INVENTORY CONTROL

TECHNIQUES

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

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.
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).
ABC ANALYSIS
A ITEMS B ITEMS C ITEMS

 it covers 10% of the  It covers 20% of the  It covers 70% of the

total inventories. total inventories. total inventories.
 It consumes about  It consumes about It consumes about 10%
70% of the total 20% of the total of the total expenditure
budget budget.
 It requires very strict  It requires moderate  It may require low
control control. control.

 It requires either no  It requires low safety  It requires high

safety stock or low stock. safety stock.
safety stock.
 It needs maximum  It requires periodic  It needs close follow
follow up follow up up
 It must be handled  It can be handled by  It can be handled by
by senior officers. middle management. any official of the
management
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
Percent of annual dollar usage

80 –
70 –
60 –
50 –
40 –
30 –
20 – B Items
10 – C Items
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 requirement
O=Ordering cost
C=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

Carrying cost

• cost of holding an item in inventory

Ordering cost

• cost of replenishing inventory

Shortage cost

• temporary or permanent loss of sales when

demand cannot be met
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.
COMMENT ON THERAPY
• V