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 Supply and demand

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

6. Inventory Management Right Product SpacePast Usage Seasonal Factors Formularies Industry Changes New Initiatives

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. 12-14 The Inventory Cycle Profile of Inventory Level Over Time Quantity on hand Q Receive order Place order Receive order Place order Receive order Lead time Reorder Point or Safety Stock (ROP) Usage rate 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 Management Shelf 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. 18 Inventory Turn 18 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.

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