Drug store management and
inventory control
MS. AACHAL R. PATEL
INDUKAKA IPCOWALA COLLEGE OF PHARMACY
Content
Organization of drug store
Types of materials stocked and storage conditions
Purchase and inventory control: Principles, Purchase Procedure,
Purchase Order, Procurement and stocking, Economic order
quantity, Reorder quantity level, and Methods used for the analysis
of the drug expenditure.
Drug store/Pharmacy/ Chemist
1. A retail shop which provides prescription drugs, among other
products.
2. At the drug store, a pharmacist oversees the fulfillment of
medical prescription & is available to give advice on their
offerings of over-the counter drugs.
3. Every hospital should have a medical store for the purpose of
procuring, stocking & distributing the drugs and medicines to
various departments.
Organization of Drug Store
1. Stores are defined as a sub-organisation in any hospitals where
materials obtained are held in abeyance till inspected, approved and
stocked.
2. A store should have a standard specification of materials and since
the store procured the drugs on behalf of the department for
regular flow of material, the condition of storage should be proper.
OBJECTIVES OF DRUG STORE
1. To stock all drugs and accessories required in the hospital.
2. To procure drugs from different sources.
3. To supply drugs to the consuming departments.
4. To preserve records of receipt and issue of drugs.
5. To maintain records of receipt and issue of drugs.
6. To carry out all operations regarding drugs economically to save revenue.
Layout of Drug Store
1. Preferably located on the ground floor close to the pharmacy.
2. Area: at least 600-1 000 sq ft.
3. Adequate storage facilities to avoid deterioration of the drugs, chemicals, biological etc. by
moisture or heat.
4. An ideal store : 02 entrances, one for receiving the articles and other for issue of materials.
Racks : for storage of material made of angled (L-shaped construction) iron.
5. Costly items are stored in closed bins. The height of racks depend up on the height of
ceiling should be above 2/3rd the height.
Retail Drug Store Design
Drug store
A definite location code is fo be followed in order to identify the product or materials
placed in store.
For this purpose, following system may be adapted:
F S M- Fast moving, slow moving, non moving H
M L- Heavy, medium, light materials
Fast moving materials are placed near the issue exit.
while Non moving articles are placed far from the exit.
Heavy items are placed at the bottom & light items on the top.
Drug Store
Records are maintained using Bin Card system.
A ledger or bin card has 4 codes like-
1 2 3 4 (1-Panel, 2-Row, 3-Rack, 4-Bin)
Materials can be entered either in ledger or bin ca rds in Alphabetical order
but this may cause problems as number of drugs are known by different name.
They may be categorized & stored depending up on their therapeutic effect.
Ex. Anti-inflammatory, Anti-Hypertensive, Cardiovascular Drugs
Type of Materials Stocked
1. Sufficient number of racks should be provided for storage of drugs and
supplies.
2. O2 fire extinguishers at strategic points along with fire buckets to fight
sudden fires due to stored drugs and chemicals.
3. Materials stored are : Capsules, Tablets, Liquid dosage form injections, etc
4. Biological antibiotics in refrigerator.
5. Narcotic and psychotropic substances stored under lock and key.
6. POISONS are stored in separate closed rack, labelled as “POISON”.
7. Alcohol & alcohol containing preparations.
8. Large bulk items on bottom.
9. Vaccines & other thermolabile drugs stored at cold store (2-10°C),
Antibiotics, Vitamins liver preparations stored at cool temperature (15-20°
C).
10. To avoid spoilage, store costly drugs & prescribed schedule X drugs
separately under lock and key.
Storage Conditions
Condition Temperature
Cold Storage 2-8°C
Cool Temp 8-25°C
Room Temp Temperature prevailing in Working Area
Warm 30-40°C
Excessive Heat Above 40°C
Cold Storage (2-8°C)
1. A separate room or a portion should be maintained at this temp range.
2. Should have a recording thermometer for checking the temperature and it should be
noted twice a day.
3. It should remain under the supervisor and in case a separate room is not available,
adequate number of refrigerator should be provide for the purpose.
