Supply Chain and Inventory Management

supply chain perspectives

1. financial

2. operational

Effective supply chain management ___________ the cost of goods sold and operational expenses, resulting in ______________ gross margins and net profits

decreases; increased

This creates more available cash on-hand to

1. pay expenses

2. increase salaries

3. invest in pharmacy related services

Effective supply chain management is important in meeting consumer _____________ for both goods and services

demands

If a patient is unable to get a needed medication this can lead to ________________________________ because of delay in receiving timely treatment.

customer dissatisfaction or even worse potential harm

supply chain management functions

1. Demand Management

2. Inventory Management

3. Procurement - Sourcing and Purchasing

methodology used to generate, revise, and improve a demand forecast of the products and services that the organization will provide to customers.

demand management

methodology used to control inventory and stock, including controlling inventory levels and overseeing ordering and storage of inventory. The objective is to meet sales and customer service levels at the optimal cost.

inventory management

the functions of buying products and services for a specific business purpose.

Procurement

methodology used to identify and manage the right product suppliers, considering vendor capabilities, pricing, and service levels

Sourcing

the process used to finalize order quantities, order and receive the products

Purchasing

forecast the items the pharmacy expects to dispense to patients and sell to customers

demand management

demand forcast considers

1. what products will be needed

2. in which amount

3. when they will be needed

what different factors influence the specific variety of different products needed or wanted at a particular pharmacy

1. Pharmacy mission or specialization

2. Patient population demographics/consumer demand

3. Sales history

4. Drug formularies

5. Industry data

6. Patent expiries

7. Drug shortages/substitutions

stock of products to meet future demand

inventory

Value of inventory rises as prices _____________ and new products are acquired

increase

goals of inventory management

1. minimize the financial investment inventory

2. keep procurement and carrying costs as low as possible

costs associated with inventory

1. acquisition

2. procurement

3. carrying cost

4. stock-out cost (shortage cost)

Price the pharmacy pays for the product

acquisition cost

Costs associated with purchasing the product (e.g. ordering, shipping, paying invoices)

procurement cost

Storage, handling, insurance, cost to finance the inventory, opportunity costs, loss or damaged product, theft (shrinkage)

carrying cost

Cost of not having the product on the shelf when a patient needs or wants it

stock-out cost (shortage costs)

Measures efficiency with which the pharmacy uses its inventory (how quickly inventory is sold)

inventory turnover ratio/rate

ITOR =

COGS/Average Inventory (average=initial+ending/2)

goal ITOR

Goal > 10 - 18

Low ITOR

too much cash tied up with inventory

High ITOR

risk of shortages

# days of inventory on hand =

365 ÷ ITOR

inventory management considerations

1. Choosing generic products, when possible

2. Inventory size

3. Unclaimed prescriptions inventory

4. Shrinkage

5. Use of a formulary

inventory management methods

1. visual

2. periodic

3. perceptual

Look at the number of units on the shelf and compare to what is expected

visual

Someone counts the stock on hand at predetermined intervals (e.g. weekly, monthly, annually). Compares stock to minimum desired on-hand levels

Periodic

Common, Electronic inventory management systems, Entire inventory is entered in electronically and subtracted with the filling of prescriptions/orders, Can help with re-ordering medications

perceptual

role of technology in inventory management

1. manage inventory faster and more accurately

2. availability of purchase reports

Microchips or "tags" attached to drug products

radiofrequency identification (RFID)

characteristics of radiofrequency idenification

1. Greater storage capability than bar-codes

2. Track movement and location of drug products within the supply chain

3. help deter shrinkage

includes the functions of buying products and services for a specific business purpose

Procurement

the process used to determine the right order quantities, place orders, and receive the products

Purchasing

the methodology used to identify and manage the right product suppliers, considering vendor capabilities, pricing, and service levels.

