1
CHAPTER 8 –
INVENTORY CONTROL
2
Objectives:
• Enumerate the importance of
inventory
• Distinguish the different methods
of inventory control over the other
3
Inventory
• Constitutes the merchandise which is
available for sale but not sold during
the year
• A detailed, itemized list, report, or
record of things in one’s possession,
especially a periodic survey of all
goods and materials in stock
4
3 Major Types of Inventories in
Manufacturing business
• Raw materials
• Goods in process of manufacture
• Finished goods
5
Four General “Costs” Associated with
Inventory
• Acquisition
• Procurement
• Carrying
• Stockout or shortage
6
Reasons for Inventory
• To offer a buffer against variations on
supply and demand, often caused by
poor forecasting;
• To provide better customer service;
• To foster efficiency;
7
Reasons for Inventory
• To provide a limit against price increase
by suppliers;
• To promote purchasing and
transportation discounts; and
• To protect the firm from contingencies
such as strikes and shortages
8
Inventory Control
• Coordination and supervision of the
supply, storage, distribution, and recording
of materials to maintain quantities
adequate for current customer needs
without excessive supply or loss.
(Webster)
• Vital importance to all types of pharmacies
because inventory is the largest asset
9
2 Goals of Inventory Control
• Minimizing total inventory investment
(slow moving, fast moving, non-
moving items)
• Carrying the right mix of products to
satisfy consumer demand
10
Inventory Control Methods
1. Intuitive method
2. Systematic Wantbook method
3. Open-To-Buy system
4. Stock Record system
5. Economic Order quantity
6. Perpetual Inventory method
11
1. Intuitive method
• Most common method but the least
efficient
• Items recorded in the wantbook
• Number of units reached 1-3,
estimate quantity to be ordered
12
2. Systematic Wantbook method
• There is wantbook for each direct
account & each major wholesaler
• Items recorded based on the need as
indicated by an order card
• Card indicates the minimum/maximum
quantities
• Quantities & date are recorded
13
3. Open-To-Buy Budget System
• One of the simplest & easiest
• Adjust each month’s purchase based
on the increase/decrease in the sales
of the previous month versus the
same month sales a year ago
• A purchase budget is established for
each month
14
4. Stock Record System
• To determine the optimum number of
each product to be ordered
• Should have at least 12 columns to
record data for each month
• Heading shows supplier’s name,
address, discount
• The name, size, cost/unit, min.& max.
quantity to be stocked are recorded
15
5. Economic Order Quantity
• Deals with how much to purchase &
appropriate reorder point, or when to
buy
• Amount to buy that will keep total
costs at a minimum
• Must maintain a buffer or safety stocks
16
6. Perpetual Inventory Method
• Most efficient if necessary technology is
available
• System will tell precisely the amount of
inventory on hand at any time
• Programmed to provide list & quantities of
products to be ordered to maintain
inventory
17
References:
- Abood, R.R. (2008). Pharmacy Practice and the Law (5th ed.). Sudbury, MA: Jones and Bartlett
Publishers.
- Bautista, L.M.A., Tubon, N.T, & Cera III, E.M.D. (2019). Pharmacy Administration, Leadership,
and Management (1st ed.) C & E Publishing, Inc.
- Chisholm-Burns, M.A., Vaillancourt, M.A. & Shepherd, M. (2014). Pharmacy Management,
Leadership, Marketing, and Finance (2nd ed.). Burlington, MA: William Brottmiller.
- De Silva, T. (2013). Essential Management Skills for Pharmacy and Business Managers. Boca
Raton: CRC Press/Taylor & Francis Group.
- Desselle, S.P., Zgarrick, D.P. & Alston, G.L. (2012). Pharmacy Management (3rd ed.). New York:
McGraw-Hill Medical.
- Kayne, S.B. (2005). Pharmacy Business Management. London: Pharmaceutical Press.
- Rees, H. (2011). Supply Chain Management in the Drug Industry. Hoboken, N.J.: Wiley & Sons.
- Sloan, F.A. & Hsieh, C.R. (2007). Pharmaceutical Innovation: Incentives, Competition, and Cost-
Benefit Analysis in International Perspective. Cambridge: Cambridge University Press.
- Tootelian, D.H., Wertheimer, A.I. & Mikhailitchenko, A. (2012). Essentials of Pharmacy
Management (2nd ed.). London: Pharmaceutical Press.
- Wilson, A.L. (2009). Financial Management for Health-system Pharmacists. Bethesda, MD.:
American Society of Health –System Pharmacists.
18
•end