Community pharmacyA community pharmacy is a pharmacy that deals directly with people in the local area. It has responsibilities including compounding, counseling, checking and dispensing of prescription drugs to the patients with care, accuracy, and legality. A community pharmacy has appropriate procurement, storage, dispensing and documentation of medicines. It is an important branch of the pharmacy profession and involves a registered pharmacist with the education, skills and competence to deliver the professional service to the community.

The main activities of community pharmacists are described below.

Processing of prescriptions

The pharmacist verifies the legality, safety and appropriateness of the prescription order, checks the patient medication record before dispensing the prescription (when such records are kept in the pharmacy), ensures that the quantities of medication are dispensed accurately, and decides whether the medication should be handed to the patient, with appropriate counselling, by a pharmacist. In many countries, the community pharmacist is in a unique position to be fully aware of the patient’s past and current drug history and, consequently, can provide essential advice to the prescriber.

Care of patients or clinical pharmacy

The pharmacist seeks to collect and integrate information about the patient’s drug history, clarify the patient’s understanding of the intended dosage regimen and method of administration, and advises the patient of drug-related precautions, and in some countries, monitors and evaluates the therapeutic response.

Monitoring of drug utilization

The pharmacist can participate in arrangements for monitoring the utilization of drugs, such as practice research projects, and schemes to analyse prescriptions for the monitoring of adverse drug reactions.

Extemporaneous preparation and small-scale manufacture of medicines

Pharmacists everywhere continue to prepare medicines in the pharmacy. This enables them to adapt the formulation of a medicine to the needs of an individual patient. New developments in drugs and delivery systems may well extend the need for individually adapted medicines and thus increase the pharmacist’s need to continue with pharmacy formulation. In some countries, developed and developing, pharmacists engage in the small-scale manufacture of medicines, which must accord with good manufacturing and distribution practice guidelines.

Traditional and alternative medicines

In some countries, pharmacists supply traditional medicines and dispense homoeopathic prescriptions.

Responding to symptoms of minor ailments

The pharmacist receives requests from members of the public for advice on a variety of symptoms and, when indicated, refers the inquiries to a medical practitioner. If the symptoms relate to a self-limiting minor ailment, the pharmacist can supply a non-prescription medicine, with advice to consult a medical practitioner if the symptoms persist for more than a few days. Alternatively, the pharmacist may give advice without supplying medicine.

Informing health care professionals and the public

The pharmacist can compile and maintain information on all medicines, and particularly on newly introduced medicines, provide this information as necessary to other health care professionals and to patients, and use it in promoting the rational use of drugs, by providing advice and explanations to physicians and to members of the public.

Health promotion

The pharmacist can take part in health promotion campaigns, locally and nationally, on a wide range of health-related topics, and particularly on drug-related topics (e.g., rational use of drugs, alcohol abuse, tobacco use, discouragement of drug use during pregnancy, organic solvent abuse, poison prevention) or topics concerned with other health problems (diarrhoeal diseases, tuberculosis, leprosy, HIV-infection/AIDS) and family planning. They may also take part in the education of local community groups in health promotion, and in campaigns on disease prevention, such as the Expanded Programme on Immunization, and malaria and blindness programmes.

Domiciliary services

In a number of countries, the pharmacist provides an advisory as well as a supply service to residential homes for the elderly, and other long-term patients. In some countries, policies are being developed under which pharmacists will visit certain categories of house-bound patients to provide the counselling service that the patients would have received had they been able to visit the pharmacy.

Agricultural and veterinary practice

Pharmacists supply animal medicines and medicated animal feeds.

COMMUNITY PHARMACY MANAGEMENT

INTRODUCTION

Basically, every organization is an “input – output” system The input – output system of a community pharmacy:

Functions of Pharmacy Management

The role of business and the functions of management are to ensure that this input – output system operates smoothly

The most important functions of pharmacy management can be grouped as Accounting highly interrelated but separate activities

Finance

Human resource management

Operations management

Marketing management

Finance Management in Community Pharmacy Planning, developing and operating a community pharmacy for long term rest on a solid

financial foundation It takes money to make money The key financial issues that should be addressed are

How much money is needed to start the pharmacy or fund the desired level of operations?

Where will the money come from?

How will the funds be used?

How can additional funds be obtained in the case of an emergency?

How will the money be paid back to lenders or adequate returns provided to investors?

