Inventory management is crucial for pharmacies. A company’s inventory must be accurate, costs controlled and compliance maintained. Poor inventory management can result to stock shortages, expired medicines and cashflow issues. By adopting the right strategies and systems, pharmacies can be more efficient, reduce waste and ensure patients get the meds they need.
What is Inventory Management
Inventory management is the backbone of any successful pharmacy. It’s a systematic approach to ordering, storing, using and selling a company’s inventory. This ensures the right products are available at the right time to meet customer demand, from raw materials to finished goods. By managing the flow of goods and materials well, pharmacies can minimise excess inventory, reduce inventory costs and maximise inventory turnover. This helps in maintaining balanced stock and providing timely and accurate treatment to patients.
For pharmacies, this means managing the flow of medicines and health products, ensuring essential items are always in stock and not overstocked. Effective inventory management helps minimise excess inventory which can tie up capital and increase inventory costs. By optimising inventory turnover, pharmacies can ensure products move seamlessly from raw materials to finished goods, meeting customer demand without delay.
Benefits of Good Inventory Management
Implementing good inventory management practices brings many benefits to pharmacies:
- Reduced Inventory Costs: By optimising inventory levels and minimising excess inventory, pharmacies can reduce inventory costs significantly. This means better financial health and higher profitability.
- Improved Customer Satisfaction: Ensuring the right products are available at the right time improves customer satisfaction and loyalty. Patients get their meds on time, resulting to better health outcomes.
- Increased Efficiency: Streamlined inventory management processes reduce waste and improve productivity. Pharmacies can run smoothly with fewer disruptions and delays.
- Better Decision Making: Accurate and timely inventory data allows pharmacies to make informed decisions on production, pricing and inventory levels. This data driven approach helps anticipate demand and adjust stock levels accordingly.
Understand Demand and Inventory Levels
Inventory management starts with understanding demand. Having too much stock ties up cash and increases the risk of expired medicines, while understocking means running out of essential items.
To strike the right balance, pharmacies should:
- Analyse sales data to identify high-demand items.* Track seasonal trends, such as flu vaccine demand in winter.
- Monitor prescription patterns to adjust stock levels.
Introducing reorder points is key to keepingInventory levels in check. By setting minimum and maximum reorder levels, pharmacies can automate the restocking process and avoid shortages and excess inventory.
Automated inventory management systems track stock levels in real time, reducing the risk of shortages or over-ordering.
Implement A Stock Control System
A structured stock control system ensures inventory is organised and up to date. Pharmacies should:
- Arrange stock logically to minimise errors and make items easy to find.
- Use first-in, first-out (FIFO) to reduce waste from expired products.
- Check expiry dates regularly and remove outdated stock promptly.
Using the economic order quantity (EOQ) model can help pharmacies calculate the optimal order size to minimise total inventory costs, balancing holding and setup costs while keeping inventory levels efficient.
Barcode scanning and digital inventory systems can simplify stock management further reducing manual errors.
Inventory Management Techniques
ABC Inventory Analysis
ABC inventory analysis is a powerful technique used to categorise inventory items based on their value and importance. This method divides inventory into three classes:
- A: High value items that are critical to the business and need close monitoring and control. These items are a small percentage of the total inventory but a large percentage of the inventory value.
- B: Medium value items that are important but not as critical as A items. These items require regular attention but not as much as A items.
- C: Low value items that are not critical to the business and can be managed with less frequency. These items are a large percentage of the total inventory but a small percentage of the inventory value.
By categorising inventory items using the ABC analysis, pharmacies can focus on the most critical items and ensure high value products are always in stock. This is particularly useful for small businesses that need to manage inventory efficiently and effectively, reduce excess inventory and minimise inventory costs.
Monitor Supplier Relationships
Working with reliable suppliers helps pharmacies keep stock levels steady. Building strong relationships with suppliers means better pricing, faster delivery and access to essential medicines when demand spikes.
Order fulfillment is key to getting stock from suppliers on time which impacts the pharmacy’s ability to meet customer needs.
To optimise supplier management:
- Compare prices regularly to get the best value.
- Negotiate bulk discounts where possible.* Have backup suppliers in place.
Pharmacies can also use automated ordering systems that reorder stock when levels drop below a set threshold.
Improve Cashflow by Managing Stock Better
Excess stock ties up capital so pharmacies should monitor stock turnover to avoid overstocking slow moving products. Ways to improve cashflow:
- Identify slow moving stock and adjust orders accordingly.
- Don’t order in bulk unless discounts outweigh storage costs.
- Sell surplus or short dated stock through other channels.
A well managed inventory system frees up capital while maintaining essential stock levels.
