At my first job in a pharmacy (while still in high school), “inventory management” meant breaking out the price gun, stamping a sticker on each item and then—every time we sold something—gingerly unpeeling that thin little label and placing it onto the side of the computer monitor. Later, we began the arduous task of updating the database according to each tattered sticker.
Obviously, technology now offers far more sophisticated inventory management methods. Yet I still see pharmacies dealing with the same issues associated with older approaches. Inventory management can still be time-consuming, prone to human error and offer limited data transparency. And you don’t even get the satisfaction of ripping off labels and tossing them into the trash!
You should know what to expect from any solution on the market, so let’s look at some important developments in inventory management. That way, you can spot the symptoms of a solution that isn’t keeping pace and understand what makes an inventory management system truly stand out.
Basic Inventory Management
A simple definition of inventory management comes down to “the process of ordering, storing, using and selling a company's inventory.” This seems like a commonsensical definition, but two things stand out.
First, we’re talking about more than just counting products. Inventory management is your system for understanding the life cycle and value of your pharmacy’s products. So the first thing to ask is whether you’re able to do more than count your inventory.
Can your solution easily calculate your inventory’s total value? Does it help you move products to avoid spoilage? Are you able to ensure your patients always have the items they need?
Second, inventory management is a process. To stay competitive, it should be a continuous process. It’s no longer enough to conduct a regular physical inventory audit where you literally count everything on your shelves. You’re never “done” with inventory. You always want to know what’s available and what’s needed according to up-to-the-minute usage.
That’s where perpetual inventory and the right technology come in. This is your running record of what’s on the shelf based on what’s coming in and what’s going out in real time. Perpetual inventory lets you know exactly what you have on hand, how much to keep on the shelf and when to order how much of something at any given moment. You not only know what’s there at any given time, but you also save time and money on the labor needed to do more physical inventory counts.
An effective perpetual inventory should eliminate the need for physical inventory. But no system is perfect. Human error happens to the best of us. Electronic tracking may differ from what’s happening physically. Perpetual inventory can become inaccurate for any number of reasons. And that’s where the drug spoilages, out-of-stocks and headaches begin.
Handling exceptions is the biggest challenge for systems. An exception is any instance where the system’s settings don’t line up with what’s happening on the floor. In other words, the digital side doesn’t match physical reality. For example, if a pharmacist mistakenly prints a label for a product and the system automatically decrements the inventory, your actual inventory no longer matches your digital inventory.
That’s a minor example. The more complex your operations are, the more workflow checkpoints your pharmacy may have and the more manual processes that the system needs to account for, the more opportunities there are for things to get thrown off.
If you’re constantly adjusting your software to keep pace with the reality of how you use your inventory, chances are your inventory management solution is not keeping pace with the best technology or your business.
Industry Standard Sophistication
Years ago, inventory management solutions were limited in terms of the “replenishment methods” they could handle: the logic for how you keep your inventory viable. The software might accommodate up to two replenishment types.
Just-in-time replenishment is designed to keep a lean inventory so that new products hit the shelf in time for an order based on setting minimum and maximum quantities. You may always want one bottle of a drug on a shelf, but you know you’ll never need more than three bottles in a period of time. So, the system will generate an order based on that.
On the other hand, instead of watching minimum/maximum stock, on-demand replenishment monitors for deficits. As soon as you hit a negative quantity of a particular item, the software orders the product. You’re basically setting up a “reservation” for that item so you have exactly as much as you use in stock.
Now, inventory management solutions are expected to support multiple replenishment methods. You might replenish just based on your “days of inventory.” Instead of a minimum/maximum, you assign a reorder point or target number of stock like three bottles per week, so the system will always maintain seven days of that inventory.
In addition to incorporating multiple replenishment methods, solutions have grown more sophisticated in terms of how they respond to these models. Software should automatically adjust based on usage, so if there’s a run on a product and you use a week’s supply in five days, that will initiate an order.
It’s not enough to have multiple replenishment models; you should be able to set those up and automate them according to many factors. You should have the option to set parameters at the individual product level. That way, you gain granular control over those specific items. But you should also be able to set replenishment according to the product group level so that the same categories of products all “behave” the same way.
As you can see, the scope of inventory management has changed over time. But you wouldn’t invest in a product simply because it meets expectations. You want an inventory management solution that goes above and beyond.
Integration with your purchasing system is crucial. Even if you have different members of your team managing procurement and inventory, an integrated solution will inform both sides of your operations. For example, your inventory should only be decremented upon the actual receipt of an item. That means procurement has to “talk to” the inventory without one team member having to stop and update their counterpart in another department. If you’re a one-person shop handling both sides, that’s even more reason to integrate purchasing with inventory. Why bog yourself down with multiple screens and additional steps?
A unified purchasing and inventory solution also maximizes your data transparency so you can make the best decision. You can combine purchasing volume and inventory usage data into a single source. Ideally, the system will enable you to build reports that synthesize the data across multiple workflows, so you're always looking at the whole picture in real time.
Any inventory management solution should allow for reporting on inventory that hasn’t moved within a period of time. But a solution that integrates with purchasing can also show you inventory that was purchased but not dispensed over a certain period. That way, you might be able to return items for full credit before their expiration date. You could also view inventory dispensed in a given period that was not purchased. That feature highlights disbursement errors and prompts you to check your replenishment methods. You might be dispensing an item and not purchasing it in a sufficient window, leading to too much of that product sitting on your shelf.
Inventory Management Should Be Inventory Insight
I’ve set up inventory management systems from scratch for a variety of pharmacies. The most frequent red flag for these businesses wasn’t a matter of “doing” inventory. It was the labor devoted to correcting it.
Is your inventory person spending hours just ensuring that the data in the system matches what’s happening in the pharmacy? Do more staff have to get involved with the process of correcting errors? Look at your team (and that includes you): does it seem like anyone’s job is just correcting perpetual inventory? If so, step back.
Stop merely correcting the data. Find the root causes of errors. Look at the systemic issues that trigger the need for corrections. For example, one pharmacy kept dealing with a missing NDC in their system. No one was inputting that code, so it was up to one person to go back and manually update the records. When this pharmacy looked into the problem, it turned out that it wasn’t just human forgetfulness or program error; the pharmacy staff simply didn’t know that they needed to use this code. This realization got to the root problem, saved them a lot of work and helped them institute a more accurate and efficient process.
You should constantly be updating your inventory management to reflect new exceptions and purchasing trends. And the right solution should allow you to easily adapt to those changes. But you should also be able to learn from your inventory and derive insights from it. That way, you’re not just responding to change. You can use more accurate, timely data to inform your strategy and allow you to work smarter.
If you are interested in learning how SureCost can help your pharmacy save more, work smarter and stay compliant book a meeting today with one of our experts.