Determining Financial Needs:

The financial requirements of a pharmacy revolve around three interrelated needs as shown in the following table :

The best way to determine the financial need is using the worksheet. Capital requirements should be estimated and planned for the next 2 to 4 years It is best to take conservative approach in projecting sales and a liberal approach to estimate

expenses Once the financial needs are assessed the owner’s “equity position” should be determined This is the money the owner is able to commit to the business vs. the amount supplied by

creditors and other investors If the personal contribution is insufficient to cover all needs for capital , the owner should begin

to identify different sources Understanding the various sources of funds and their implications for the business are keys to

successful capital generation and financial management The two main types of funding are debt and equity financing Debt financing can be grouped on the basis of the lengths of the loans as ‘Short – term’ and

‘Long – term’ financing Equity financing involves selling part of the ownership in the pharmacy to others (Possible only

in partnership / corporation)Financial Records:

Records should be kept for internal and external reasons The basic books for record keeping are ‘Journals’ and ‘Ledgers’ Journals are useful for initial recording of all transactions Ledger posting from journal, systematizes the financial activities Record transactions should be done systematically using the ‘double entry book keeping system’ The three important financial statements for internal and external use are

Human Resource Management

Recruitment and selection of employees has become one of the more complex elements of the staffing process in most pharmacies

Errors made in hiring can have a significant impact on the pharmacy’s ability to survive It cannot afford to hire a few bad employees before finding Mr. or Ms. Right Modern staffing requires serious consideration of where good prospects are likely to be and

development of an active recruitment effort Some of the most common sources of potential employees are

Pharmacy Employees – Current labour force for better opportunities and higher positions / salaries

Referrals – Through friends, business associates, employees Employees of Other Companies – Hiring an employee from a competitor Employment Agencies – Both from Public and Private Agencies Educational Institutions – Through the placement cells of the universities / colleges Labour Unions – if employees are or will be members of union Advertising – Newspapers, professional journals / periodicals

Drop-ins – Sign boards in pharmacy’s window The selection procedure need not be overly complicated, but it should be standardized to the

extent possible The basic procedure consists of six steps, some of which can be undertaken simultaneously

Step 1: Provide the applicant with an application form

Step 2: Review the completed application form and administer a personal interview

Step 3: Check the references provided by the more promising applicants

Step 4: Administer a battery of skill or personality test, or both, to more promising applicants

Step 5: Take physical examination for the most promising applicant(s)

Step 6: Decide which, if any, of the applicants to hire

The Pharmacy should be managed under the overall supervision of a Pharmacist, who will have the final responsibility for all the professional activities and operations

All personnel including newly recruited personnel should be trained as per the personnel-training program of the pharmacy

All activities by the pharmacy personnel should be carried out as per well documented guidelines and procedures, which should have been developed by the management in consultation with the Pharmacist.

Each personnel should have clear job description, which should be performed accordingly All personnel in the pharmacy must, at all times, wear a neat apron / coat All personnel should additionally wear a badge prominently displaying their name and

designation All pharmacy personnel should be medically examined and adequately immunized periodically

and their health data should be archived Pharmacists working in the pharmacy should:

a. Hold at least a Diploma in Pharmacy

b. Be registered as a Pharmacist with the Pharmacy Council of India

c. Have undergone adequate practical training in a community pharmacy

d. Have communication skills & capabilities to give adequate and proper advice to the patients on illness and appropriate use of medicines so as to achieve optimal patient compliance

Each Pharmacist working in the pharmacy must be competent enough to: a. Play a professional role to assess prescriptions

b. Advise patients on appropriate selection and use of OTC medicines

c. Advise patients on appropriate use of prescribed medicines

d. Check and advice on drug-drug and drug-food interactions

e. Be alert for adverse drug reactions

f. Comprehend the client’s condition or illness and provide advice on proper medication and diet

g. Assess the patient’s condition and decide when to refer him/her to the Doctor

h. Perform the role of a healthcare provider and a counselor

Infrastructure Requirements

Selecting a Location

One of the principal reasons for the success of a new pharmacy is good site location Despite this locations are too often selected in an unscientific manner

Factors to Consider in Selecting a Pharmacy Location

Population Characteristics Total size Growth trends Age distribution Income distribution Prescription buying power Occupation trends

Competitive characteristics Number of competitors Size distribution of competitors Location of competitors Competitive growth trends

Physician Availability Number of physicians Types of physicians

Financing Requirements Sources of funds / credit foactors

Premises:

The location of pharmacy should be such that it is easily identified by the public. The neat and clean environment should be maintained at the exterior of the pharmacy. The facade should be clearly marked with the word “PHARMACY”, written in English as well as in regional language

The pharmacy should be conveniently accessible to people using prams or wheel chairs Pharmaceutical services and medicines should be served from an area which is separate from

other activities / services. This facilitates the integrity and quality of service, and minimizes the risk of dispensing errors

The pharmacist should be directly and easily accessible to public for information and counseling The pharmacy environment should be clean with minimum dust and should be maintained clean

as per the cleaning schedules and Standard Operating Procedures (SOPs). The pharmacy should

be free from rodents and pests/insects and pest control measures should be undertaken from time to time

The premises of the pharmacy may be separated from other rooms for private use The premises shall be well built, dry, well lit and ventilated and of sufficient dimensions to allow

the goods in stock especially medicaments and poisons to be kept in a clearly visible and appropriate manner

The area of the section to be used as dispensing department shall be not less than 6 sq. mts. for one pharmacist working therein with additional two sq. mts. for each additional pharmacist. The height of the premises should be at least 2.5 mts.

