How to improve inventory management in the pharmaceutical industry (5 quick tips)


In the last two years, if there is one thing that the Covid pandemic has taught us is that good inventory management practices are vital in shielding the pharmaceutical industry against unprecedented losses. These losses range from high financial losses since expired medicines can no longer be distributed to high disposal costs involved.

The following are some of the best practices that pharmaceutical players can put in place and help mitigate losses particularly during the pandemic:

strategies to improve pharma inventory management

Leveraging on data

Both medicine dispensers and wholesalers need to have a systematic method of collecting data that relates to consumption of medicines. This involves investing in highly efficient inventory management software tools that are able to generate both individual and aggregate data that shall guide the procurement process. More formal drug utilization studies (DUS) can also be carried out to determine the rationality of this consumption. Demand forecasting has to always be guided by data otherwise drug warehouses shall be full of medicines that have no demand, leading to high storage costs and eventually vast financial losses.

Leveraging on Technology

The evolution of artificial intelligence and more broadly technology has led to increased automation of operations and guided decision-making process. The health sector has greatly benefited from this since tools with predictive ability have been developed that inform the user on parameters such as reorder levels. These formulas would otherwise take the pharmacist hours and hours of calculation and recalculation to manually come up with. Some institutions have gone ahead and integrated their systems with suppliers such that an order is automatically sent to the supplier when reorder levels are reached. Companies should embrace automation since this reduces human error and accuracy of supply chain decisions.

Know your drug ABCs

In general majority of the effects (80%) are caused by 20% of the causes. This is the pareto principle and largely explains the ABC classification. Medicines in your organization can be categorized into three main classes:

Class A medicines: represents 10-20% of your medicines that account for 50-70% of the cash budget

Class B medicines: represents 20% of your medicines that account for 20% of the cash budget

Class C medicines: represents 60-70% of your medicines that account for 10-30% of your cash budget

Distributors, wholesalers, retailers and hospitals should focus on reducing inventory levels of Class A items rather focusing on more frequent purchases with reduced lead times. Efforts should also be made in securing lower cost per unit of Class A medicines

Focusing more on FEFO than FIFO

Pharmacies should institute First Expiry First Out (FEFO) medicine picking method rather than First In First Out (FIFO) to ensure optimization of the medicines shelf life. In this way medicines that have an earlier expiry are utilized first thus limiting the chances on expiry stock pile up. The medicine stores should be designed and built in a manner that allows implementation of this principle.

Continuous improvement and capacity building

The pharmaceutical industry is a dynamic one, and as pharmacists it is important to update our knowledge on not only new trends of inventory management, but as well on new methods on improving our pharmaceutical supply chains.  Administrators should ensure that the employees are regularly trained and retrained on these areas so they can sharpen their skills in this domain.  Apart from that it is important to keep abreast with standard treatment guidelines to ensure that finances are not allocated to medicines that are not the standard treatment.

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