Stock Loss and Excess Inventory
Preventing stock loss is another vital part of pharmacy inventory management. Shrinkage (theft, damage or admin errors) can have a big financial impact. Pharmacies must take proactive steps to reduce losses and protect stock. Implementing access controls can limit who can handle certain medications especially controlled drugs. Secure storage areas with restricted access means only authorised personnel can manage high value or sensitive stock. Regular stock checks and reconciling with sales records helps to identify discrepancies early so issues can be addressed before they become major problems.
One way to minimise stock levels and reduce stock loss is the just-in-time (JIT) inventory system. JIT ensures products arrive just in time for production, reducing excess stock and associated costs.
Security measures such as CCTV and alarmed storage areas can also deter theft. While external theft is always a risk, internal losses from mismanagement or staff related incidents also need to be addressed. Having clear stock handling policies and ensuring staff understand their responsibilities can reduce errors. Digital inventory systems that log every transaction creates an extra layer of accountability so there is a clear audit trail in case of discrepancies. Keeping an eye on stock movement ensures stock is accurate, reduces financial losses and maintains pharmacy operations.
Another key to managing pharmacy inventory is understanding consumer demand beyond standard prescriptions. While repeat prescriptions make up a large part of stock movement, OTC sales and seasonal products also play a part in inventory planning. Tracking OTC sales data allows pharmacies to see which products are worth stocking in bulk and which may not justify shelf space. Seasonal items such as hay fever medication, cold and flu treatments or sun protection products require flexible stock planning to meet changing demand patterns.Not anticipating demand fluctuations can mean missed sales or conversely too much stock of low demand items.
Pharmacies can improve stock efficiency by using real-time sales data to adjust inventory levels on the fly. Many digital inventory systems integrate with point-of-sale (POS) technology to give a clearer picture of customer buying behaviour. By aligning inventory management with actual customer demand pharmacies can increase sales and reduce excess stock taking up valuable shelf space.
Efficient inventory management is also about ensuring stock is available to customers without delay. In some cases patients need immediate access to medication, especially for ongoing treatments. Pharmacies that streamline their ordering process and have a well structured stock control system can ensure continuity of supply. Working closely with suppliers to get essential medications restocked quickly helps to prevent stock gaps. Emergency stock policies where a set amount of critical medications is always held in reserve can also be useful to prevent disruption to patient care.
Stay Compliant with Regulations
Pharmacies must follow strict rules when managing inventory. Stocking, storing and disposing of medicines correctly ensures compliance with UK laws and patient safety.
Addressing common health issues is key to patient safety and compliance with regulations. Proper management of medication can prevent health issues such as adverse reactions and ineffective treatments.
Focus on:
- Storing controlled drugs securely and in line with regulations.
- Keeping accurate records of stock movement.
- Disposing of expired or damaged medicines properly.
Regular audits helps pharmacies stay compliant and reduce the risk of regulatory breaches.
Use Technology
Investing in the right technology makes stock management easier. Digital inventory systems can track stock levels, flag expired dates and automate ordering. On the production floor technology plays a key role in synchronising raw materials with customer orders, reducing inventory costs and increasing flexibility.
Pharmacies can benefit from:
- Cloud based inventory management software for real-time tracking.
- Integration with point-of-sale (POS) systems to update stock levels automatically.
- AI driven demand forecasting tools to predict stock needs accurately.
Technology reduces manual errors, saves time and improves overall efficiency.
Train Staff
Staff are key to inventory management. Regular training ensures they know the stock control procedures and can use the inventory system effectively.
Staff need to be trained to give the right treatment to patients. This not only improves patient outcomes but also the overall efficiency of the service.
Training should cover:
- Stock rotation and expiry date checks.
- Handling and storing medicines.
- Using digital inventory system.
Well trained staff contributes to better inventory accuracy and smoother pharmacy operations.
Review and Optimise Regularly
Inventory management needs ongoing monitoring and improvement. Regular reviews helps pharmacies to identify inefficiencies and adapt to change.
In addition to regular reviews utilising specialist services can really help with inventory management by providing bespoke business solutions to optimise inventory control processes.
To optimise inventory management:
- Carry out regular stock audits to identify discrepancies.
- Analyse stock turnover rates to refine ordering.
- Adjust inventory strategy based on patient needs and market trends.
Continuous improvement means stock remains well managed, costs stay under control and patients get the right medication on time.
How we can help
At Diamond Accounts we support pharmacies with financial management including inventory cost control and cashflow planning. We understand the importance of effective stock management in reducing costs and increasing profitability. Our team of experts will provide bespoke advice to help pharmacies optimise their inventory processes and stay financially stable.
We specialise in creating systematic inventories that help pharmacies keep track of their stock so they have the right products at the right time.
Get in touch with us today if you need help with your pharmacy’s finances.