4. The maintenance of these refrigerators in working order is the responsibility of the
supervisor.
5. Drugs: Insulin, sera, whole human blood, frozen plasma, thromboplastin, oxytocin
injection, and certain vaccines are not allowed to freeze.
6. The chief pharmacist should personally check that such drugs are stored at respective
places as per their prescribed storage conditions.
List A (Drugs Requiring Cold Storage 2-8°C)
1. Sera 8. Thromboplastin
2. Vaccines 9. Viper venom in solution
3. Whole Human blood 10. Oxytocin injection
4. Concentrated human red blood 11. Vasopressin injection
corpuscles (4-6°C)
12. Corticotropin gelatin injection
5. Normal Human plasma
13. Insulin preparation
6. Frozen Plasma at a temp not above -18°
14. Cobra Venom in solution
C
7. Thrombin
Storage at Cool Temperature (8-25°C)
1. The space of this room should be adequate considering the maximum stock
of drugs likely to be purchased by the hospital during any time of the year.
2. The chief pharmacist should ensure that no drug falling in this category is
stocked away from this room.
3. An inspection register should be maintained by the Chief Pharmacist.
4. Example: antibiotics, Vitamins, liver preparations.
List- B (Drugs requiring storage at Cool
Temp. 8-25°C)
Antibiotics Blood Preparations
Others
Preparations Dried plasma
Dextran injection
Crystalline Penicillin Human fibrin
Dextrose injection
Streptomycin sulphate Human thrombin
Hormone Preparations
Vitamin Preparations
Corticotropin
Vit K injection
Betamethason sodium
Vit B complex elixir
phosphate injection
Purchase and Inventory Control
Basic Purpose of purchase: To ensure continuous flow of raw material of right quality, right
quantity, right price and right sources.
Objective of purchasing: avoidance of duplication and wastage with respect to various items
purchased.
Centralized purchase by medical stores procure the drugs on behalf of all the department and help in
getting quality drugs at cheaper rates.
Some important terms
Right Quality: The quality which is available according to the particulars mentioned in terms of
grades, brands or trade name, characteristics, etc
Right Quantity: An important parameter of purchasing for continuous supply of raw materials.
“Economic order Quantity” may be followed in order to avoid shortage.
Right Price : Consistent matching with the quality of drug. Generally tender system is followed in
hospitals and the lowest bidder is chosen for supplying the order.
Right Source: The supplier should be dependable and capable of supplying as per requirements from
time to time.
Right Time: Purchase department should have lead time information for all products.
Lead time: Total time period between the placing of order and receipt of material while doing
purchases.
Purchase Procedure
Steps for procurement of goods
Determination of Requirement: The materials to be purchased for particular period as well planned
for the purpose of their regular and continuous use.
Purchase requisition is generally prepared by departmental heads and provides information
mentioned below:
Type of material to be purchased
Time of requirement
Quantity to be purchased
Source of supply- The pharmacy and therapeutic committee sets adequate standards for the purchase
of quality drugs. Procurement of stores is generally done by following sources.
i) Medical store depot
ii) Directorate general supplies and disposals
iii) Direct from wholesalers and manufactures
iv) By inviting tenders
v) Emergency purchases from local market
Purchase Order
After selecting the supplier, the chief pharmacist or any other suitable authority prepares a purchase order
giving detailed description, specification, packaging, price and quantity needed etc. of the items.
Number of purchase order copies varies from hospitals to hospital.
(a) The original copy is sent to the supplier.
(b) One copy for accounts section.
(c) One copy for purchase department.
(d) One copy for the department.
(e) Fifth and Sixth copy for concerned receiving department.
(f) Seventh copy as history copy.
General terms and conditions*
-Deliveries must be made inside the hospital premises.
-Prepare all transport charges.
-The hospital will not be responsible for goods supplied which are not on this order form, not duly signed by the
purchase officer.
-All consignments are subject to inspection.
-Installation and Demonstration, if required, is essential.
-No packing, forwarding or any other charges will be paid extra.
