Objectives of an effective inventory control system

Abstract

Quantitative descision-making processes are examined as they relate to hospital pharmacy inventory control. The objective of an inventory-control system is to make inventory decisions that minimize the total cost of inventory, which is distinctly different from minimizing inventory. It is often more expensive to run out of an item (and thus be forced to obtain it through more expensive channels) than simply to keep more units in stock. Several models have been proposed in the literature for minimizing the total cost of inventory through the use of an economic order quantity, which attempts to balance the carrying cost of inventory with the cost of running out of an item. Most pharmacy inventory decisions involve replenishment - how much to order, when to decide to order, and when to place the order. There are three costs associated with pharmacy inventory: (1) carrying costs, (2) shortage costs, and (3) replenishment costs. Many of the proposed models (which are discussed in detail in the article) make certain assumptions that do not hold in the realm of hospital pharmacy. For instance, the 'costs' associated with running out of a drug product used in critical care might well involve increased morbidity and mortality, clearly an unacceptable situation. However, the basic tenets of these inventory-control systems should be examined by hospital pharmacy managers and applied when appropriate. The availability of microcomputers and relatively powerful spreadsheets will increase the utility of complex models of inventory control that are too complicated for manual calculations. The objective of an effective inventory-control system is the minimization of the total cost of inventory; this is more likely to be achieved when rational decisions are made on the basis of data produced by realistic models.