The floor of the pharmacy shall be smooth and washable. The wall should be plastered or tiled or oil painted so as to maintain durable, smooth washable surface devoid of holes, cracks and crevices

Adequate space as recommended by the regulatory authority is necessary (100 sq. ft), which should be enough for holding shelves, display counter, counseling area, and sufficient for movement of personnel and patients

The dispensing department shall be separated by a barrier to prevent the admission of public The pharmacy should have a telephone service and constant supply of electricity, especially for

the refrigerator(s) There should be a provision for drinking water to facilitate medicine administration to the

patients and for use of the personnel The pharmacy should have:

a. Sufficient place for patients to stand comfortably at the dispensing counter and for some to sit comfortably while they wait

b. Space for patient information displays, including information leaflets / material

c. A separate enclosure described as "Counseling Area" for patient counseling, storage of reference resources (e.g. books, internet access) is a fundamental requirement

Counseling area should be a place where patients can talk freely with the Pharmacist. It should be away from the area otherwise normally accessed by the patients and should preferably be an enclosure with a door which can be closed for further confidentiality. It should be well lighted with comfortable seating for the Pharmacist and the patient/attendant

A compounding pharmacy should also have sufficient additional space for making extemporaneous preparations, and the necessary equipment for doing so

Separate waste collection baskets/boxes should be available for the personnel and for the patients

The pharmacy should be air-conditioned and well ventilated. The medicine storage area should be protected from exposure to excessive light and heat. Ambient temperature in the pharmacy should be maintained within the stipulated range to prevent deterioration of various medicines stored at room temperature conditions

Pharmacy providing related services such as doctors, clinics, and first aid and dressing services should manage them separately

FURNITURE & FIXTURES

The pharmacy should have neat, well-placed shelves with provision for storage of medicines and other items in a neat manner, protected from dust, moisture, excessive heat and light. Adequate

provisions should be available for storing various medicines at prescribed temperature conditions.

The counseling area should at least be furnished with a. A table

b. Chairs for the Pharmacist and a couple of patients.

c. Cabinet for storing Patient Medication Records (PMRs)

EQUIPMENTS

The pharmacy should be equipped with refrigerated storage facilities (validated from time to time) and should be available for medicines requiring storage at cold temperatures

The counseling area should be equipped with: a. Reference material

b. Demonstration charts, kits and other demonstration material

c. Patient information leaflets (PILs)

d. Some basic instruments e.g. sphygmomanometer, glucometer, thermometer and stethoscope

e. Weight & height scale

The pharmacy should preferably be equipped with computers and appropriate software (automation) that can

a. Manage inventory

b. Manage invoicing

c. Generate timely warnings for expiring medicines

d. Archive patient medication records

The computers should also be equipped to give demonstrations to the patients and for maintaining database

Compounding section of the Pharmacy should be equipped with appropriate apparatus required for the preparation

List of items given in schedule N of Drugs and Cosmetics Act should be available in the pharmacy

Please share your suggestions and comments

ABC and VED Analysis of the Pharmacy Store of a Tertiary Care Teaching, Research and Referral Healthcare Institute of IndiaM Devnani, AK Gupta, and R Nigah1

Department of Hospital Administration, Post Graduate Institute of Medical Education and Research (PGIMER), Chandigarh, India

1Department of Pharmacy, Post Graduate Institute of Medical Education and Research (PGIMER), Chandigarh, India

Address for correspondence: Dr. Mahesh Devnani; E-mail: devnaniji@gmail.com

Copyright © Journal of Young Pharmacists

This is an open-access article distributed under the terms of the Creative Commons Attribution Licence, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

The ABC and VED (vital, essential, desirable) analysis of the pharmacy store of Post Graduate Institute of Medical Education and Research (PGIMER), Chandigarh, India, was conducted to identify the categories of items needing stringent management control. The annual consumption and expenditure incurred on each item of pharmacy for the year 2007-08 was analyzed and inventory control techniques, i.e. ABC, VED and ABC-VED matrix analysis, were applied. The drug formulary of the pharmacy consisted of 421 items. The total annual drug expenditure (ADE) on items issued in 2007-08 was Rs. 40,012,612. ABC analysis revealed 13.78%, 21.85% and 64.37% items as A, B and C category items, respectively, accounting for 69.97%, 19.95% and 10.08% of ADE of the pharmacy. VED analysis showed 12.11%, 59.38% and 28.51% items as V, E, and D category items, respectively, accounting for 17.14%, 72.38% and 10.48% of ADE of the pharmacy. On ABC-VED matrix analysis, 22.09%, 54.63% and 23.28% items were found to be category I, II and III items, respectively, accounting for 74.21%, 22.23% and 3.56% of ADE of the pharmacy. The ABC and VED techniques need to be adopted as a routine practice for optimal use of resources and elimination of out-of-stock situations in the hospital pharmacy.

