Inventory Management

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 Inventory Management

• Inventory Management is the process and

maintaining of stock properly at all levels and at all
times.
• It is used to efficiently handle the stock at hand.
• It indicates what to order, how much to order, and
when to order,

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 Inventory management includes controlling the transfer of
units to prevent the inventory from becoming too high or low

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 Inventory control helps to:

– Maintain appropriate stock

– Avoid over stocking
– Monitor shortage of drugs
– Check the movement of stocks
– Prevent expiry of drug before being used

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 Inventory control system……

Setting stock levels

• One of the tasks in inventory control system is setting
different stock levels.
• The most important stock levels are
– minimum stock level and
– maximum stock level.
– emergency order point,
• Considering lead time and review period is
mandatory to determine the stock levels.
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• The most important inventory control systems
for health commodities are max-min inventory
control systems.

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TOCK LEVEL
• An effective inventory control system

has three key elements:

– maximum months of stock,

– the minimum months of stock and

– the emergency order point

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 Maximum Stock Level:

• is the largest amount of each pharmaceutical a facility

should hold at any one time

• For health centers and hospitals, the maximum has

been set at 4 months of stock.

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• If a facility has more than the maximum, it is
overstocked and risks having stocks expire before
they are used.

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 Minimum stock level

– Is the minimum quantity that should always be

available and used to protect against shortages
which could occur when deliveries are delayed and
working stock is consumed at an unexpectedly
high rate/increasing demand

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• The emergency order point is the level where the
risk of stocking out is likely, and an emergency order
should be placed immediately.

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 Emergency Order Point:

• For health centers and hospitals, the Emergency

Order Point has been set at 0.5 months (= 2 weeks of
stock).

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• Maximum Stock Level: is the level of stock above which
inventory levels should not rise, under normal condition.

• Minimum Stock Level: is the level of stock at which

actions to replenish inventory occur under normal
condition. It can also be considered as reorder stock level.

• Emergency order point (EOP): this is the level of stock

that triggers an emergency order. The EOP must be less
than the min.
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 Inventory control system……
• There are three types of a max-min inventory
control systems that are applicable to health
commodity logistic system:
1. Forced ordering system
2. Continuous review system
3. Standard system

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 Inventory control system……
• No matter which inventory control system is used, the
formula for calculating the order or issue quantity is
the same.
– i.e order/issue quantity= (Maximum stock
level/quantity)- (stock on hand)
– if there is stock on order which is not yet received:
• order/issue quantity= (Maximum stock level/quantity)- (stock on
order)-(stock on hand
• The difference between the above three inventory
control systems is the trigger for placing an order or
issuing resupply.
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1. Forced ordering system:
• Decision rule: the review period is the trigger
for ordering. emergency order point is used to
place an emergency order
2. Continuous review system
• Decision rule: the trigger for ordering products
is the minimum stock level.

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Standard max-min system
• Decision rule:
– It combines the decision rules of both forced-
ordering and continuous review.
– The decision when to make an order or issue new
stock is based on the min stock level and the
review period.

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 Inventory control

 Stock status analysis

 Inventory catagorization
 Physical inventory

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Stock Status Analysis

• One method of IC used to determine how long your

stock will last

• Any medical store manager should perform stock

status analysis of available products to prevent stock-
outs and reduce wastage of overstock.

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 How to Assess Stock Status
•A stock status analysis is done by determining the month
of stock available in the medical store.

•The month of a stock determined as below: -

Months
of
𝐒𝐭𝐨𝐜𝐤𝐨𝐧𝐡𝐚𝐧𝐝
stock ¿
on 𝐀𝐯𝐞𝐫𝐚𝐠𝐞𝐦𝐨𝐧𝐭𝐡𝐥𝐲𝐜𝐨𝐧𝐬𝐮𝐦𝐩𝐭𝐢𝐨𝐧
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hand 20
Example:1

If the Stock on Hand in a facility of a certain

product = 16, and the calculated consumption of
the product during the reporting period= 40,
calculate the MOS,

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• This means, the stock you have will last for
0.4 months, which would be about 12 days.

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 Exercise

• In 2014 E.C, the total consumption for 500mg

Paracetamol tablet in Ambo General Hospital was
24,000 tablets. The stock on hand in the facility is
4000 tablets and no stock out of medicines during the
year. Calculate the months of stock that will last?

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 Categorizing inventory medical
products

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 VEN analysis
 Vital

 Potentially lifesaving

 A patient may die or maybe harmed or disabled

because of lack of this medicine

 Crucial to provide basic health services (in its

absence, service may be discontinued).

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Must always be available 25
 Essential

 Effective against less severe but significant

illness, not vital;

 It is lifesaving; without which patient may be in

difficulty/ problem /maybe somehow substituted

 Essential to the service without which it is

difficult to give the health service
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 Non Essential

• Effective for minor illnesses and low therapeutic

advantage
• Important to patients; however, patients will not die
because the absence of these medicines
• Necessary to give the health service; however, health
service delivery will not be discontinued in the
absence of these medicines
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 ABC analysis
– ABC analysis is the process of dividing medical
products of the medical store into three classes
according to their monetary value of consumption
or usage so that store managers or supply
managers can focus on items that have the
highest monetary value..

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 Cont . . .
•Class “A” : The important few,
– 10- 20% of products, account for 70-80 % of the monetary value

•Class “B”: The middle share

– 10-20% of products, 15-20% of the monetary value

•Class “C” : the trivial many

– 60-80% of products, 5-10 % of the monetary value

•Class A medical products have more impact on the health

facility budget and need strict control

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 FSN analysis
– FSN analysis is the process of classifying the health
products based on their movement from the
inventory for a specified period.
– This analysis helps the storekeeper and procurement
department to keep the fast-moving items always
available and take necessary measures towards the
non-moving inventories.
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 Cont . . .
•FSN Analysis classifies inventory based on
quantity, the rate of consumption and frequency
of issues and uses.
 F stands for Fast-moving,
 S for Slow-moving and
 N for Nonmoving items.
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 3. Physical Inventory

• A physical inventory is the process of counting by

hand the number of each type of product in your store
at any given time.

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 There are two kinds of physical inventory:

1. Complete physical inventory:

2. Cyclic or random physical inventory:

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 1. Complete physical inventory

• All products are counted at the same time.

• A complete inventory should be taken at least once a
year.
• For large warehouses, this may require closing the
storage facility for a day or longer.
• It is easier to conduct regularly at facilities that
manage smaller quantities of products.
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 2. Cyclic or random physical inventory:

• Selected products are counted and checked against the

stock keeping records on a rotating or regular basis
throughout the year.

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