It’s All in the History: An Introduction to Inventory Forecasting

Content courtesy of Datarithm, www.datarithm.co.

0
106
Datarithm inventory forecasting dashboard

STILL MANAGING INVENTORY MANUALLY?

Are there still pharmacies relying on a single person to manage inventory manually?Does that person have a great deal of head knowledge for this process? Is he or she still using a spreadsheet-style “database”? Pharmacy owners and managers should be concerned that this is leaving the business open to an untold number of manual inputs, manual data, formula manipulation, and an increasing lack of specificity. In other words, errors creep in over time, making it very difficult to find and remove those errors.

Interested in learning more?

READ AN ARTICLE ON PERPETUAL VERSUS NON-PERPETUAL INVENTORY.

READ ABOUT HOW GEORGE FOTIS, PHARM.D., OWNER OF DRUG CITY PHARMACY IN BALTIMORE, MD., GOT HIS INVENTORY AND PURCHASING UNDER CONTROL.

THIS APPROACH COULD BE COSTING A PHARMACY A GREAT DEAL OF PROFIT

Using a manual approach to inventory and ordering makes the process much more difficult. The ability to research order and sales history is very limited. Limits include the lack of ready data, the difficulty of comparing any evidence manually, and the specific knowledge of what may be driving anomalous sales spikes. It’s just too hard to wade through what information is available.

It has been said that the further into the past accurate records extend, the more precise the basis for predicting trends. Digging back into the inventory history often returns a number of patterns that could give insight into the future. Usually it is easy to identify some regular historical patterns, such as allergy season or a holiday sale period. However, more than a manual approach is needed to drive a specific ordering strategy and maintain appropriate store stock levels to produce the most substantial profit through appropriate inventory management.

DISPENSING HISTORY MATTERS

Dispensing history matters when considering specific items and quantities to stock and for determining the timing of an order. The process to evaluate these factors can make or break profit. In the vast majority of situations, it‘s generally cost-effective to remove the opportunity of introducing human error as much as possible.

No matter what inventory and ordering system a pharmacy uses, it is virtually impossible to predict the first time a medication will be dispensed. This is also an opportunity to begin establishing the patterns necessary in the order/inventory cycle to determine the extent to which order automation can be used.

While no one can predict the first use of a product, it is effortless to predict seasonal patterns. For example, during the spring and summer, it is much more likely that there will be a significant recurring customer need for allergy medications, both OTC (over the counter) and prescription. It is important to remember that these types of patterns exist year-round, and it is usually possible to plan for them. With manual ordering and inventory, this process is a bit more difficult. The ability to predict needed products and quantities becomes less effective because of the need to compare data that may be found in multiple locations. Inventory forecasting software can streamline the process.

Sporadic product sales can be comparably easy to consider. Usually, there is a known need for an item, but not necessarily in large quantities or in a regular rotation. Unfortunately, this often means that products are on the shelf or in a storage location waiting to be sold. The difficulty in this situation is tracking products that have an expiration date or those that can be returned to the supplier based on purchase date. This requires some mechanism for following up on that information, whether it is done by manual means or by an electronic inventory control program. Inventory is a pharmacy’s most valuable asset, but also the primary determining factor in overall profitability. Indeed, a specific driver of profit is the ability to manage ordering and inventory appropriately. The easiest way to account for that potential profitability is through the proper management of inventory. Controlling inventory requires efficiency on many levels. With so many moving parts it is often difficult to keep that control.

THERE IS ALWAYS GOING TO BE SOME RISK

No matter how inventory is managed, there is going to be some risk, such as out-of-stock/ overstock situations, potentially expiring products, or loss due to shipping damage. There are several methods to manage that risk, such as spreading product needs out over multiple locations or carrying more than one similar product.

Another method to reduce inventory risks is the use of algorithm software. This is a more automated process that accounts for product use over time, as well as inventory and order history. Often in an automated system, there are the control mechanisms of cycle counting and preset parameters that can be adjusted based on specific needs. Advanced algorithms can take much of the guesswork out of inventory management while still allowing pharmacy owners and managers flexibility.

ADVANCED ALGORITHMS

Datarithm‘s advanced algorithms account for trend analysis, historical dispensing patterns, and adjustable preferences to generate reliable forecasts for single or multiple-location pharmacy operations. The customizable program integrates with leading pharmacy management systems. We work with pharmacy owners and managers to create uniquely flexible decision-making tools to help achieve service and profit objectives. CT