Keywords: ABC analysis, ABC-VED matrix, inventory management, pharmacy, VED analysis

INTRODUCTION

About one-third of the annual hospital budget is spent on buying materials and supplies, including medicines.[1] The pharmacy is one of the most extensively used therapeutic facilities of the hospital and one of the few areas where a large amount of money is spent on purchases on a recurring basis. This emphasizes the need for planning, designing and organizing the pharmacy in a manner that results in efficient clinical and administrative services.[2] The goal of the hospital supply system is to ensure that there is adequate stock of the required items so that an uninterrupted supply of all essential items is maintained. A study conducted by the Department of Personnel and Administrative Reforms in India has revealed that not only does the quantity of medicines received fall short of the requirement but also the supply is often erratic. Even common medicines are out of stock and remain so for a considerable period.[3] Of the various explanations for non-availability of even simple medicines in the third world countries, a large number are related to materials management. A study from a 1,500-bedded state-funded hospital has claimed that review and control measures for expensive drugs brought about 20% savings.[4]

Inventory control in hospital pharmacy is very essential in a developing country like India.[5] As resources are limited, it is essential that the existing resources be appropriately utilized. With the existing drug budget, if rational drug use and improved drug management practices are followed, more number of patients can be served. It is essential that health managers use scientific methods to maximize their returns from investment at a minimal cost.[5–8]

Drug inventory management stresses on cost containment and improved efficiency.[9] Each item may be considered critical and there is a perceived need to supply very high levels of service.[10] There is no denying that stocking hospital pharmaceuticals and supplies can be expensive and tie up a lot of capital, and bringing efficiencies to such important cost drivers - often 30-40% of a hospital’s budget - can present meaningful savings.[11] Thus, a hospital materials manager must establish efficient inventory system policies for normal operating conditions that also ensure the hospital’s ability to meet emergency demand conditions.[12] But, it is impossible and unnecessary too to monitor every drug used in the health system. High-cost and high-volume drugs come in priority, whose intervention is likely to cause the greatest clinical and economic impact. In the whole process, it is important to trace the costliest medicinal products first, those that consume the major portion of the budget, and then design a strategy to further study and identify their use pattern. The study of use pattern will help in designing appropriate corrective measures. ABC analysis is an important tool used worldwide, identifying items that need greater attention for control.[5–8,13]

ABC analysis is a method of classifying items or activities according to their relative importance. It is also known as “separating the vital few from the trivial many” because, for any group of things that contribute to a common effect, a relatively few contributors account for a majority of the effects. The analysis classifies the items into three categories: the first 10-15% of the items account for approximately 70% of cumulative value (cost) (category A), 20-25% are category B items that account for a further 20% of the cumulative value and the remaining 65-70% are category C items, amounting for a mere 10% of the total value.[5–9,14–16]

The limitation of ABC analysis is that it is based only on monetary value and the rate of consumption of the item. In a hospital, an item of low monetary value and consumption may be very vital or even life saving. Their importance cannot be overlooked simply because they do not appear in category A. Therefore, another parameter of the materials is their criticality.[7]

VED analysis is based on critical values and shortage cost of the item. Based on their criticality, the items could be classified into three categories: vital, essential and desirable. There could be serious functional dislocation of patient care services in hospital when vital drugs are not available even for a short period. If essential items are not available beyond a few days or a week, the functioning of the hospital can be adversely affected. The shortage of desirable items would not adversely affect patient care or hospital functioning even if shortage is prolonged.[5,7,17]

A combination of ABC and VED analysis (ABC-VED matrix) can be gainfully employed to evolve a meaningful control over the material supplies. Category I includes all vital and expensive items (AV, BV, CV, AE, AD). Category II includes the remaining items of the E and B groups (BE, CE, BD). Category III includes the desirable and cheaper group of items (CD).[17]

In the present study, ABC, VED and ABC-VED matrix analysis of the pharmacy store of PGIMER, Chandigarh (a 1,500 bed tertiary care teaching, research and referral health institute catering to the major portion of northern India), was performed to identify the categories of drugs needing stringent management control.

