BPS 123: PURCHASING AND INVENTORY MANAGEMENT

Purchasing

• Order of goods and services

• The art of right spending

No BUDOL - be strategic and have scientific basis

Quality > Quantity

Prioritization of Needs

Money = Finite

Factors to consider in purchasing

Target market need or want?

Willing to pay for the goods?

Competitors carrying?

Drugs that included in formulary?

Source you will get service?

How often to restock?

Guide questions for puchasing

Suggested Retail Price (SRP)

Compare with competitors

How to price your goods? (What are those customers willing to pay for the goods you offer?)

Formulary

• List of drugs commonly used/preferred in a specific place → PNDF

• Development by government or organization

The right products

Products in the right quantity

Products in the right time

Products in the right price

Products in the right vendor

The purchasing objectives:

To obtain…

Past usage

Target market

Pharmacy image and goals

Formularies

Industry data

Industry representatives

Consumer information

To obtain the right product, you should based on..

Past usage or Product history review

Assessing the performance of the product.

• fast moving

• slow moving

Target market

The needs and wants of the community based on environmental scanning

Pharmacy image and goals

Clear organizational direction to cater the needs for specific thing

• Example is diabetics, etc.

Industry data

To know how to use Pharmacy Journals, where there are researches

• You can see the Top 200 drugs or medicines you can buy for your drugstore

Industrial or Medical Representatives

spokesperson of manufacturing company

Consumer information

The needs and wants that can be monitored by FAMS or Frequently Asked Medications (‘pag maraming naghahanap)

Frequently Asked Medications (FAMS)

The needs and wants of consumers can be monitored by _________.

Right quantity

________ means having just enough product on hand to cover consumer demand at any given time.

How much is on hand

What point to reorder

How much to order

The questions to have the right quantity are..

Cycle Stock

Buffer or Safety Shock

Anticipatory or Speculative stock

Types of Stocks (Right quantity)

Cycle stock

Regular inventory to fulfill normal operations

Buffer or Safety Shock

Having additional or extra products in inventory to cover any surge in demand. (Biglaan)

• To account any variations in average demand during the buying time.

Anticipatory or Speculative stock

Predicted increase in demand

• During holidays or ber months, there is increase in demand in the products of flu meds.

(Lead time x Average demand/day) + Safety Shock or Buffer

Formula of Reorder Point

Lead time

The time it takes for the distributor or seller to process the order until it got delivered

Average demand per day

How frequent it sells on daily/weekly basis (Gaano kadalas mabili ng consumers)

Stock Depth

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

Discounts

Reduction in price

Quantity discounts

Cash discounts

Serial discounts

Product bundling

Types of DIscounts

Quantity discounts

Incentive for purchasing large quantities of single products or a special grouping of specific products offered by a manufacturer

Cash discounts

Small discounts offered for the prompt payment of invoices.

• If you pay full immediately or within their given deadline

Serial discounts

Occur when multiple discounts are applied at the same time.

Product bundling

Reduction in the price of one item available with simultaneous purchase of another product which is often related to the first.

• Ex. Skincare set, christmas package

Dating

Period of time allowed for taking the discounts and the date when the invoice becomes payable.

Pre-payment

Collect/Cash on Delivery

Delayed or Future dating

Types of Dating

Pre-payment

Pharmacy pays the merchandise before it is ordered and delivered.

Delayed or Future dating

Invoice is due sometime in the future

• Ex. Credit card, S pay later

3/10

You’ll get 3% discount if you pay within 10 days since transaction happened.

net 30

You can pay until 30 days

EOM

The 10 days discount start when it is the end of the month.

ROG

The 10 days discount start when the goods have received.

Invoice

Official document for the the transaction

options

in Right vendor, we should have 1 to 2 vendors to have ______ in stocks and price

Group purchasing organization

Official organization to represent a drugstore

Pharmacy buying group

Groups of small drugstore

Ordering in bulk and buying power

Group purchasing organization and pharmacy buying group have the same objective which is to lower prices by _________________.

Directly from manufacturers

Only works for large or establishes drugstores

Purchasing process

__________ is via telephone, fax, or computer and receive information

Selection → Procurement → Distribution → Use

The pharmacy management cycle is..

Inventory

• Most expensive resource

• Largest

• The cost is volatile, depends on supply and demand

• Improper use will be a loss, because it cannot be generated to money

• Refers to the stock of products held to meet future demand.

Inventory management

Practice of planning, organizing, and controlling inventory so that it contributes to the profitability of the business.

Acquisition cost

Carrying cost

Procurement cost

Stock out cost

4 cost in the inventory management:

Acquisition cost

Price the pharmacy pays for the products.

Carrying cost

Storage, handling, insurance, cost of capital to finance inventory. Also, cost in developing your medication shelf, or using the ac system.

Procurement cost

Cost associated with purchasing the product (e.g. checking inventory, placing orders, receiving orders, stocking the product, etc.).

• Cost to get the product or to know if need na magreorder

Stock out cost

Cost of not having a product on the shelf when a patient needs or wants it. This is the product of improper inventory management.

• Profit loss

• Shortage in the inventory

Visual method

Period method

Perpetual method

The methods on how to conduct inventory mangament:

Visual method

Observing the number of units in an inventory and comparing it with a list of prescribed number of units that should be carried out.

• Using eyes only

• For small pharmacies

Periodic method

Relies on conducting stock counts of specific intervals define by policy and comparing the number on hand to predefine minimum.

• With technologies like barcodes

fast

slow

____ moving will be every 3 days, while ____ moving will be every 7 days.

Perpetual method

Monitor inventory constantly through the use of technology (Point of sale, barcode scanners, etc.).

• For well established drugstore

• Constantly updating the inventory

Inventory turnover rate

Net Profit-tot-Average-Inventory Ratio

Ways to evaluate inventory management

Inventory turnover rate

Most common ratio used to determine how well a pharmacy is managing its inventory.

• How much sold?

ADVANTAGE:

• Reducing the investment in inventory frees capital for other business activities.

• Increases the return on investment in inventory.

Cost of goods sold/average inventory value or cost

Cost of goods sold/[(beginning inventory + ending inventory value)/2]

ITOR =

fast moving

High ITOR means

Net Profit-To-Average-Inventory Ratio

Most common ratio used to determine how well a pharmacy generates profits from its inventory.

• How much profit?

Selection of generic products

Reduction of inventory size

Returned-goods policies

Monitoring shrinkage

Use of formularies

Management of Unclaimed Prescirptions

Factors to consider in inventory management

Returned-goods policies

Returned to seller when products are near expiry date

Shrinkage

Losses not due to sales, but to thiefs, damages, etc.

Formularies

guided to choose goods to put into inventory

Purchase trend report

Sale Analysis report

Item-movement report

Reports in inventory management

Purchase trend report

Describes the quantity purchased of drug products by month or by quarter.

• Basis for forecasting or predicting any increase in demand

• buying patterns, seasonal demands

Sales-Analysis report

It represent Sales performance and revenue or profit. Features a rolling specific timepoint statement that includes order quantity, shipped quantity, returns, credits, and money spent.

Item-movement report

Lists down goods which are selling the best.

• Basis for your product history review

• Inventory optimization

higher

Fast moving = _____ inventory space