Inventory investment

How does the inventory turnover rate indicate how efficient the pharmacist is at managing the inventory investment ... 

Inventory is probably the largest single investment a pharmacy can make. Regardless of whether the pharmacy is retail, hospital, or another type that serves patients, inventory investment is significant and needs to be managed well consistently. Although there is an inextricable relationship between purchasing and inventory, this chapter deals with inventory control separately. 

However, because a pharmacy contains hxmdreds or even thousands of items, it is difficult to use either method reliably, particularly if there are multiple vendors. In such cases, there is an added method to the periodic inspection called the ABC method of control (Figure 11.2). The ABC method of control prioritizes the items into three levels based on the theory that a small percentage of all the merchandise accounts for a large percentage of the dollar investment. A items typically comprise only 20% of the inventory items, but account for nearly 80% of the cost. Because one of the main objectives of inventory control is to minimize the inventory investment, it is... 

In contrast to open formularies, closed formularies are strictly controlled. Only certain agents are available and strict therapeutic substitution with the most recognized agent within a pharmacological class is standard procedure. The purpose of this type of formulary is to assure availability of all needed products at the least cost of inventory investment. Because this mechanism of control maintains the least costly of products, it is ostensibly the most cost effective. However, significant restrictions on medication use often produce dissatisfaction and dissension among the health care practitioners and patients. Further, Horn et al. (1996) suggest that strictly controlled formularies may increase overall health care costs. 

Case 4. Customer progress payments to decrease working capital plus inventory investment to zero, limit cumulative negative cash flow to 6 million in 1988 and permits cumulative positive cash flow of 58 million by the year 2000 for 10% ROi in 1996 and a ROi of 15% by the year 1998 without terminal value in either case. A turn around in cash flow occurs in 1988, three years after the first unit is on line, and a break even on cumulative cash flow occurs in 1994. This example makes a strong case for progress payments and developments in the manufacturer s existing facilities in order to minimize investment requirements. 

Good objectives state what will be achieved and/or the results sought, not how the team will get there. They are specific, unambiguous, and measurable, containing a time frame for the intended achievements. Examples of outcome-oriented objectives include select a business planning and control software system in six months implement the selected business planning and control software system in 18 months increase product throughput by 50% in two years decrease inventory investment by 75% by year end. 

Service level The service level can be measured in a variety of different ways, such as the fraction of demands met immediately or the average time to fill a customer demand. Service level is a particularly important performance measure when finished product inventories are kept and it is necessary to trade off the inventory investment with the penalties of delay in meeting customer demand. 

Products with a high per-unit cost require a large inventory investment. Consequently, high-value products typically will require shorter supply chains (fewer members) in order to minimize total inventory investment. But supply chains tend to be longer when the unit value is low, unless sales volume is high. In general, intensive distribution is used for low-value products. 

All of the metrics were designed so that larger numbers were better than smaller numbers and they all had a maximum of 100 percent. Further, an average was calculated for all of the Customer Service metrics and Inventory Investment metrics to give composite performance scores for these two areas. 

Happy-Face Quadrant indicates you are keeping your customers happy with excellent Customer Service, but you need to work on improving your Inventory Investment metrics. 

Quadrant indicates both poor Customer Service and poor Inventory Investment metrics. The buyer needs to work with his manager to develop a specific improvement plan. 

Integrated supply chain planning system with interfaces to all supply/demand data sources through digitally enabled supply networks Tools support balanced decision making (e.g., trade-off between service level and inventory investment) 6-Functional supply chain processes (plan) 0 X X X X... 

Medium-Term Weekly buckets for 52 weeks Monthly Leader OPG Leader Team Demand Planner OPG team Issue Resolution President Identify medium-term supply/ demand imbalances Evaluate performance of past short- and medium-term plans Develop and implement corrective actions Demand forecasts Basehne Promotion NPIs Supply forecasts and constraints Customer service Inventory investment Asset utilization Total supply chain costs... 

Trent, R.J., Managing Inventory Investment Effectively, Supply Chain Management Review, March/AptH 2002, pp 28-35. 

Because these products are highly profitable but only sell at a relatively slow rate they are candidates for centralised management. In other words, they should be kept in some central location, as far back up the supply chain as possible in order to reduce the total inventory investment, and then shipped by express transport direct to customers. 

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