The specific objectives of this study were to: (1) analyze the annual consumption of items of pharmacy and expenditure incurred on them for the year 2007-08, (2) evolve a priority system based on ABC and VED and ABC-VED matrix analysis, (3) identify the item categories requiring greater supervisory monitoring.

MATERIALS AND METHODS

The data of annual consumption and expenditure incurred on each item of the pharmacy for the financial year 2007-08 were collected. The data were then transcribed in an MS Excel spreadsheet. The statistical analysis was carried out using the MS Excel statistical functions.

ABC analysis

The annual expenditure of individual items was arranged in descending order. The cumulative cost of all the items was calculated. The cumulative percentage of expenditure and the cumulative percentage of number of items were calculated. This list was then subdivided into three categories: A, B and C, based on the cumulative cost percentage of 70%, 20% and 10%, respectively.

VED analysis

The VED criticality analysis of all the listed items was performed by classifying the items into vital (V), essential (E) and desirable (D) categories. The items critically needed for the survival of the patients and those that must be available at all times were included in the V category. The items with a lower criticality need and those that may be available in the hospital were included in the E group. The remaining items with lowest criticality, the shortage of which would not be detrimental to the health of the patients, were included in the D group. The VED status of each item was discussed with justification by a group comprising of physician, surgeon, pediatrician and pharmacist.

ABC-VED matrix analysis

The ABC-VED matrix was formulated by cross-tabulating the ABC and VED analysis. From the resultant combination, three categories were classified (I, II and III). Category I was constituted by items belonging to AV, AE, AD, BV and CV subcategories. The BE, CE and BD subcategories constituted category II, and the remaining items in the CD subcategory constituted category III. In these subcategories, the first alphabet denotes its place in the ABC analysis, while the second alphabet stands for its place in the VED analysis.

RESULTS

The drug formulary of the hospital consisted of 421 items. The total ADE of the pharmacy on items issued in 2007-08 was Rs. 40,012,612.

ABC analysis

On ABC analysis, 13.78% (58), 21.85% (92) and 64.37% (271) items were found to be A, B and C category items, respectively, amounting for 69.97% (Rs. 27,996,865), 19.95% (Rs. 7,981,331) and 10.08% (Rs. 4,034,416) of ADE of the pharmacy [Table 1 and Figure 1]. The cut-offs were not exactly at 70/20/10%, and differed marginally, which is permissible.[18]

VED analysis

The findings of the VED analysis of the present study are shown in Table 1 and Figure 2. About 12.11% (51), 59.38% (250) and 28.51% (120) items were found to be V, E and D category items, respectively, amounting for 17.14% (Rs. 6,857,814), 72.38% (Rs. 28,963,447) and 10.48% (Rs. 4,191,351) of ADE of the pharmacy.

ABC-VED matrix analysis

Table 2 shows the ABC-VED matrix analysis. Nine different subcategories (AV, AE, AD, BV, BE, BD, CV, CE and CD) were studied using this analysis. These nine were further grouped into three main categories, categories I, II and III [Table 1].

There were 93 (22.09%) items in category I, 230 (54.63%) items in category II and 98 (23.28%) items in category III, amounting for 74.21% (Rs. 29,691,956), 22.23% (Rs. 8,895,160) and 3.56% (Rs. 1,425,496) of ADE of the pharmacy, respectively [Table 1 and Figure 3].

DISCUSSION

Provision of care in tertiary care hospitals is sensitive to the timely availability of facilities, including drugs. In case of drugs, besides the criticality factor, the cost factor must also be taken into consideration, as can be seen from our study, where about 10% of the drugs consumed about 70% of ADE of the pharmacy. This is the group requiring greater monitoring as it has fewer drugs consuming most of the money. We also noted that not all the drugs in this group were vital or essential. It also had drugs from the desirable category. Categorization of drugs by the ABC-VED matrix model helps to narrow down on fewer drugs requiring stringent control.

ABC analysis

The present study showed that if ABC analysis is considered alone for drug inventory, it would help effectively control the recommended 58 (13.78%) items in the A category, with almost 70% of ADE of the pharmacy, but it would compromise on the availability of items of vital nature from B and C categories (35 items, 8.31%). The results of the study are comparable with similar studies conducted in India [Table 3].[9,17,19–20]

VED analysis

If VED analysis alone is considered, ideal control can be exercised on the identified vital and/or essential items, accounting for 89.52% of ADE of the pharmacy. However, category A also contains six desirable items with 3.34% of ADE of the pharmacy and hence it is not possible to ignore the desirable group completely. The comparison with similar studies in India showed high variation in the percentage of vital, essential and desirable items [Table 3].[9,17,19–20] This could be because different institutes have different service profiles, depending on the specialty services available.

