Inventory Control
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INVENTORY CONTROL
– VEDAPATTI RHC
Objectives…….. 1. 2.
Drug Inventory Control at Veda Patti, RHC Critique the prescription pattern
Inventory Control Inventory Analysis
Technique
Records and registers at the pharmacy of Veda Patti, RHC O.P Folders
What is an INVENTORY? Stocks of the product a company is manufacturing for sale and the components that make up the product.
Sum total and costs of all the supplies, where ever they may be stored and that have not been used yet.
INVENTORY CONTROL Management technique / tool used to maintain an economic minimum investment in materials / products for the purpose of obtaining a maximum financial return Method of Maintenance of stock at a level at which purchasing and stocking costs are the lowest possible without interference with the supply. Essentially about creating a state of “happy situation” without having to risk an out-of–stock situation. The basic economic principle used is “Stretching the limited means to meet the unlimited ends”
Why Inventory Control? Indiscriminate stocking could lead to….. Locking up of money Large storage space Drugs remaining unutilized beyond date of expiry Requires more staff Pilferage Better and Cheaper substitutes could become available.
Objectives of Inventory Control Ensure a continuous supply of materials to facilitate uninterrupted production. Maintain sufficient stocks of raw material in periods of short supply and anticipated price changes Minimize the carrying cost and time. Control Investment in inventories and keep it at an optimum level
• Optimal quantity • Optimum stock • Optimized costs
Principle Pareto’ s law “In any series of elements to be controlled, only a small fraction in terms of elements will actually account for a large fraction in terms of results” Control and contain costs Items for which annual consumption is high, orders are placed frequently and for which annual consumption is low, orders are placed less frequently, such that sufficient stocks are maintained.
*WHEN TO ORDER? * WHAT & * HOW MUCH TO ORDER?
INVENTORY CONTROL COSTS a. Purchase Cost b. Carrying Cost (Ca) Cost of money Cost of space Cost of additional manpower Cost of obsolescence Cost of deterioration Cost of pilferage (Shrinkage cost) Opportunity cost Insurance cost c. Ordering Cost (Cr) d. Shortage cost (Cs) e. Total Annual Inventory Cost = Cs + Ca+ Cr
Inventory carrying cost
Yearly carrying cost to be 20% -25%. Optimum stock A scientific system to be worked out considering the cost and essentiality
TERMINOLOGY Lead time Buffer Stock [Safety Stock/ Reserve Stock] Reorder level Optimum safety stock Order quantity or Economic Order quantity
WORKING STOCK
INVENTORY MODEL LEAD TIME
REORDER POINT
ORDER PLACED
NIL STOCK
LEAD TIME USAGE
ORDER RECEIVED
TIME PERIOD
SAFETY STOCK
Economic Order quantity or Order quantity EOQ is the size of order which minimizes total cost of carrying inventories and cost of ordering. EOQ is the fixed quantity of materials for which the order is to be placed each time. In the Cyclic system it is the requirement of: EOQ = Review period and Lead time + Buffer Stock - Stock in hand.
