INTRODUCTION: Pharmaceutical is one of the most sensitive and major industry that deals with human and animal life. Purity is highly deserved in this industry and there is no option of second chance. Quality, security, identity are the most important to maintain. So inventory management of the industry is a difficult job. A pharmaceutical company handled 500-600 types of products that includes huge amount of raw materials movement, packaging and secondary packaging of the finished products. Planning and scheduling in the pharmaceutical companies is a critical activity. Demand management under constraints of life-limited inventory buffers and non-discrete nature of products is challenging. INVENTORY: A physical resource that a firm holds in stock with the intent of selling it or transforming it into a more valuable state. An inventory system is the set of policies and controls that monitor levels of inventory and determine what levels should be maintained, when stock should be replenished, and how large orders should be. By convention, manufacturing inventory generally refers to items that contribute to or become part of a firms product output. Manufacturing inventory is typically classified into raw materials, finished products, component parts, supplies, and work-in-process. In distribution, inventory is classified as in-transit, meaning that it is being moved in the system, and warehouse, which is inventory in a warehouse or distribution center. Retail sites carry inventory for immediate sale to customers. In services, inventory generally refers to the tangible goods to be sold and the supplies necessary to administer the service.

INVENTORY Goods in stores

Work-in-progress Finished products

INPUT Material management department

OUTPUT Production Department

Figure A: Basic Inventory Model

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TYPES OF INVENTORY:

Materials Components Partially completed goods called work in process Finished-goods inventories Distribution inventory Maintenance, Repair and Operating supplies Materials: These are such chemicals as active ingredients, diluents, and excipients needed to manufacture intermediates or components of the finished product. Included in this category and best shown separately are finishing supplies such as container, labels, caps, and shippers needed in the packaging operation.

Components: These are parts or sub-assemblies needed for the final assembly of the end product (e.g., Bulk tablets awaiting packaging)

Work-in-process: This is inventory in the process of being assembled into final products. Raw materials are released from inventory and moved to work center. These parts may be restocked temporarily until withdrawn for use later in the production process.

Finished goods: These are shippable inventories ready to be delivered to distribution centre, retailers, and wholesalers or directly to customers.

Distribution inventory: This is inventory held at point as close to the customer as possible. Distribution points such as warehouse or stores may be owned and operated by the manufacturer or may be independently owned and operated.

Maintenance, Repair and operating supplies: These items are held by most companies. These inventories are often low cost, and include office and operating supplies and services.

So a pharmaceutical company generally possesses inventories like finished goods, work in process, packing material, literature and promotional materials, physician sample, raw and packing material in transit, stock of stationery, spare and accessories.

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PURPOSE OF INVENTORY

To maintain independence of operations: A supply of materials at a work center allows that center flexibility in operations. For example, because there are costs for making each new production setup, this inventory allows management to reduce the number of setups.

To meet variation in product demand: If the demand for the product is known precisely, it may be possible (though not necessarily economical) to produce the product to exactly meet the demand. Usually, however, demand is not completely known, and a safety or buffer stock must be maintained to absorb variation.

To allow flexibility in production scheduling: A stock of inventory relieves the pressure on the production system to get the goods out. This causes longer lead times, which permit production planning for smoother flow and lower-cost operation through larger lot-size production. High setup costs, for example, favor producing a larger number of units once the setup has been made. To provide a safeguard for variation in raw material delivery time: When material is ordered from a vendor, delays can occur for a variety of reasons: a normal variation in shipping time, a shortage of material at the vendors plant causing backlogs, an unexpected strike at the vendors plant or at one of the shipping companies, a lost order, or a shipment of incorrect or defective material. To take advantage of economic purchase order size: There are costs to place an order: labor, Phone calls, typing, postage, and so on. Therefore, the larger each order is, the fewer the orders that need be written. Also, shipping costs favor larger ordersthe larger the shipment, the lower the per-unit cost.

Minimizing inventory investment: Inventories tie up cash that the company could use elsewhere in the business. Excess inventory can create a negative cash flow, something must be avoided. This is why the financial people work to keep inventories as low as possible.

Maximizing profit: Profit can be maximized by increasing revenue or decreasing cost. One of the best ways to do this is by proper management of inventory.

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KEY INVENTORY TERMS:

Lead time: time interval between ordering and receiving the order Holding (carrying) costs: cost to carry an item in inventory for a length of time, usually a year Ordering costs: costs of ordering and receiving inventory Shortage costs: costs when demand exceeds supply Bin Card: This is a document showing daily incoming and outgoing of stocks in and out of the

store or warehouse. It must show the consignee's name and address, batch number, expiry date, quantity, signature and the balance (on continuous basis). FIFO should be strictly applied so as to avoid loss due to expiration of drugs.

Universal Bar Code: Bar code printed on a label that has information about the item to which it is attached.