ABC-VED matrix analysis

In a combination of ABC and VED analysis, the resultant matrix makes it possible to focus on 93 (22.09%) items belonging to category I for strict managerial control as these items are either expensive or vital. The annual expenditure of these items was 74.21% of ADE of the pharmacy. AV, AE and BV subgroups of category I consist of 68 items (16.15%) that are expensive (70.12% of ADE), and their being out of stock is unacceptable as they are either vital or essential. To prevent locking up of capital due to these items, low buffer stock needs to be maintained while keeping a strict vigil on the consumption level and the stock in hand. A two-bin method of ordering needs to be followed for these as this will eliminate the risk of item shortage. CV items (19, 4.51%) are drugs of low cost but high criticality and take up 0.74% of ADE of the pharmacy. Because this amount is negligible, these items can be procured once a year and stocked as their carrying cost is low.

AD items (only six, 1.43%) consume 3.34% of the ADE. These items should be monitored for economic order quality, and their order placement must be made after careful study of the need. Rational use of items in this subgroup, including their removal from the list if possible, can bring about substantial savings without affecting patient care.

Category II items (230, 54.63%) consumes 22.23% of the ADE. These items can be ordered once or twice a year, thereby saving on ordering cost and reducing management hassles at a moderate carrying cost and without blocking substantial capital. Category III items (98, 23.28%) consume 3.57% of the ADE. These items can also be ordered once or twice a year, thereby saving on ordering cost at a moderate carrying cost and without blocking substantial capital. The comparison with similar studies in India is shown in Table 3.[9,17,19–20]

CONCLUSION

During the year 2007-08, items of approximately Rs. 40,012,612 were issued by the pharmacy store of PGIMER. This necessitates application of scientific inventory management tools for effective and efficient management of the pharmacy stores, efficient priority setting, decision making in purchase and distribution of specific items and close supervision on items belonging to important categories. ABC and VED analysis identifies the drugs requiring stringent control for optimal use of funds and elimination of out-of-stock situations in the pharmacy.

Footnotes

Source of Support: Nil

Conflict of Interest: None declared

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Figures and Tables

Table 1

The ABC, VED and ABC-VED matrix analysis of the PGIMER pharmacy (2007-08)

Category No. of items % of items ADE (Rs.) % of ADE of the pharmacy

A 58 13.78 27,996,865 69.97

B 92 21.85 7,981,331 19.95

C 271 64.37 4,034,416 10.08

V 51 12.11 6,857,814 17.14

E 250 59.38 28,963,447 72.38

D 120 28.51 4,191,351 10.48

I 93 22.09 29,691,956 74.21

II 230 54.63 8,895,160 22.23

III 98 23.28 1,425,496 3.56

Figure 1

ABC analysis cumulative curve (2007-08)

Figure 2

VED analysis cumulative curve (2007-08)

Table 2

ABC-VED matrix analysis of the PGIMER pharmacy (2007-08)

V E D

No. %Annual

expenditure (Rs.)

% No. %Annual

expenditure (Rs.)

% No. %Annual

expenditure (Rs.)

%

A 16 3.80 5,162,722 12.90 36 8.55 21,495,547 53.72 6 1.43 1,338,595 3.34

B 16 3.80 1,398,518 3.50 60 14.25 5,155,508 12.88 16 3.80 1,427,260 3.57

C 19 4.51 296,574 0.74 154 36.58 2,312,392 5.78 98 23.28 1,425,495 3.57

Total 51 12.11 6,857,814 17.14 250 59.38 28,963,447 72.38 120 28.51 4,191,351 10.48

Note: % indicates percentage of total items in drug list/total ADE of the pharmacy.

Figure 3

ABC-VED matrix cumulative curve (2007-08)

Table 3

Comparison of ABC, VED and ABC-VED matrix analysis of different studies in India

CategoryPresent study

GMCH, Goa study[17]

Service hosp., AFI study[20]

GMCH, Nagpur study[9]

CGHS study[19]

A 13.78 12.93 14.46 10.76 17.81

B 21.85 19.54 22.46 20.63 22.60

C 64.37 67.53 63.08 68.61 59.59

V 12.11 12.36 7.39 23.76 5.14

E 59.38 47.12 49.23 38.12 58.90

D 28.51 40.52 43.38 38.12 35.96

I 22.09 22.99 20.92 29.15 21.58

CategoryPresent study

GMCH, Goa study[17]

Service hosp., AFI study[20]

GMCH, Nagpur study[9]

CGHS study[19]

II 54.63 41.67 48.92 41.26 56.16

III 23.28 35.34 30.16 29.59 22.26

Note: All figures are in %, GMCH, Government Medical College and Hospital; AFI, Armed Forces of India; CGHS, Central Government Health Services of India.