Sourcing

overall goal of Procurement, Purchasing, Sourcing

obtain the right products, in the right quantity, at the right time, at the right price

types of stock for purchasing

1. cycle stock

2. buffer or safety stock

3. anticipatory or speculative stock

regular inventory (day-to-day) needed to fill orders

Cycle stock

additional stock on-hand in case of supply or demand fluctuation (e.g. life-saving drugs, shortages)

Buffer or safety stock

expected future demand increase or price increase (e.g. flu vaccine, endof-the year purchases, seasonal purchases)

Anticipatory or speculative stock

the point where it is reasonably certain that the item will be available on demand

Stock depth

both the time before the specified amount of the discount may be taken and the time at which payment becomes due

dating

components concerned with dating

1. prepayment

2. collecting on delivery

3. delayed (future) dating

payment before ordering or delivery

prepayment

where there is no time before discount may be taken and payment is due

Collect on delivery (COD)

invoice is due sometime in the future

Delayed (future) dating

payment due _________ from the last day of the month

10 days

being able to obtain the right product at the right time, at the right price depends on selecting the right vendor or wholesaler

sourcing

Most common type of vendor =

pharmaceutical distributor (wholesaler)

Pool buying power of member pharmacies to obtain lower prices from vendors (manufacturers & wholesalers) and common in hospitals

Group Purchasing Organizations (GPOs)

Group Purchasing Organizations (GPOs) terms must be met by the member to receive the ________________ (e.g. purchasing contract items)

contract price

Pharmacy organization whose purpose is to seek better drug prices for its members based on their collective buying and common with independents

Pharmacy Buying Group

criteria to select a vendor

1. reliable, dependent, accurate

2. should be part of the Drug Supply Chain Security act

3. negotiate price and purchase terms ensuring contract compliance

4. delivery schedule

5. financing and credit

6. good customer relations

7. technology offered

drugs counterfeited

1. Lifestyle drugs (e.g. erectile dysfunction, botulinum toxin)

2. Weight loss agents (e.g. GLP-1s)

3. CNS Agents (e.g. opioids, stimulants of ADHD)

4. Anti-infectives including HIV treatments

5. Hormones & Steroids

6. Oncology agents

drugs counterfeited impact on patients

1. Drugs may be subpotent - lack of benefit

2. Superpotent - leading to adverse effect or serious harm

3. Contain toxic substances (e.g. fentanyl, insulin, corn starch, chalk, lead paint)

efforts to control counterfeit drugs

1. Increase screening and detection at ports of entry

2. Working with foreign governments to track down counterfeit manufacturers, and distribution centers

3. Stiffer penalties for those who sell/distribute counterfeit drugs

4. FDA Drug Supply Chain Security Act (DSCSA)

Drug tracing program utilizing pedigrees & product identifiers for verification from production to the pharmacy

FDA Drug Supply Chain Security Act (DSCSA)

under the FDA Drug Supply Chain Security Act (DSCSA) manufactures required to encode products with _________________________________ of transaction history

unique identifiers (i.e. bar-code) and electronic transmission

Pharmacists have a responsibility to protect ____________ from receiving harmful drug products

patients

goals of a tighter, closed prescription drug supply chain

1. prevent harmful drugs from entering the supply chain

2. detect harmful drugs if they do enter the supply chain

3. respond rapidly and effectively when harmful drugs are found

requirements for pharmacists under the FDA Drug Supply Chain Security Act (DSCSA)

1. confirm the entities they do business with are licensed and registered

2. only accept prescription drugs that are accompanied by product tracing documentation

3. Store the product tracing documentation you receive for six years.

6. Generate and provide all product tracing documentation with the transaction if you sell a prescription drug to a trading partner

7. Must have a process to investigate and handle suspect and illegitimate prescription drugs

steps for detecting counterfeit drugs

1. Inspect packaging

2. Verify labels

3. Inspect visual appearance

4. Authentication

5. Conduct chemical testing

6. Purchase from reliable sources

7. Consult a healthcare professional