimum price

without bargaining the quality. To avoid stock out and shortages. Wastages are avoided. Inventory management is essential to maintain a

large size inventory for efficient and smooth production and also for sales operation.

Benefits of Inventory Control Ensures an adequate supply of materials Minimizes inventory costs Facilitates purchasing economies Eliminates duplication in ordering Better utilization of available stocks Provides a check against the loss of materials Facilitates cost accounting activities Enables management in cost comparison Locates & disposes inactive & obsolete store items Consistent & reliable basis for financial statements

Techniques of inventory control

Inventory control techniques are the tool available for smooth running of the business enterprises.

The inventories should be maintained at a level lying between the excessive and the inadequate. This level is known as the “OPTIMUM LEVEL” of inventories.

The common and widely used techniques are:

ABC ANALYSIS (Always Better Control) VED ANALYSIS (Vital, Essential, Desirable) EOQ (Economic Order Quantity) Lead Time Buffer stock Perpetual inventory control system SDE classification HML Classification FSN Classification SOS classification XYZ Classification

ABC ANALYSIS In this technique the materials are divided

into 3 groups. A,B,C according to the cost of the materials and money value.

A items - A few costly items come under this category these items require proper storage and handling, overstock is avoided.

B items - These are neither costly nor cheap. C items - Cheaper in cost. It is also known as Selective Inventory

Control Method (SIM).

A ITEMS B ITEMS C ITEMS

it covers 10% of the total inventories.

It covers 20% of the total inventories.

It covers 70% of the total inventories.

It consumes about 70% of the total budget

It consumes about 20% of the total budget.

It consumes about 10% of the total expenditure

It requires very strict control

It requires moderate control.

It may require low control.

It requires either no safety stock or low safety stock.

It requires low safety stock.

It requires high safety stock.

It needs maximum follow up

It requires periodic follow up

It needs close follow up

It must be handled by senior officers.

It can be handled by middle management.

It can be handled by any official of the management

ABC ANALYSIS

Procedure for ABC Analysis Make the list of all items of inventory. Determine the annual volume of usage & money

value of each item. Multiply each item’s annual volume by its rupee

value. Compute each item’s percentage of the total

inventory in terms of annual usage in rupees. Select the top 10% of all items which have the

highest rupee percentages & classify them as “A” items.

Select the next 20% of all items with the next highest rupee percentages & designate them “B” items.

The next 70% of all items with the lowest rupee percentages are “C” items.

ABC Analysis

A Items

B ItemsC Items

Per

cent

of a

nnua

l dol

lar u

sage

80 –70 –60 –50 –40 –30 –20 –10 –

0 – | | | | | | | | | |

10 20 30 40 50 60 70 80 90 100

Percent of inventory items

VED ANALYSIS VITAL,ESSENTIAL, DESIRABLE It is based on the importance of the item and

its effects.

VITAL DRUGS – Such drugs are categorised as vital whose absence (no stock) cannot be tolerated even for an single day. That means in their absence the work of hospital or wards or patient care to come standstill.

VED ANALYSIS ESSENTIAL Drugs – These are the drugs

without which a hospital can function but may affect the quality of service to some extent but not to a very serious extent.

DESIRABLE Drugs - These are the drugs whose absence will not affect the functioning of hospital or ward or department or patient care.

VED ANALYSIS The motive of this system is to reduce

investment in inventories. The drugs which are fast moving , ie which are in great demand should be stocked more than drugs occasionally demanded and lastly the drugs which are rarely demanded should be stocked in minimum quantity.

ECONOMIC ORDER QUANTITY

It is the most effective technique for determination of the quantity.

It is defined as the quantity of materials to be ordered at one time which minimises the lost.

The basic objective of EOQ is to have an ideal order quantity for any item and to economise on the cost of the purchase.

Computation of EOQ The widely used formula is

EOQ =√{2A×O/C}Where ,A=Annual or periodic requirementO=Ordering costC=Carrying cost

FSN Analysis:

The abbreviation for FSN in “Fast moving, Slow moving and

Non moving”.

Here in this analysis, the date of receipt or the last date of issue,

which ever is later, to determine the no. of months which have

lapsed from last transaction.

FSN is helpful in identifying active items which need to be

reviewed regularly and surplus items and non-moving items are

examined.

SDE Classification:

The SDE is based upon the availability of items.

Here ‘S’ refers to ‘Scarce’ items

‘D’ refers to ‘Difficult’ items

‘E’ refers to ‘Easy to acquire’

This is based on problems faced in procurement,

were some strategies are made on purchasing.

SOS Analysis: ‘S’ stands for Seasonal items and ‘OS’- Off Seasonal

items.

In general it is merit to seller to buy seasonal items at

lower price and keep inventory and sell them at high price

during Off seasons.

If not the seller has to buy the goods at higher prices

during Off seasons.

Decisions are taken based on the fluctuations and

availability.

XYZ Analysis This classification is based on the value of inventory of materials actually held

in stores at given time.

This helps to control the average inventory model value.

‘X’ items which are 10% of no.of items stored, but accounting for 70% of the

total inventory value.

‘Y’ items are 20% of no.of items stored and account for 20% of total inventory

value.

‘Z’ items are 70% of no.of items stored and account for 10% of the total value.

This analysis focuses on efforts to reduce the inventory of these items.

LEAD TIME : It is the time taken between the placing of order and receipt of drug to the department. The longer the lead time the larger is the safety stock, resulting in excess of investment in inventories.

BUFFER STOCK : The quantity of stock kept as reserve to guarantee against un fore seen demands is known as buffer stock. This stock protects against variation in demand and procurement period. It is used in emergencies.

Inventory Costs

• cost of holding an item in inventory

Carrying cost

• cost of replenishing inventory

Ordering cost

• temporary or permanent loss of sales when demand cannot be met

Shortage cost

REFERENCE Text book of hospital and clinical

pharmacy by Dr. Pratibha nand, Dr.Roop.k.khar.

Text book of hospital pharmacy by H.P Tipnis.

• VCOMMENT ON THERAPY

THANK YOU FOR YOUR TIME