Economic Order quantity or Order quantity In the Two- bin system it is calculated by using a formula which takes into consideration the • • • •
Annual demand for the item [R] Cost of placing one order [S] Cost of one unit of item [C] and Number of units to be carried [I] Q = 2RS / IC
Economic Order quantity or Order quantity Cost Vs Quantity Need for a equilibrium
Carrying Cost Cost
Ordering Cost
EOQ
Order Quantity
INVENTORY ANALYSIS Systematic analysis of all items in stores for achieving the objectives of inventory control. Three levels of analysis: Overall analysis Category analysis Individual item analysis ABC VED SDE FSN • HML • • • •
Modern techniques………. ABC Analysis Items categorised based on the annual expenditure incurred
VED Analysis Items categorised based on the criticality in patient care
SDE Analysis Items categorised based on the free availability
FSN Analysis Items categorised based on the quantity and rate of consumption
HML Analysis Items categorised based on the cost
Modern techniques [others]………. GOLF Analysis: Govt ordinary, Local, Foreign Items categorised based on the source of supply
XYZ Analysis Items categorised based on the value of the Inventory stored
SOS Analysis Seasonal, Off seasonal
ABC Analysis
100
Percentage of annual consumption value
Items categorised based on the annual expenditure incurred
ABC Analysis graph
90
item
70
A
% of item
% of monetary value
A
10%
70%
B
20%
20%
A
70%
10%
B C 10
20
30
Percentage number of items
100
Utilisation of ABC and VED Analysis Category 1
A
Category 2
Category 3
V
E
D
AV
AE
AD
BE
BD
AV B
C
BV
CV
CE
CD
Utilisation of ABC and VED Analysis
A
B
C
V
E
D
AV
AE
AD
BV
CV
BE
CE
BD
CD
Category 1
Category 2
Category 3
Utilisation of ABC and VED and SDE Analysis
A
B
C
V
E
D
S
85%
75%
70%
D
75%
70%
60%
E
60%
50%
50%
S
95%
85%
75%
D
80%
75%
65%
E
70%
70%
50%
S
99.9%
95%
80%
D
90%
85%
70%
E
80%
80%
60%
Methods of Ordering Cyclic system : Stock level is reviewed at definite intervals of time with regard to availability, consumption rate, etc.. Quantity ordered each time will vary The future requirements are based on the past years of consumption. Conventional EOQ Formula does not work. Function of lead time and review period. Fixed order quantity System
Two bin system Based on quantity ordered rather than time factor
WORKING STOCK
INVENTORY MODEL - Two bin system
LEAD TIME
REORDER POINT
ORDER PLACED
NIL STOCK
LEAD TIME USAGE
ORDER RECEIVED
TIME PERIOD
SAFETY STOCK
MUSIC -3D Multi Level Selective Inventory Control – 3 Dimensional – Criticality – Availability – Consumption value
Economic quantity order Level [EQOL] Quantity at which the cost of ordering the annual requirement and the cost of carrying inventory are equal.
EQOL =
H2RS/ i*C
R = Annual consumption Level S = Cost of placing one order C = Cost of carrying one unit of item i = Number of units to be carried
– VEDAPATTI RHC
Objectives…….. 1. 2.
Drug Inventory Control at Veda Patti, RHC Critique the prescription pattern
Inventory Control Inventory Analysis
Technique
Records and registers at the pharmacy of Veda Patti, RHC O.P Folders
What is an INVENTORY? Stocks of the product a company is manufacturing for sale and the components that make up the product.
Sum total and costs of all the supplies, where ever they may be stored and that have not been used yet.
INVENTORY CONTROL Management technique / tool used to maintain an economic minimum investment in materials / products for the purpose of obtaining a maximum financial return Method of Maintenance of stock at a level at which purchasing and stocking costs are the lowest possible without interference with the supply. Essentially about creating a state of “happy situation” without having to risk an out-of–stock situation. The basic economic principle used is “Stretching the limited means to meet the unlimited ends”
Why Inventory Control? Indiscriminate stocking could lead to….. Locking up of money Large storage space Drugs remaining unutilized beyond date of expiry Requires more staff Pilferage Better and Cheaper substitutes could become available.
Objectives of Inventory Control Ensure a continuous supply of materials to facilitate uninterrupted production. Maintain sufficient stocks of raw material in periods of short supply and anticipated price changes Minimize the carrying cost and time. Control Investment in inventories and keep it at an optimum level
• Optimal quantity • Optimum stock • Optimized costs
Principle Pareto’ s law “In any series of elements to be controlled, only a small fraction in terms of elements will actually account for a large fraction in terms of results” Control and contain costs Items for which annual consumption is high, orders are placed frequently and for which annual consumption is low, orders are placed less frequently, such that sufficient stocks are maintained.
*WHEN TO ORDER? * WHAT & * HOW MUCH TO ORDER?