Inventory Software: Inventory management and control software could be installed on the office system for daily posting and accurate report as generated by the tested and tried program.

Delivery Note (DN): This records all drugs and materials leaving the store to the customers, REPs, office workers and donations to institutions. It must have Date, Particular (for drug name, expiry date, batch number and strength), packaging details (e.g. bottles, vial, PC, etc), Name and Address of the consignee, serial number, signature space for the store manager and the receiver. It could be duplicated in pink or be in triplicate.

Goods Return Form (GRF): It records all goods return and in good condition. Good Receive Note (GRN): It records all imported stocks as they enter the store i.e. stocks

imported from manufacturer and being received into the store or stocks received from the production department into the store and ready to be issued out.

Product Requisition Note (PRN): It records all requests for order placement forwarded to the purchasing manager or procurement department when stocks reach reorder level. It should specify which stock needs to be replenished and the quantity to be ordered (though the procurement manager may know the right quantity to procure within the financial constraint of the organization).

Inventory Turnover: It indicates the efficiency of the pharmaceuticals about inventory. It also called inventory utilization ratio.

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INVENTORY MANAGEMENT: Scientific method of finding out how much stock should be maintained in order to meet the production demands and be able to provide right type of material at right time, in right quantities and at competitive prices. It is customary in any production operation to consider return on investment in buying capital equipment, and many appropriation requests are turned down if the rate of return is too low. Commitments for inventories must be considered in the same way, and obviously, the purchase and holding of a one month supply of an item gives a better return on investment and inventory turnover than a two month supply. This is an oversimplification since there are many cost associated with inventory decisions, for example ordering cost, out of stock cost, clerical cost, computer costs, and quality control costs, others are too numerous to list here. Examination of the annual report of several top pharmaceutical companies that have the greater return on equity shows that inventories can represent anywhere form 35% to 80% of working capital, and some of these have worldwide inventories approaching 700 million dollar! A well managed inventory can exert considerable financial leverage, and inventory reduction can release much needed cash which the corporation can invest in more profitable ventures and reduce borrowing. PPIC (Procurement planning and inventory control) Division of a company plan and monitor for inventory. Processing purchase order: The procedure begins with need recognition. The respective department identifies its need, gets approval of the departmental head and with the approval an authorized person sends purchase requisition to purchase department to initiate purchase. In case of property, plant and equipment acquisition, before sending purchase requisition, a budget has to be prepared by the user department. If the departmental head or higher authorities, whichever is required, approve the proposed budget a purchase requisition is sent to purchase department. And in case of raw or packing materials, the planning department determines the quantity and timing of raw materials. This department informs the purchase department when to buy materials. When the purchase department got the requisition, it calls for quotation or tender. After receiving the quotation or tender, supplier has been selected. The supplier may be local or international. If the terms and conditions are in favor of both company and the selected supplier, an order for the purchase is than issued by the purchase department. In case of raw or packing material, the purchase order is issued by the factory. A purchase register is maintained by the purchase department in which they maintain all the required information relating to a consignment.

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Receiving Material, Goods and Services: Generally the goods and services are received by the user department who issue the purchase requisition or in some cases by the authorized department. Materials are received by Quality Assurance Department (QAD) in the factory. After receiving materials, goods and services an MRR is issued for material and other than material a GRR is issued by receiving department to purchase department. In the mean time the invoice or bill is received by the purchase department. Before using the product by user department that is at the time of delivery, it has been inspected by the inspection or QAD, by user department or by authorized department. QAD examined the materials on a sample testing basis and provide a certificate. Factory sends MRR (Material Receiving Report): After receiving material factory send MRR to accounts department for reconciliation. In this MRR amount of quantity, receiving date, amount to use quality testing are mention. Respective department entry this MRR in excel sheet for reconciliation. Supplier bill submit: In this mean time of sending MRR supplier submit their bill in to purchase department. They approve the figure and send this bill to accounts department. Then accounts department check the approve amount, rate from purchase order, amount from MRR. If any discrepancy identify at this stage then its reported to purchase department. Voucher Entry: After checking purchase order and MRR, respective person entry this information in to journal vouchers. Where supplier name, description of product, approve amount are mentioned. Every journal voucher stapling with photocopy of bill and original bill. Then these journal vouchers approve with proper authority and main bill send for payment. Import of Raw & Packing materials: Another source of raw and packing material is importing. For import any raw and packing material respective department must open a letter of credit at bank. It is ensure the liquidity of foreign supplier. Purchase department maintain a PC (Pharmaceutical Consignment) file against a Letter of Credit. It contains all necessary documents among the raw/packing material and shipment. Purchase department opens Letter of Credit as a starting phase of raw and packing material import. As a part of this process, Purchase department also makes insurance in any insurance company. The insurance company sends insurance bill to purchase department and after approval purchase department sends it to Accounts section. From the bill an excel sheet is prepared by taking the relevant figures.

