What Makes an Effective Drug Inventory Management System

1. What Makes an Effective Drug Inventory Management System Drug Accountability Conference May 12, 2010

2. Goal • Explore the importance of effective inventory management

3. Inventory • Product • Single largest expense • Poor management negatively effects • Service • Morale • Patient lives

4. Inventory Management Minimizing Cost Supplyand demand

5. Inventory Management • Purchasing • Right product • Right time and amount • Right price

6. Inventory Management

7. Other factors? • Accountability • Theft reduction • Reduce waste • Budget analysis

8. Inventory Management Right time and amount

9. Inventory Management • Ordering Process • ABC inventory method (Manual) • Perpetual inventory (Automated)

10. ABC Inventory Method • Classifies inventory items to determine level of control needed • Rank items by annual purchases cost • A = 70% (10% of all products) - tight control • B = 20% (20% of all products) - mod. control • C = 10% (70% of all products) - least control

11. Inventory Cost • Ordering Cost: The costs of placing and receiving and order. Examples: clerical costs and documents • Carrying Costs: The costs of keeping inventory. Examples: space costs, expiration, damage, shrinkage • Out of Stock Costs: The cost of not having sufficient inventory. Examples: Cost of expediting, taxi, cost of alternate therapy

12. Safety Stock • Variability of demand • Lead time (Delivery Schedule) • Importance of therapy

13. Demand Forecasting • Demand Forecasting – Weighting factors are applied to past purchases to calculate trends. • Reorder Point (ROP) = Safety Stock • Reorder Quantity (ROQ) = Economic Order Quantity

14. The Inventory Cycle Profile of Inventory Level Over Time Q Usage rate Quantity on hand Reorder Point or Safety Stock (ROP) Time Place order Receive order Receive order Receive order Place order Lead time Reorder Quantity (ROQ)

15. Ordering Intervals • A items will be inventoried and ordered a minimum of 2 times weekly. • B items will be inventoried and ordered a minimum of weekly. • C items will be inventoried and ordered once every 14 days. • Do no overlook efficiencies from being organized.

16. McKesson Inventory ManagementShelf Tag System • A, B, C items are identified based on your ordering history (Orange-A, Blue-B, Yellow-C) • ROP (Reorder Point) • ROQ (Reorder Quantity) • System also calculates ROP and ROQ based on your ordering history

17. Mean Absolute Deviation Percentage • Mean Absolute Deviation Percentage (MADP) can be used as an indication of the accuracy. •  Range of MADP • 0.01 - 0.25         Very reliable • 0.26 - 0.5          Reliable • 0.51 - 0.75         Irregular but useful • >0.76                Unreliable due to variance in purchases •  Facilities should look for products that have a MADP under 0.5 and a low turn. These would be prime suspects for improvement. *Found in 12 month Inventory Turns Forecast Report Detailed

18. Inventory Turn Measured by dividing total cost of products purchased by inventory value. Lower inventory turnover is a sign of inefficiency and inflexibility. Upward trends in inventory turnover can be indicative improved inventory management. 18

19. Diversion Issues • VAMC pharmacist was arrested after an OIG investigation and charged with stealing 10,000 tablets of non-controlled prescription medication from the pharmacy over a 2-3 year period. • Defendant Pleads Guilty to Pharmaceuticals Theft at VAMC: A co-conspirator involved in a scheme to steal VA pharmaceuticals pled guilty to misbranding of drugs. An OIG investigation determined that the defendant was involved with two other subjects in a conspiracy to steal drugs estimated at $250,000 from the VAMC pharmacy and resell them at a retail pharmacy. The primary conspirator, a former VA pharmacist, was previously sentenced in this case. • VAMC Pharmacy Technician Indicted for Drug Theft: Pharmacy technician was indicted for acquiring a controlled substance by fraud and using the U.S. Mail to unlawfully distribute controlled substances. An OIG and VA Police investigation determined that the defendant, who worked as a prescription refill telephone operator, used the pharmacy profiles of unsuspecting Veterans to steal prescription narcotics by mailing the prescriptions to himself or family members’ residences.

20. Comments • Use math to settle most disputes. • Remember all inventories systems are frequently incorrect. • We still need intelligent workers to make the process work. • We are here to serve the patients.

21. Inventory Management • Questions