IV. Receipt of Acknowledgment
V. Receipt of Drugs
On receipt of drugs , there should be a system in the stores whereby the supply of drugs received in the medical stores
from the manufacturer are properly checked by person specially assigned for this purpose.
Preferably the same person is responsible for reviewing the stocks, date of expiry, description, quantity, batch number,
as mentioned in the order form.
Random sampling
If any such deterioration is observed the matter should be reported to medical superintendent and local drug inspector.
These stocks should never be used until the drug inspector’s permission is granted and even the information should be
sent to the manufacturer.
After the thorough examination of drugs the above officer should give “No objection to accept the
supply” in writing on the hospital copies of delivery challans, Invoices by putting signature and date.
The invoice received from the supplier is sent to accounts section for accuracy along with price and
quantity.
After verification ,the accounts section certifies and passes, the invoice for payment and on this basis,
cashier makes the payment either by cheque/draft.
VI. Distribution of Drugs to Wards
Drugs should be supplied in the original packing of manufacturers.
However if it is not possible to do so, then that should be supplied in clean containers so that the
integrity and original properties can be preserved.
Name and quantity of the drug should be properly labelled. It is always advisable that suitable
precautions should be taken to dispose off “Original empty containers” in order to avoid their
misuse.
The containers should be destroyed in the presence of a responsible person with a written statement
signed by him.
Chief pharmacist should visit wards to check whether the drugs are properly stored under special
storage conditions like cold storage, cool temperature and at room temperature.
INVENTORY CONTROL
Drug store management is based on principles of inventory control.
Mismanagement of stores and non-applicability of Scientific and Modern techniques has been identified as the
root cause of material storage in majority of hospitals.
Objective of Inventory Control
(i) To supply drug in time.
(ii) To reduce investment in inventories and made effective use of capital investment.
(iii) Efforts are made to procure goods at minimum price without bargaining the quality.
(iv) To avoid stock out and shortage.
(v) Wastage are avoided
Techniques of Inventory control / Methods Used
for Analysis of Drug Expenditure
(i) ABC analysis
(ii) VED analysis
(iii) EOQ
(iv) Lead time
(v) Buffer stock
ABC analysis
ABC analysis is an inventory categorization technique.
It is a basic tool with a selective approach for concentration upon the items. As ABC analysis the
items are divided into three categories—
"A items" with very tight control and accurate records,
"B items" with less tightly controlled and good records, and
"C items" with the simplest controls possible and minimal records.
The ABC analysis provides a mechanism for identifying items that will have a significant impact on overall
inventory cost, while also providing a mechanism for identifying different categories of stock that will require
different management and controls.
The ABC analysis suggests that inventories of an organization are not of equal value. Thus, the inventory is
grouped into three categories (A, B, and C) in order of their estimated importance.
'A' items are very important for an organization. Because of the high value of these 'A' items, frequent value
analysis is required. In addition to that, an organization needs to choose an appropriate order pattern (e.g.
'just-in-time') to avoid excess capacity.
'B' items are important, but of course less important than 'A' items and more important than 'C' items. Therefore,
'B' items are intergroup items.
'C' items are marginally important.
ABC Analysis is similar to the Pareto principle in that the 'A' items will typically account for a large
proportion of the overall value, but a small percentage of the number of items.
Examples of ABC class are
'A' items – 20% of the items accounts for 70% of the annual consumption value of the items
'B' items – 30% of the items accounts for 25% of the annual consumption value of the items
'C' items – 50% of the items accounts for 5% of the annual consumption value of the items
Another recommended breakdown of ABC classes:
"A" approximately 10% of items or 66.6% of value
"B" approximately 20% of items or 23.3% of value
"C" approximately 70% of items or 10.1% of value
VED analysis
It is inventory management technique that classifies inventory based on its functional importance.
it categorizes stock under three heads based on its importance and necessity for an organization for
production or any of its other activities.
VED analysis stands for Vital, Essential, and Desirable.
V- Vital Category
The category “Vital” includes inventory, which is necessary for production or any other process in an
organization.
The shortage of items under this category can severely hamper or disrupt the proper functioning of
operations.
