Managing the Pharmacy Inventory
Efficient Inventory Management (EIM) is essential to the profitability of your pharmacy. Don’t let profit sit on your shelves or expensive brand name drugs go out of date due to improper inventory levels. Inventory is the amount of stock or merchandise that is available for sale to present and future clientele. Adequate inventory is generally defined as basic stock + safety stock. Too much inventory is a major cause for insufficient cash flow. You’ll have to tap into your credit line or pump more of your own cash into the business to meet financial obligations, especially in the case of the wholesaler and rent payables.
EIM results in better cash flow, good customer service, good relationship with suppliers, good return on investment and accurate prediction of future needs of inventory. Find the right balance between Inventory Turns (IT), Adequate Gross Margin (AGM) and customer services to establish proper inventory levels. This may vary for each pharmacy location. Be careful, for inventory “eats cash” in many different ways. Including, but no limited to, property taxes paid on inventory investment, insurance premiums paid to protect the investment, the cost of capital (most important) and income taxes paid by the pharmacy on reported net income.
Managing the Inventory “Speak” • • • • • • • Inventory turns - the number of times per year inventory is sold and replaced at cost. Procurement costs (ordering costs) - include but are not limited to the costs of placing the order, receiving goods, and processing payment. Carrying costs - all costs associated with carrying maintaining inventories. Gross Margin Return On...