INVENTORY CONTROL COSTS a. Purchase Cost b. Carrying Cost (Ca) Cost of money Cost of space Cost of additional manpower Cost of obsolescence Cost of deterioration Cost of pilferage (Shrinkage cost) Opportunity cost Insurance cost c. Ordering Cost (Cr) d. Shortage cost (Cs) e. Total Annual Inventory Cost = Cs + Ca+ Cr
Inventory carrying cost
Yearly carrying cost to be 20% -25%. Optimum stock A scientific system to be worked out considering the cost and essentiality
TERMINOLOGY Lead time Buffer Stock [Safety Stock/ Reserve Stock] Reorder level Optimum safety stock Order quantity or Economic Order quantity
WORKING STOCK
INVENTORY MODEL LEAD TIME
REORDER POINT
ORDER PLACED
NIL STOCK
LEAD TIME USAGE
ORDER RECEIVED
TIME PERIOD
SAFETY STOCK
Economic Order quantity or Order quantity EOQ is the size of order which minimizes total cost of carrying inventories and cost of ordering. EOQ is the fixed quantity of materials for which the order is to be placed each time. In the Cyclic system it is the requirement of: EOQ = Review period and Lead time + Buffer Stock - Stock in hand.
Economic Order quantity or Order quantity In the Two- bin system it is calculated by using a formula which takes into consideration the • • • •
Annual demand for the item [R] Cost of placing one order [S] Cost of one unit of item [C] and Number of units to be carried [I] Q = 2RS / IC
Economic Order quantity or Order quantity Cost Vs Quantity Need for a equilibrium
Carrying Cost Cost
Ordering Cost
EOQ
Order Quantity
INVENTORY ANALYSIS Systematic analysis of all items in stores for achieving the objectives of inventory control. Three levels of analysis: Overall analysis Category analysis Individual item analysis ABC VED SDE FSN • HML • • • •
Modern techniques………. ABC Analysis Items categorised based on the annual expenditure incurred
VED Analysis Items categorised based on the criticality in patient care
SDE Analysis Items categorised based on the free availability
FSN Analysis Items categorised based on the quantity and rate of consumption
HML Analysis Items categorised based on the cost
Modern techniques [others]………. GOLF Analysis: Govt ordinary, Local, Foreign Items categorised based on the source of supply
XYZ Analysis Items categorised based on the value of the Inventory stored
SOS Analysis Seasonal, Off seasonal
ABC Analysis
100
Percentage of annual consumption value
Items categorised based on the annual expenditure incurred
ABC Analysis graph
90
item
70
A
% of item
% of monetary value
A
10%
70%
B
20%
20%
A
70%
10%
B C 10
20
30
Percentage number of items
100
Utilisation of ABC and VED Analysis Category 1
A
Category 2
Category 3
V
E
D
AV
AE
AD
BE
BD
AV B
C
BV
CV
CE
CD
Utilisation of ABC and VED Analysis
A
B
C
V
E
D
AV
AE
AD
BV
CV
BE
CE
BD
CD
Category 1
Category 2
Category 3
Utilisation of ABC and VED and SDE Analysis
A
B
C
V
E
D
S
85%
75%
70%
D
75%
70%
60%
E
60%
50%
50%
S
95%
85%
75%
D
80%
75%
65%
E
70%
70%
50%
S
99.9%
95%
80%
D
90%
85%
70%
E
80%
80%
60%
Methods of Ordering Cyclic system : Stock level is reviewed at definite intervals of time with regard to availability, consumption rate, etc.. Quantity ordered each time will vary The future requirements are based on the past years of consumption. Conventional EOQ Formula does not work. Function of lead time and review period. Fixed order quantity System
Two bin system Based on quantity ordered rather than time factor
WORKING STOCK
INVENTORY MODEL - Two bin system
LEAD TIME
REORDER POINT
ORDER PLACED
NIL STOCK
LEAD TIME USAGE
ORDER RECEIVED
TIME PERIOD
SAFETY STOCK
MUSIC -3D Multi Level Selective Inventory Control – 3 Dimensional – Criticality – Availability – Consumption value
Economic quantity order Level [EQOL] Quantity at which the cost of ordering the annual requirement and the cost of carrying inventory are equal.
EQOL =
H2RS/ i*C
R = Annual consumption Level S = Cost of placing one order C = Cost of carrying one unit of item i = Number of units to be carried
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