INVENTORY CONTROL

1. INVENTORYCONTROL The Core of All We Do An omission is as bad a medicines error (if not worse) than a wrong dose or wrong drug. You can have a clinical impact on patients as well as a financial impact on the trust! See paper on stock control fundamentals.

2. INVENTORYCONTROL • Dependent and Independent Demand • Dependant demand (E.g. 4 wheels on a car, hip prostheses) • Requirements for components dependant on the number of finished products required. • Forecasting demand and therefore ordering is simple. • Bill of Materials lists the required component parts for the finished product • Production schedule indicates when they are required. • Independent demand. (E.g. most drug usage!) • Have no direct and consistent relationship with any other. • Demand for these items may be erratic or relatively consistent. • Historical data used to assess ordering requirements. • Accurate forecasting is impossible and holding stock is essential.

3. INVENTORYCONTROL • Order methods and systems • A) Order-only-on request. • B) Fixed order quantity systems. • Based on: • Historical usage information. • Stock holding. • Supplier lead-times. • Drawbacks • Reliance on consistent supplier lead times • Inability to cope with significant increases in demand at short notice.

4. INVENTORYCONTROL

5. INVENTORYCONTROL C) Periodic Review Stock “topped up” at review period Stock Level Review Period Review Period Time

6. INVENTORYCONTROL • D) The Economic Order Quantities method. • Minimises cost of acquiring and holding stock, by balancing between few and large orders • Limitations to EOQ: • It involves over-simplified assumptions • Costs difficult to quantify. • EOQ may be greater than storage facilities. • No consideration of supplier's capabilities. • No consideration of the shelf life of the goods. • Factors affecting ordering quantities may not be included in the calculation e.g. 'safety stock', bulk discounts and outers.

7. INVENTORYCONTROL Economic Order Quantity (EOQ)

8. INVENTORYCONTROL Key performance indicators A) Stock service level ‘A measure of the achievement of success in satisfying demand for stock during a predetermined period’ (BSI 5191). service level % = demands fully satisfied x 100 demands made B) Stock turn rate Theoretical number of times your stock turns over per year. Annual Spend Figure Stock Turns = Average Stock Value A typical value for stock turns is 8-10. A figure less than this means you may have too much stock. A figure over this means you may be generating too many orders.

9. INVENTORYCONTROL Tools for Stock Analysis Pareto Analysis '80:20 rule'. ABC analysis A = highest value, risk or stock turn items. B = medium value, risk or stock turn items. C = lowest value, risk or stock turn items. Kraljic Matrix (modified)

10. INVENTORYCONTROL ABC Analysis 90 Value of Stock 60 A B C 10 40 No of Lines

11. INVENTORYCONTROL Task For the following products estimate a minimum stock level. Assume you have not stocked this product before. Your system holds 7 days wholesaler stock and 30 days direct supply. Projected usage Logistics Channel (annual) Abciximab Injection 10mg 240 Direct (14 days lead time) Abciximab Injection 10mg 2400 Direct (14 days lead time) Yellow Soft Paraffin 30g 2400 Direct (14 days lead time) Yellow Soft Paraffin 30g 2400 Wholesaler Ondansetron Tabs 8mg x10 2400 but increasing fast Direct (14 days lead time) Ondansetron Tabs 8mg x10 2400 but increasing fast Wholesaler

12. INVENTORYCONTROL • Answers • Lead time 14 days = 10 packs = Safety Stock Level. So say 20 packs for Minimum. • Safety stock = 100 packs ? Fridge space? Also expensive. • Safety stock = 100. Only want to order once a month (cheap) so Min 300. • Safety Stock = 1 day = 20. Minimum 120. But do you want it every day so perhaps order bigger quantities less often. • Usage unpredictable so set (and fix a higher minimum). • As above but don’t have to worry so much as will sort itself out quickly and respond to changes.