Hence, continuous checking, evaluation, and replenishment happen for such stocks.
If any of such inventories are unavailable, the entire production chain may stop.
Also, a missing essential component may be of need at the time of a breakdown.
Therefore, order for such inventory should be before-hand.
Proper checks should be put in place by the management to ensure the continuous availability of items
under the “vital” category.
E- Essential category
The essential category includes inventory, which is next to being vital.
These, too, are very important for any organization because they may lead to a stoppage of
production or hamper some other process.
But the loss due to their unavailability may be temporary, or it might be possible to repair the stock
item or part.
The management should ensure optimum availability and maintenance of inventory under the
“Essential” category too.
The unavailability of inventory under this category should not cause any stoppage or delays.
D- Desirable category
The desirable category of inventory is the least important among the three, and their unavailability
may result in minor stoppages in production or other processes.
Moreover, the easy replenishment of such shortages is possible in a short duration of time.
EOQ
Economic order quantity (EOQ) is the ideal order quantity a company should purchase to minimize
inventory costs such as holding costs, shortage costs, and order costs.
The formula assumes that demand, ordering, and holding costs all remain constant.
Formula and Calculation of Economic Order Quantity (EOQ)
The goal of the EOQ formula is to identify the optimal number of product units to order.
If achieved, a company can minimize its costs for buying, delivery, and storing units.
The EOQ formula can be modified to determine different production levels or order intervals, and
corporations with large supply chains and high variable costs use an algorithm iEOQ is an important cash
flow tool.
The formula can help a company control the amount of cash tied up in the inventory balance. n their
computer software to determine EOQ.
Lead time
The lead time is the sum of the supply delay and the reordering delay.
The lead time is the applicable duration to calculate the lead demand, the safety stock or the reorder
point through a direct quantile forecast.
The longer the lead time, the higher the total inventory level or the larger is the safety stock, resulting
in excess of investment in inventories.
As far as possible efforts should be made to decrease the lead time for effective inventory control.
safety stock
Safety stock is used in emergency to meet the unforeseen demands . in other words, it refers to minimum
quantity of a particular item which must be kept in the stores of all time.
safety stocks can be calculated using the following formula ;
Safety stocks= (Maximum daily usage - Average daily usage) X lead time
Safety stocks needs following factors to be taken into consideration like;
(i) Lead time
(ii) Nature of item and rate of consumption
(iii) Availability of substitutes
(iv)Re-order level
(v) Stock out cost
Case Study
You are appointed as a store manager in a 500-bed multi-specialty hospital. The hospital is
undergoing renovation, and you are tasked with organizing the central drug store. The drug store
handles critical care medications, vaccines, antibiotics, and narcotics.
•Explain how you would organize the drug store layout.
•Discuss the types of materials you expect to stock and their respective storage conditions (e.g.,
temperature, humidity).
•Propose strategies to prevent mix-ups and medication errors in storage.
•Drug Store Layout Organization:
•Segregate areas based on type and frequency of use (e.g., antibiotics, narcotics, injectables, vaccines).
•Allocate separate cold storage (refrigerators) for temperature-sensitive drugs.
•Designate a "quarantine area" for expired/damaged/returned drugs.
•Use vertical shelving with clear labeling and FIFO (First-In-First-Out) strategy.
•Types of Materials Stocked:
•Critical Care Drugs – Emergency and ICU medicines.
•Vaccines & Biologics – Require cold chain maintenance (2–8°C).
•Antibiotics – Oral, injectable; require controlled room temperature.
•Controlled Substances (Narcotics) – Stored in lockable cabinets as per NDPS regulations.
•IV Fluids & Consumables – Stored in clean, dry areas.
•Storage Conditions:
•Temperature control (15–25°C unless specified).
•Humidity: Dry environment to prevent degradation.
•Light protection: Store light-sensitive drugs in amber bottles or dark areas.
•Strategies to Prevent Errors:
•Barcode systems for identification.
•Color-coded bins for categories.
•Regular stock verification and audits.
•Use of pharmacy management software for tracking.
