• Why Pharmacy Inventory Management Systems Don’t Work

  • By Mike Coughlin
    July 10, 2015

    InventoryScriptPro’s SP Central Pharmacy Management System includes built-in automated inventory management. This has worked well in the private sector and attracted the attention of our VA and DoD customers who use ScriptPro workflow and robotics interfaced with specialized government systems. They asked us to come up with a way for them to also use this functionality. So we developed SIM – ScriptPro Inventory Management – an add-on to the ScriptPro workflow system that operates in hundreds of government pharmacies.

    ScriptPro worked with VA and DoD at their initial sites to perform before and after assessments. Here are some highlights from joint reports developed for these agencies:

    • Successful in converting manual ordering to automated ordering at both sites
    • Reduced inventory investment by 10% at one site and 40% at the other site
    • Reduced stockouts and partial fills by 43% and 96%
    • Significant labor reductions and space freed up at both sites
    • An Internal Rate of Return of 895% for one site (not computed for the other site)

    The initial sites were selected by these agencies because they were reputed to have well managed inventories. But their processes were entirely manual, and it is impossible to do a good job managing pharmacy inventories manually when there is pressure to get so much other work done. A manual system inevitably results in the “worst of both worlds” scenario: too much money and space tied up in inventory, but not the right items, so stockouts and short fills occur frequently.

    The acid test of an automated inventory management system is whether it knows at all times what’s on hand, what’s available to fill the next prescription, and what’s on order. Except for the largest pharmacy chains, this test is not met and manual procedures are typically used to order stock. Even some large chains rely on manual procedures.

    In my management and consulting careers before ScriptPro, I worked in the design, implementation, and operation of inventory management systems in many environments including large- and medium-scale manufacturing, wholesale distribution and retail sales. When I became involved in pharmacy, I was truly surprised at the complexities encountered in managing drug inventories. Items on hand change frequently through the introduction of new drugs and generics, proliferation from repackagers, and drug shortages. Wholesalers sometimes force substitutions to promote their market share programs. Prices fluctuate dynamically, and there may be substantial differences in unit prices between wholesalers, among equivalent generics, and based on package sizes. There may be the need to virtually track class of trade inventory layers for programs such as 340B. These complexities occur against a backdrop of frequent orders and deliveries, third parties that veto the dispensing of certain drugs in favor of others, and the crush of patients anxious to get their prescriptions filled. Most automated inventory systems are not up to the task.

    You Need Answers to These Questions

    If you’re wondering why your inventory management system does not work, here are some questions to ask:

    1. Inventory Receipt. When is the inventory record incremented? Is it when the order is actually received and put on the shelf? Or does this occur when the order is placed or acknowledged electronically by your wholesaler? Does the system take into account items received from other sources such as from secondary wholesalers and transfers from other pharmacies?

    2. Inventory Dispensing. When is the inventory record decremented? Is it when the stock is actually removed from the shelf and scanned to fill prescriptions or used in a robotic filling process? Or is it decremented when prescriptions are entered? Or when they are dispensed to the patient? Does it rely on switch transactions to decrement inventory, which may not cover cash prescriptions?

    In short, does your system synchronize inventory records with actual stock movements and take into account cash prescriptions, transfers, and adjustments? Or does it take shortcuts and you find that the computer records cannot be relied on to match what you have on the shelf?

    3. Inventory Allocation. Does the system track allocations of inventory – i.e. quantities of an item needed to fill prescriptions in queue but are still on the shelf or in the robot? Are the allocations taken into account in showing stock available to fill the next prescription and also in determining what needs to be ordered?

    4. Inventory in Will Call. Does the system track inventory in Will Call? How does it handle returns-to-stock? Is it relying on claim reversals, which do not come through for cash prescriptions? Do you scan the bags that are returned? Do you have to scan each item in the bag, or can all returns be driven by scanning the bag label? How does it handle situations where selected items are dispensed and others returned?

    5. Transfers. How does your system handle transfers in and out to other locations? Is this a cumbersome process that takes time and may be put off until later and then never done?

    6. Changes to Items Dispensed. How easy is it to change the item that is dispensed vs. what the computer expected? Some systems require total reprocessing or other multiple steps that don’t always get done in a busy pharmacy.

    7. Cycle Counting. Do you have a systematic cycle counting system that corrects errors and alerts you to system malfunctions? Does it classify items by importance such as A, B, C, etc.?

    When there are holes in the system it’s like having a hole in a dike. Soon the system is flooded with errors and staff cannot keep fixing them. That’s when they get out the clipboards to place orders. Your computer inventory records then become irrelevant except when they get adjusted at the end of a financial reporting period, often with unpleasant surprises for your accountants.

    8. Generic Pooling. Does the system give you visibility to generic pools of stock – i.e. multiple NDCs that are therapeutically equivalent? Does it take into account the generic pool quantity before coming up with suggested orders? If not, you may order items that have equivalent counterparts on the shelf.

    9. Selecting the Item to be Dispensed. Does the system accurately show the items in stock that can be used to fill a prescription and help you select the optimum item based on cost or 340B prescription status?

    10. 340B. Are 340B prescriptions identified and processed by the pharmacy in real time, ensuring that 340B drugs are dispensed when appropriate, 3rd party claims are properly submitted for 340B prescriptions, and virtual 340B inventories are tracked and automatically reordered? Or are 340B prescriptions processed by the pharmacy without these considerations and then reprocessed after-the-fact in the back office by a secondary system that cannot get the 340B drug dispensed since the patient has already left the pharmacy?

    11. Inventory Ordering. Does the system build reliable planned orders for you as the day goes on? Do you find that these orders can be submitted electronically to your wholesalers with little or no manual intervention? Will the system help you look for opportunities to save money by buying different generics, different package sizes, and from different wholesalers based on current electronically updated price lists?

    Inventory ManagementScriptPro Inventory Management is the Solution That Works

    The symptoms of a poorly managed inventory system – whether it’s handling widgets or drugs – are easy to spot. Too much money and space is tied up in inventory. Too many stockouts and partial fills. A lot of labor required to place orders and correct mistakes. Unpleasant surprises in the financial statements arising from inventory adjustments.

    If you are seeing these symptoms in your pharmacy, ask the questions posed above. These are the clues to finding out what is going wrong, and why.

    Pharmacy inventory management systems must handle these complications automatically as part of the workflow in order to be reliable and usable. ScriptPro makes this easy because we have built our inventory management system to meet exacting standards that handle this list and more. You can use ScriptPro’s inventory management system as part of our pharmacy management system or as an add-on to our workflow system that interfaces with your existing pharmacy management system.

    Read our blog post about the Inventory Management Paradox: Carrying Costs!