INVENTORY

MANAGEMENT

BY : - SHREESHAIL TUMBAGI

M.PHARM 1ST YEAR

PHARMACEUTICS

ABMRCP – 107

CONTENT :-

﴿ Definition.

﴿ Objectives.

﴿ Inventory Categories- Special Considerations.

﴿ Factors Influencing Inventory

﴿ Selective Inventory Control.

﴿ Costs In Inventory.

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DEFINITION :-

oInventory management may be defined as a scientific method of finding out

how much stock should be maintained in order to meet the production

demands and be able to provide right type of material at right time, in right

quantities and at competitive prices.

INPUT INVENTORY (MONEY) OUTPUT

(Material goods in stores (productionManagement work-in-progress department)Department) Finished products

equipment etc.

BASIC INVENTORY MODEL

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OBJECTIVES :-

Utilizing of scare resources (capital) and investment judiciously.

Keeping the production on as on-going basis.

Preventing idleness of men, machine and morale.

Avoiding risk of loss of life (moral and social).

Reducing administrative workload.

Giving satisfaction to customers in terms of quality-care, competitive price

and prompt delivery.

Inducing confidence in customers and to create trust and faith.4

Inventory Categories- Special Considerations :-

Inventory are categorized based on the nature of items :-

• Production inventories :- material used are chemicals such as active

ingredient and excipients needed to manufacture the finished products.

• MRO inventories :- Parts needed for the final assembly of the end product.

For example :- assembling arrangement made for packing the bulk tablets

such as strip packing and blister packing.

• Work in process inventories :- these are semi-finished product. Example:-

granules waiting for compression and tablets waiting for coating.

• Finished goods inventories :- such as saleable items, dosage forms, bulk

drug, physician’s sample. 5

Factors Influencing Inventory :-

Manufacture require relatively long process cycle-time

Procurement of materials have a long lead-time.

Demand for finished products is sometimes seasonal and prone to

fluctuation.

Material cost are affected by fluctuation in demand and subsequently

by fluctuations in manufacturing.

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SELECTIVE INVENTORY CONTROL :-

Selective Inventory Control is defined as a process of classifying items into

different categories, thereby directing appropriate attention to the material in the

context of company’s viability.

Classification of material based on the inventory control:-

A-B-C Classification.

V-E-D Classification.

H-M-L Classification.

F-S-N Classification.

S-D-E Classification.

G-O-L-F Classification.

X-Y-Z Classification.7

A-B-C Classification :-

A-B-C analysis states that when a large number of items are involved,

relatively a few item account for a major part of activity, based on annual

value of consumption of items.

According to A-B-C analysis, inventories are reported in percent averages

and classified as follows :-

A-items :- 15% of the items are of the highest value and their inventory

accounts for 70% of the total.

B-Items :- 20% of the items are of the intermediate value and their

inventory accounts for 20% of the total

C-Items :-65% of the items are of the lowest value and their inventory

accounts for the relatively small balance i.e., 10% 8

The following consideration can be drawn from the figure 01 :-

1.A-Items generally are high valued, but are limited to a few number, such items needscareful and close control. A-items should be thought of well in advance andpurchased well in advance. since they are costly, they are purchased in small quantity.

2.B-Items are medium valued and lie b/w A-items and C-items. These items needmoderate control. These are purchased based on the previous experience.

3.C-Items are low valued, but these are in maximum number. These are the listimportant items. These items does not require any control, rather controlling thembecomes un economical. These are generally procured just before the finishing stage.

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Consu

mpti

on c

ost

(%)

Inventory items (%)

100-

90-

80-

70-

60-

40-

20-

0-

A-i

tem

s

B-i

tem

s

C -

item

s

10 30 100

Fig no.01 :- A-B-C analysis

Cont…

V-E-D classification :-

• This classification is applicable only to spare parts of equipment's, as they don’tfollow a predictable demand pattern.

• V-E-D stands for:-

V – Vital.

E – Essential.

D – Desirable.

V-E-D type of control is very important in hospital pharmacy :-

• V-Vital :- Items without which the activities will come into halt

(EX:- adrenaline injection, mephentine injection, etc.)

• E- Essential :- Items which are likely to cause disruption of the normal activity

(EX :- life supporting items like transfusion fluids, etc.)

• D – Desirable :- In the absence of which the hospital works does not get hampered

(EX :- aspirin, other analgesics, vitamins, etc.)10

H-M-L Classification :-

H-M-L stands for

H – High.

M – Medium.

L – Low.

H-M-L is similar to A-B-C analysis, which is based on the annual

consumption.

The Items ordered should be listed in the decreasing order of the unit

value (rupees) and management may fix limits for deciding the three

categories.

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F-S-N Classification :-

F-S-N stands for :-

F - Fasting moving.

S - Slow moving.

N - Non-moving.

F-S-N classification takes into account the distribution and handling

issues of the items from stores.

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S-D-E Classification :-

S-D-E Stands for :-

S – Scarce : longer lead time (imported)

D – Difficulty : long lead time (indigenous)

E – Easy : reasonable lead time

S-D-E Classification is based on lead-time analysis and availability.

If the item is scare and in A – category, the normal procedure cannot be

applied. These items may be:

• Imported.

• Not easily available in the market.

• Very difficult to manufacture.13

G-O-L-F Classification :-

G-O-L-F stands for :-

G – Government.

O – Ordinary.

L - Local.

F – Foreign.

In this the imported items are normally procured through government

organization such as IDPL and MMTC.

Special procedures are followed for procuring them, since ordinary

procedure of inventory may not work.14

X-Y-Z Classification :-

• X-Y-Z Classification is based on the value of inventory stored.

• If the value are high, special efforts should be made to reduce

them. This exercise can be done once a year

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COSTS IN INVENTORY :-

• In India, inventory costs vary from 28 to 32% of the total cost.

• The purchase and holding of a one month supply of an item will give a better

return on Investment than a two-month supply. Apart from material cost, several

other costs are also involved in inventory.

• These are given below:

1) Ordering Costs:-

a) Stationery.

b) Clerical And Processing, Salaries/Rentals.

c) Postage.

d) Processing Of Bills.

e) Staff Work In Expedition/Receiving/Inspection And Documentation16

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2) Holding / Carrying Costs:-

A. Storage Space (Rent/Depreciation).

B. Property Tax On Warehousing.

C. Insurance.

D. Deterioration/Obsolescence.

E. Material Handling And Maintenance, Equipment.

F. Stock Taking, Security And Documentation.

G. Capital Blocked (Interest/Opportunity Cost).

H. Quality Control.

3) Stock Out Costs:-

i. Loss Of Business/Profit/Market/Advice

ii. Additional Expenditure Due To Urgency Of Purchases.

A. Telegraph /Telex/ Telephone Charges.

B. Purchase At Premium.

C. Air Transport Charges.

D. Loss Of Labour Hours.

Cont…

Reference :-

C.V.S subrahmanyam, pharmaceutical production and management, 1st

edition, Vallabh Prakashan, New Delhi, 2011, pp. 292-300.

en.Wikipedia.org/wiki/inventory.

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