Articles from Journal of Young Pharmacists : JYP are provided here courtesy of Elsevier

ECONOMIC ORDER QUANTITY

Economic order quantity is the order quantity that minimizes total inventory holding costs and ordering costs. It is one of the oldest classical production scheduling models. The framework used to determine this order quantity is also known as Wilson EOQ Model or Wilson Formula.

Over view

EOQ applies only when demand for a product is constant over the year and each new order is delivered in full when inventory reaches zero. There is a fixed cost for each order placed, regardless of the number of units ordered. There is also a cost for each unit held in storage, commonly known as holding cost, sometimes expressed as a percentage of the purchase cost of the item.

We want to determine the optimal number of units to order so that we minimize the total cost associated with the purchase, delivery and storage of the product.

The required parameters to the solution are the total demand for the year, the purchase cost for each item, the fixed cost to place the order and the storage cost for each item per year. Note that the number of times an order is placed will also affect the total cost, though this number can be determined from the other parameters.

Underlying assumptions

1. The ordering cost is constant.2. The rate of demand is known, and spread evenly throughout the year.3. The lead time is fixed.4. The purchase price of the item is constant i.e. no discount is available5. The replenishment is made instantaneously, the whole batch is delivered at once.6. Only one product is involved.

EOQ is the quantity to order, so that ordering cost + holding cost finds its minimum. (A common misunderstanding is that the formula tries to find when these are equal.)

Variables

= purchase price, unit production cost = order quantity

= optimal order quantity = annual demand quantity = fixed cost per order, setup cost (not per unit, typically cost of ordering and shipping and

handling. This is not the cost of goods) = annual holding cost per unit, also known as carrying cost or storage cost (capital cost,

warehouse space, refrigeration, insurance, etc. usually not (but sometimes) related to the unit production cost)

The Total Cost function

The single-item EOQ formula finds the minimum point of the following cost function:

Total Cost = purchase cost or production cost + ordering cost + holding cost

- Purchase cost: This is the variable cost of goods: purchase unit price × annual demand quantity. This is c×D

- Ordering cost: This is the cost of placing orders: each order has a fixed cost K, and we need to order D/Q times per year. This is K × D/Q

- Holding cost: the average quantity in stock (between fully replenished and empty) is Q/2, so this cost is h × Q/2

.

To determine the minimum point of the total cost curve, partially differentiate the total cost with respect to Q (assume all other variables are constant) and set to 0:

Solving for Q gives Q* (the optimal order quantity):

Therefore: .

Q* is independent of c; it is a function of only K, D, h.

The optimal value Q* may also be found by recognising that[3]

where the

non-negative quadratic term disappears for which provides the cost minimum

ECONOMIC ORDER QUANTITY (EOQ) MODEL

The economic order quantity (EOQ) is the order quantity that minimizes total holding and ordering costs for the year. Even if all the assumptions don’t hold exactly, the EOQ gives us a good indication of whether or not current order quantities are reasonable.

What is the EOQ Model? What Would Holding and Ordering Costs Look Like for the Years?Total Relevant* Cost ( TRC ) Economic Order Quantity ( EOQ ) EOQ Formula Same Problem

What is the EOQ Model?

Cost Minimizing “Q” Assumptions:

o Relatively uniform & known demand rateo Fixed item costo Fixed ordering and holding costo Constant lead time

(Of course, these assumptions don’t always hold, but the model is pretty robust in practice.)

What Would Holding and Ordering Costs Look Like for the Years?

A = Demand for the year

Cp = Cost to place a single order

Ch = Cost to hold one unit inventory for a year

Total Relevant* Cost (TRC)

Yearly Holding Cost + Yearly Ordering Cost

* “Relevant” because they are affected by the order quantity Q

Economic Order Quantity (EOQ)

EOQ Formula

Economic order quantity (EOQ) is that level of inventory that minimizes the total of inventory holding cost and ordering cost. When the purchase order quantity increases the ordering cost (set up cost) decreases but the carrying cost (holding cost) increases. On the other hand when purchase order quantity decreases, ordering cost ( set-up cost) increases but carrying cost (holding cost) decreases. With the help of EOQ we can determine the purchase order quantity , i.e how many materials should be purchased at a time so that the total cost is minimum.

Inventory Costs may be classified as follows: · Holding or Carrying CostsCarrying or holding cost is the cost incurred to store the materials in the warehouse. The carrying cost is directly proportional to the quantity and the time of holding. – Storage costs (facility, insurance, taxes, utilities)

– Capital costs (opportunity costs)– Obsolescence/shrinkage costs (depreciated value)· Setup or Ordering CostsThis is the cost incurred in formalizing a purchase order. This includes the cost of processing a purchase order i.e floating tender, receiving quotations, technical and financial evaluation of those quotations. Transportation cost and the cost of inspection of the incoming material is also included here.

