Pharmacy Inventory Management

Inventory is the single largest investment and ongoing expense every pharmacy has, and effective inventory management goes beyond keeping track of what medications are in stock. Best inventory management practices involve a complex series of decisions, including maintaining accurate on-hand stock positions and establishing when and how much to replenish the stock to meet anticipated demand while avoiding overstock or out-of-stock situations—both of which can negatively impact a pharmacy’s bottom line.

In return, your operating costs will decline, while profits, cash flow, compliance, and customer service improve through the operational efficiencies gained. Efficient inventory management also contributes to cost control by minimizing excess stock and preventing medication wastage due to expiration. This then leads to improved profitability for the pharmacy, as any wastage due to poor inventory practices directly affects your bottom line.

Finally, and most importantly, managing your pharmacy inventory well is also crucial for your patients. Most other retailers don’t deal with the delicate balance pharmacies do. Managing your inventory flow is critical to keep your business profitable and sustainable. You also must keep medications in stock, so they are there when your patients need them. If you don’t, you jeopardize their health and also risk losing their loyalty and return business. Overstocking, however, risks medication expiring and your pharmacy losing money.

Practicing good pharmacy inventory management and using an effective management system ensures you can provide the crucial care and medications your patients need while also preserving margins, freeing up cash flow, and minimize the total size and costs of your inventory.

Historically, inventory management in pharmacies relied heavily on manual processes, handwritten records, and physical counts. These manual methods include the Visual Method and the Periodic Method:

• Visual Method: A manual method that relies on pharmacy staff to visually track inventory levels by sight, rather than using software. Staff physically checks or “eyeballs” stock on shelves to determine when items need to be reordered and may use physical markers—such as reorder tags or dividers—on the shelves to help indicate when it’s time to reorder.
  
  
• Periodic Method: The Periodic Method is similar but focuses on performing basic inventory management tasks at scheduled and routine intervals. This method may incorporate basic technology that removes the need for manually updating inventory status and incorporates the use of barcode scanning. This means pharmacy technicians inspect the inventory at specific periods—either weekly, monthly, or annually.
  
  

These methods are not only time-consuming, but also prone to errors, leading to stockouts, overstocking, and compliance issues. Thankfully, technology has introduced a paradigm shift and enabled a new method called the Perpetual Method:

• Perpetual Method: This method measures inventory continuously in real-time through a computer system that automatically updates on-hand quantities upon delivery and dispensing. It incorporates an automatic replenishment system that ensures drugs are identified for reorder once the stock level reaches or falls below a calculated replenishment point. Items identified are then reviewed and accepted or adjusted as needed by the pharmacy staff. Items are then ordered manually or electronically via EDI through the pharmacy management system.
  
  

Of these three methods, Perpetual offers the most precise and accurate way for pharmacies to manage their inventory.

Using pharmacy inventory management technology and the Perpetual Method, there are five immediate benefits:

1. On-hand inventory is always accurate.
2. Financial conditions (inventory investment & profitability) are readily available.
3. Shrink is easy to spot when the pharmacy management system (PMS) and shelf disagree.
4. Working capital is freed up.
5. You enable the choice of manual or automatic Electronic Data Interchange (EDI) ordering. EDI ordering replaces manual order entry (phone, fax, or email) with real-time, system-to-system communication, enabling your pharmacy to automatically place purchase orders, receive confirmations and shipping notices, and process invoices and payment data.
   
   

You will also:

1. Gain insights into inventory trends through robust reporting and analytics, helping pharmacies make data-driven decisions.
2. Gain real-time visibility into inventory levels, allowing pharmacies to react promptly to stock shortages or surpluses.
3. Impact profitability, patient care, and regulatory compliance, as well as streamline operations.

There are several strategies you can use to minimize expired or unused medication, and help improve efficiency, reduce waste, and ensure patient safety.

• Use a First Expire, First Out Stock Rotation where items with the earliest expiration dates are dispensed first.
  
  
• Leverage Inventory Management Software: Use automation to track expiration dates, alert staff to upcoming expirations and initiate returns, and even forecast demand based on dispensing history and adjust reorder points and quantities based on usage trends.
  
  
• Train Staff Effectively: Training your staff on your inventory management empowers them and—when using the right technology, even saves them time on inventory tasks. When technicians and staff are educated on inventory best practices, proper stock rotation, and how to flag and report expiring items, they can help balance stock levels, improve cash flow, and gain back more time for patient care.
  
  
• Use Datarithm’s Reorder Point Optimization and Balancing: Shifting to a Perpetual Inventory method, Electronic Data Interchange (EDI) ordering, and automated order point optimization through Datarithm’s software can help pharmacies shed surplus medicine, improve turns, and prevent unnecessary costs and expirations.
  
  
• Stay on Top of Returns: Enabling staff to easily and effectively manage returns of unused medications, near-expired products and recalled drugs helps recover costs from manufacturers or wholesalers.
  
  
• Conduct Routine Physical Audits: Even as you shift to using technology and automation, it’s still a good practice to conduct a physical inventory audit on a quarterly to twice-yearly basis. Combined with insights and trend forecasts from software, this practice helps you identify slow-moving medications and ensure accuracy.

To meet regulatory compliance, your pharmacy needs to have well-documented, comprehensive inventory tracking in place for every drug coming into and leaving your store.

Effective pharmacy management through a perpetual inventory system provides real-time medication and expiration date tracking, precise and accurate data, reports, records, and audit trails, which are all essential for ensuring compliance with a variety of pharmacy regulations. Effectively using PI to manage pharmacy inventory can help make it simpler for pharmacies to meet requirements related to controlled substances, expiration management, stock accountability, and accurate reporting, ultimately reducing the risk of compliance violations. Datarithm’s software also streamlines documentation processes, ensuring users easily maintain and store accurate records, which is helpful during audits and regulatory inspections.