Benefits of holding medicines centrally
Medicines prevent, treat or manage many illnesses or conditions and are the most common intervention in healthcare. Storing medicines is always a compromise of stock holding costs versus service level to the end users. Managing medicines in secondary care is challenging regarding supply issues, contract changes and logistics. Managing stock and pharmacy IT systems within the trust’s control helps prevent stock outs, reduces time spent chasing orders and lowers carriage charges.
Factors to consider when holding medicines centrally include:
- space costs, such as rent, heating, lighting
- staff resources
- money tied up in stock
- stock no longer used
- insurance costs
- losses through theft
- inventory control costs
To manage stock effectively, three key questions should be considered. Although the questions seem obvious, colleagues are often continue ‘as normal’ and may not be reviewing the basics.
- How much stock to hold?
- How much stock to order?
- How often to order?
We discuss each question in the rest of this article. You should consider incremental changes to the pharmacy ordering system and monitor the impact of change to avoid unintended overstocking or destocking of key medicines.
How much stock to hold
It is important to know how much stock you hold at any time. Pharmacy procurement teams should consider implementing the three calculations discussed in line with local policy.
Calculation of stock holding
Most systems allow this figure to be generated. In addition to pharmacy IT systems, Rx-info has developed software for NHS hospital pharmacies and finance departments, providing them with instant access to high quality business intelligence reports. Secondary care pharmacy procurement teams have access to the RxInfo system. The RxInfo System, Exend provides monthly tracking of inventory value through the following:
RxInfo Exend – Total Stock Value
Calculation of annual spend
Annual spend is vital for effective management. This figure can be obtained from your hospital pharmacy system. The RxInfo Exend Spend Analytics system provides a monthly total value of purchases.
RxInfo Exend – Monthly medicines purchase value
RxInfo Exend – 12 month medicines purchase value
Calculation of stock turnover
This calculation tells you the number of times your stock turns over per year. This can be calculated by dividing the Trust’s annual medicines spend by the average stock value.
The typical value for stocks turns is 12 to 16 times a year.
Less than 12
You may have too much stock.
More than 16
You may be generating too many orders. Check your service levels, are they adequate?
Stock turns are often converted into the number of weeks of stock. Divide the stock turn figure by 52 to generate an average. The typical range is 3 to 6 weeks. Different stock categories will move at different rates.
Adjusting stock holding parameters
You may want to consider:
- adjusting the number of weeks stock set in the pharmacy IT system
- adjusting the individual medicine’s minimums and maximums and fixing them
- fixing a maximum, if you have a limited amount of storage space, such as fridge items
- reviewing the top 20 medicines by value and monitoring stock levels, reducing or tracking the top 20 medicines may decrease overall stock holding value significantly
Examples of when to fix minimums and maximums:
- holding a set course of rarely used antibiotics
- meeting needs of monthly or quarterly outpatient clinics with multiple patients using the same treatment
- managing limited storage capacity
Stock categorisation
Not all stock is the same. Examples of how medicine can vary include, how frequent medicines are supplied, their criticality to patients (antibiotic versus a vitamin tablet) and cost. You may consider categorisation of these medicines differently.
You can categorise stock into four categories.
Fast movers
Medicines you use often, you should:
- set maximum stock levels, especially for items that take up special storage such as fridge space
- regularly check that supply and storage match demand
Slow movers
Medicines that aren’t used quickly, you should:
- decide if you need to keep them in stock at all
- could you source from wholesalers, even at increased cost, this may avoid meeting minimum order values and holding more stock to meet longer delivery times
- fix minimums where a set amount is required to be kept, such as antibiotics or antidotes
High-cost items
Impact your budget most, you should:
- manage very carefully
- ensure stock is rotated and does not expire
- keep stock levels at the minimum required
Critical items
Medicines you must never run out of, you should:
- make sure you have minimums set correctly and fixed if needs be
- ensure the supplier is reliable
- consider using a pharmacy IT system flag to identify medicines that must not be out of stock
- use a separate flag for critical medicines and rarely used medicines
- large storage requirements: consider fixing maximum levels for medicines with large storage requirements such as intravenous fluids
- limit over ordering against the storage capacity
Stock holding locations
Stock is often held in several locations within a department. The same rules apply whether you’re:
- a satellite unit requisitioning from a pharmacy store
- a store ordering from an external supplier
Your pharmacy system may have different set up options and rules for stock holding and requisitioning compared to ordering from outside suppliers.
Where to hold the stock
The more locations you hold stock in (store, dispensary, Central Intravenous Additive Service (CIVAS) unit, satellite unit), the more stock you will have in total. Hold the stock only where it is needed.
Specialist items
If an item is only used at one site (such as a cytotoxic unit) then consider holding all stock there and having it delivered direct. This may not be possible for space or logistic reasons but will minimise the stock you hold.
Widely distributed items
Hold minimum stock at satellite locations and bulk of stock centrally (either in one satellite or more usually the main store).
How much stock to order
An “Economic Order Quantity” (EOQ) can be calculated. This balances the costs of raising an order (time) against the costs of holding the stock (as above). Systems calculate order size with an algorithm. This will usually use the following factors:
- lead time from supplier
- predicted usage
- stock already on order
- target stock holding (the amount of weeks set on the system)
These factors can be adjusted to change the stock ordered. It is important to know how your system calculates the order quantity.
How often to order
There are two main approaches to consider.
Periodic review
Stock is topped up to a maximum at a set time interval.
Fixed order
Stock is ordered once it passes through a minimum stock holding. This is the most common.
Some systems use mixed approaches once an order is raised by an item passing through the minimum level; other items from the same supplier are “topped up” by a review mechanism.
Checking stock levels
Stock levels need to be checked regularly to maintain accuracy. Your pharmacy IT system will only be as good as the information entered into it and strict maintenance of processes. Read our recommendations on how to complete stock levels.