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Keep your business operation running smoothly.
Pharmacy Inventory Method
Most pharmacies are using a perpetual inventory system. A perpetual inventory system is a method of accounting for inventory that records the sale or purchase of inventory immediately through the use of computerized point-of-sale systems and asset management software. Through this method you can easily and accurately tell the real time quantity of stocks left of a particular medication even while prescriptions are being filled.
Sufficiently stocked pharmacy is identified to have 2 kinds of stocks, namely: Basic stock which is the amount of inventory carried on hand to meet an average demand level and Safety stock known as the amount of inventory kept on shelves to account for fluctuations in demand.
To assess the quantity of basic and safety stock you need to know the Inventory Turnover, it is the number of times inventory is used in a year and the Inventory Turnover Days which is the average number of days’ worth of stock on hand.
In 2012 Top independent pharmacy communities noted that the average prescription inventory turnover is 11.9% and the prescription inventory turnover days is 31 days
Below are the common drug Inventory terminologies and its formula
Inventory turnover - is the number of times a company sells and replaces its stock of goods during a period. Inventory turnover provides insight as to how the company manages costs and how effective their sales efforts have been. The higher the inventory turnover, the better since a high inventory turnover typically means a company is selling goods very quickly and that demand for their product exists.
Cost of Goods Sold ÷ Average Inventory or Sales ÷ Inventory
COGS - is a measurement of the production costs of goods and services for a company. COGS can include the cost of materials, labor costs directly related to goods produced.
Total production cost of a product or service
Average Inventory - is used in the ratio because companies might have higher or lower inventory levels at certain times in the year.
Beginning inventory + Ending Inventory ÷ 2
Days Sales of Inventory (DSI) measures how many days it takes for inventory to turn into sales. DSI, also known as days inventory, is calculated by taking the inverse of the inventory turnover ratio multiplied by 365.
365 days ÷ Inventory Turnover
ABC Pharmacy reported an annual sale of $843,000.00, beginning inventory of 90,340.00 and year-end inventory of 87,228.00, annual COGS of $598,000.00.
Average Inventory: $90,340.00 + $87,228.00 ÷ 2 = $88,784.00
Inventory Turnover: $598,000.00 ÷$88,784.00 = 6.74
Day Sales of Inventory: 365 ÷ 6.74 = 54 days
This indicates that ABC Pharmacy sells its entire inventory within a 54-day period.
A basic understanding of the above-mentioned benchmarks is extremely important because sustaining excessive quantities of slow-moving inventory is not cost efficient. For these reasons, many pharmacies often adopt a just-in-time (JIT) inventory strategy, or wait-and-see approach, regarding newly approved or expensive medications, only stocking selected items as demand requires.
QuickBooks Inventory Key Feature
Reorder point or periodic automatic replacement (PAR) levels - automatically order medication when levels are low.
This can be set on a QuickBooks system for each medication, it allows the user to set a minimum level that should be maintained at all times.
Once the inventory stock falls below the re-order point, a notification or a warning will be generated, this will prevent you from running into shortages. Essentially, this is the quantity of the item that you want to have on hand.
QuickBooks generates a report that shows Inventory Stock Status by Item. This can help you analyze and strategize your ordering pattern because it shows the stock level of each item and its status (i.e. Available, On hand, On sales order or/and On P.O.)
The check mark appears if On Hand plus on PO meets or falls below the Reorder point value, sales/week is the average item you’ve sold in a weekly basis.
3 easy steps on adjusting your inventory on QuickBooks:
- Enter the new Quantity or New Value for the item;
- Assign an adjustment account for the correction;
- Verify the total adjustment value and save.
Pharmacy surveys demonstrate that one of the most important patient satisfaction markers is continuous access to their medications. Not only do pharmacy technicians play a key role in the safe, effective, and continuous use of medications, but they provide pharmacists with logistical support to keep operations running smoothly. By taking an active role in efficient inventory management, such as taking precautionary steps to limit inventory spoilage and monitoring prescription inventory turn days, technicians will enable pharmacists to shift their focus toward direct patient care while at the same time ensuring that pharmacy operations are cost-effective.
Reference links: https://www.powerpak.com/course/content/114338