A government hospital frequently faces shortages of essential medicines due to delays in
procurement and poor inventory tracking. As a pharmacy officer, you have been asked to revise the
current system.
•The principles of inventory control you would apply.
•The steps involved in the purchase procedure.
•How you would calculate Economic Order Quantity (EOQ) and Reorder Quantity Level to avoid
stock-outs and overstocking.
•Inventory Control Principles:
•Maintain optimal stock level to prevent overstocking and stock-outs.
•Apply ABC analysis (Always, Better, Control) for prioritizing inventory based on cost.
•Implement VED analysis (Vital, Essential, Desirable) for clinical importance.
•Improved Purchase Procedure:
•Indent generation by department.
•Approval from pharmacy committee.
•Issue of purchase order with vendor and payment terms.
•Inspection and quality check on arrival.
•Entry into stock register/software.
•EOQ (Economic Order Quantity):
•Formula:
EOQ=2ASHEOQ = \sqrt{\frac{2AS}{H}}EOQ=H2AS
Where:
A = Annual demand
S = Ordering cost
H = Holding cost/unit/year
•Reorder Quantity Level:
•Formula:
Reorder Level=Daily usage×Lead timeReorder\ Level = Daily\ usage \times Lead\ timeReorder Level=Daily usage×Lead time
•Benefits:
•Reduced inventory cost.
•Prevents shortages.
•Improves drug availability and patient care.
A drug store dispenses 6000 tablets of paracetamol every month. The ordering cost is ₹200 per order
and the carrying cost per tablet per year is ₹1.50. The lead time for delivery is 10 days.
•Calculate the Economic Order Quantity (EOQ) for paracetamol.
•Determine the Reorder Level if the daily consumption rate is constant.
•Explain how these values help in maintaining uninterrupted supply and cost efficiency.
Monthly demand = 6000 tablets
Annual demand (A) = 6000 × 12 = 72,000
Ordering cost (S) = ₹200
Holding cost per unit per year (H) = ₹1.5
Lead time = 10 days
Daily consumption = 6000/30 = 200 tablets
EOQ Calculation:
EOQ=2ASH=2×72000×2001.5=19,200,000≈4,381tabletsEOQ = \sqrt{\frac{2AS}{H}} = \sqrt{\frac{2 \times 72000 \times 200}{1.5}} =
\sqrt{19,200,000} ≈ 4,381 tabletsEOQ=H2AS=1.52×72000×200=19,200,000≈4,381tablets
Reorder Level:
Reorder Level=Daily Usage×Lead Time=200×10=2000 tabletsReorder\ Level = Daily\ Usage \times Lead\ Time = 200 \times 10 = 2000\
tabletsReorder Level=Daily Usage×Lead Time=200×10=2000 tablets
Advantages:
◦ EOQ reduces ordering and holding costs.
◦ Reorder level ensures timely procurement and no stock-out.
A private hospital pharmacy wants to review its monthly drug expenditure to identify cost-saving
opportunities. Data shows high spending on cardiovascular and diabetic drugs.
•Categorize the drugs based on expenditure and criticality.
•Suggest recommendations to optimize purchasing without compromising patient care.
•Step 1: ABC Analysis (Based on Cost)
•A Category (High-cost drugs) – 10% of items = 70% of cost (e.g., anti-diabetics, anti-hypertensives).
•B Category (Medium-cost drugs) – 20% items = 20% cost.
•C Category (Low-cost drugs) – 70% items = 10% cost (e.g., vitamins, analgesics).
•Step 2: VED Analysis (Based on Criticality)
•Vital (V) – Essential for life-saving (e.g., insulin, adrenaline).
•Essential (E) – Required for treating common diseases.
•Desirable (D) – Supportive or optional drugs.
•Step 3: Combine ABC + VED for Better Planning
•Focus on AV (High cost, Vital) items to control costs and ensure availability.
•Plan procurement and buffer stocks for BV, CV, and AE combinations.
•Recommendations:
•Monitor A-category drugs frequently.
•Negotiate better rates for high-cost drugs.
•Avoid overstocking D-category drugs.
•Use automated software for monthly analysis.