· Shortage (or Stockout) Costs –This is the cost of loss of business opportunity due to shortage of material in stock. Due to shortage of material the production or the assembly line may remain idle. Again, if the right quantity of material is not being delivered to the customer at the right time it may lead to customer dissatisfaction. Customers’ dissatisfaction is cost to the company. · Purchase CostsIt is the purchase price of the material. Again, if the material is being produced inside the factory only, then the cost of production will be the purchase cost.

The basic assumptions of classical EOQ model are as follows:· The demand for the item is certain, continuous and constant over time · The lead time i.e the time between placement of an order and receipt of the material is known and fixed.· Within the range of the quantities to be ordered, the per unit carrying cost and the ordering cost are constant and independent of the quantity ordered. · The purchase price of the item is constant. There is no price variations on the basis of the quantity · The inventory is replenished immediately as the stock level reaches exactly equal to zero. Consequently, there are no stock overages or shortages. Let us assume that we begin with a stock of Q initially. The stock is consumed at a rate of d units per day. When stock is consumed inventory has to be filled up at time T1 and again at T2 and so on. Again, as there is a lead time “L” for the material we need to place the order at time A, so as to reach the material at time T1. Similarly, for the next cycle, order has to be placed at the time B so as to reach the material at time T2. Therefore, we need to fix a reorder level “R” to avoid stock out during the lead time.In this inventory cycle,· The maximum inventory held would be Q· The minimum inventory would be zero · The average inventory would be Q/2 The cost model for a period of one year isT(Q) = O (Q) + H(Q) Where Q = the ordering quantity T(Q) = Total variable annual inventory cost O (Q)= Total annual ordering cost H (Q) = Total annual holding cost

The Economic Order Quantity is derived by taking following considerations:– The optimal quantity to order taking into consideration both the cost to carry inventory and the cost to order the item.– Minimizes total inventory cost

ABC ANALYSIS

ABC analysis is very useful in categorizing the inventory items, priority wise. The items are classified on the basis of their usage in monetary terms. It has been observed that a small number of items account for a large share of total cost of the inventory. Again for a large number of items consumption rate is very high. The inventory items are divided into three categories, A, B, and C on the basis of consumption and value of the items.

A : High consumption value items B : Moderate consumption value items C: Low consumption value items The division of items into these three categories is conducted by plotting the usage value of the item in a Pareto curve (see page no. 172). The process of ABC analysis is given below: Step 1 : Obtain the list of the items along with information on their unit cost and the periodic consumption ( usually annual)

Step 2 : Determine the annual usage value for each of the items by multiplying the unit cost with number of units and rank them in descending order on the basis of their respective usage values

Step 3 : Express the value for each item as a percentage of the aggregate usage value. Then cumulate the percent of annual usage value

Step 4 : Obtain the percentage value for each of the items. For n items, each item should represent 100/n percent. For example, if there are 20 items involved in the classification, then each item would represent 100/20 = 5% of the materials. Cumulate these percentage values as well.

Step 5 : Using the data on cumulated values of items and the cumulated percentage usage values, plot the curve by showing these, respectively in X and Y axes. Step 6 : Determine the appropriate divisions for the A, B and C categories. The curve would rise steeply up to a point. This point is marked and the items up to that point constitute the A- type items. The curve would be moderately sloped towards upright. The point beyond which the slope of the curve is negligible is marked. The items covered beyond that point are classified as category C type. The items falling between point A and C will be items under category B.

Mathematical application of ABC analysis is given in page no. 154.Simplification and Codification Normally, in inventory management system the materials are denoted by codes. These codes are unique

for each material. Similar items are grouped together and a part of the code denotes the group identification. From the code one can even identify the material composition and the manufacturing processes involved with a particular material. This method also helps in computerized inventory control system.

Pharmaceutical carePharmaceutical care is the responsible provision of drug therapy for the purpose of achieving the elimination or reduction of a patient's symptomatology; arresting or slowing of a disease process; or preventing a disease or symptomatology

Concept

This process requires a clinical pharmacist to review a patient's medication with reference to the doctor's diagnoses, laboratory tests and patient's information. The clinical pharmacist must therefore work very closely with the doctor and patient in order to gain a correct understanding of the relevance and impact of the various medications on the patient's pathology.

The pharmaceutical care process was originally conceived to be undertaken in a community pharmacy, by community pharmacists. In 1996 the Pharmaceutical Society of NZ began a programme to implement the process throughout New Zealand. While some 500 pharmacists undertook an expensive training, it was found that the basic skill level of most pharmacists was not sufficient to enable them to undertake an in-depth review of the patients' medication [Citation Required]. Pharmacists are now required to complete a postgraduate diploma in clinical pharmacy to enable them to practice as a Clinical Pharmacist before being considered competent to work at this level.