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An important point to be remembered is that total amount payable to the insurance company is not included in the cost of raw material. To determine the cost of raw material imported, only 20% of VAT is included as per VAT Act and the company gets rebate of VAT equal to 80 % of VAT. After releasing the goods from custom, C&F agent delivers the goods to factory and sends a bill to accounts section. When goods are received by factory and MRR is received by account section. The amount debited to LC in transit is transferred to cost of inventory. The warehouse after receiving the material entry into the computer software used for inventory. The QC sampled the material for test. The production department raises requisition for a product to be manufactured to WH. The WH sends the material to production with intact container and after using this material return the unused material to WH. When production completes a products manufacturing send the finished products to WH. The WH sends the finished products to distribution centers.

PPIC Division

Figure B: Departments of inventory management

N.B-RM-Raw material, PM-Packaging material, WH-Warehouse, FP-Finished product

Import Dept.

Local supply Dept.

Technical service section General purchase section

RM import section RM local section

PM import section

PM local section

WH Dept.

RM section

PM section

FP section

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The first part of setting up an inventory control and management system involves determining ideal inventory level. Inventory must be maintained at a proper level and provided in a timely fashion, otherwise production efficiencies will erode, as in the case of service a manufacturing business, or sales will plummet, as in the case of a wholesaling or retailing business. To do this one must consider factors like;

How much capital is available to purchase inventory? How much and what kind of demand exits in the market and how will this effect sales

projections?

How much inventory sold in the past? What and how much inventory carrying costs and how do they increase as inventory levels

increase?

Can quantity discounts actually in the long run? How much storage space is available for inventory? How much inventory do suppliers actually have available to sell?

Buying more inventories that cant an owner affords cause future cash flow problems. Large inventories consume cash, increase the investment in the business and can bankrupt a business if not properly controlled. The second part of setting up an inventory control and management system involves developing an inventory purchasing plan. A purchasing plan should provide detailed answers to the following types of question:

What kinds of inventory items should we purchase and keep in stock? Who will supply? How should shipments of goods or raw materials be received and order quantities verified. When should reorder be placed?

A purchasing plan should detail what kinds of inventory should be purchased and kept in stock. It is possible for mail order sellers, offering unique items not regularly found in retain stores, to buy inventory only after adverting has created sufficient demand. The third part of setting up an inventory control and management system involves developing an inventory record keeping system. An inventory record keeping system is primarily used to determine companys cost of goods sold as well and provide information for financial statements. To meet these basic objectives a record keeping system explain:

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Approximately or exactly how much of an item you have in stock at a particular moment in time.

Exactly how much inventory has in stock and has sold at end of the month, quarter or year. How much stock is on order?

A computer based system is usually centers around a sophisticated point of sale terminal that relays information on each item used or sold to a computer. This system is usually expensive, difficult to set up but once functioning is highly superior to all other systems. It allows avoiding overstocking items that do not sell in large quantities, handling accounting and billing procedures with a single entry, using on line point of sale terminals to relay information directly to the computers of supplies who them use the information to ship additional items automatically.

In managing stock or inventory in a pharmaceutical company, the following must be put into consideration: 1) The stocks expiry date must be checked and documented. It must be written on the bin card. MANAGEMENT ACTION: Ensure that there is proper surveillance on the expiry date of each drug to avoid loss due to expiration.

2) The Batch number must be noted and document as their may be many batches of the same class of drug. MANAGEMENT ACTION: FEFO (First Expiry, First Out) should be used here. The first expiring batch should go out first.

3) The temperature must be well noted and likewise the storage conditions. Some of such instructions are: store between 2oC and 5oC, store between 15oC and 25oC, protect from sunlight, keep in deep freezer, etc. Adhere to these instructions. MANAGEMENT ACTION: The temperature should be properly monitored to avoid damaged due to over/under temperature. 4) Stocks should not be jam-packed in the stock. There should be enough space and the store should be well organized to allow for easily location and free movement.

5) Computer data should exist for all stocks in the store which will be updated daily or almost immediately as the stocks are going out or coming in to enable the manager to know quantity left for each stock at a glance on the system in case of urgent demand.

6) Cleanliness is part of proper management of the warehouse. 7) Proper documentation and record updating is also necessary here from source document to Bin Card.

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ABC Analysis: One of the most important and simplest tools used for inventory management is the ABC classification of inventories. This classification is based on a principle first outlined in the late 1800s by V. Pareto, an Italian engineer and mathematician. In its simplest terms, it states that in a large population in which many items involved, relatively few items account for the major part of activity. In this system inventory is classified according to annual value of consumption of the items. When a large number of items are involved, relatively few items account for a major part of activity, based on annual value of consumption of items.

A-items: 15% of the items are of the highest value and their inventory accounts for 70% of the total.

B-items: 20% of the items are of the intermediate value and their inventory accounts for 20% of the total.

C-items: 65 %( remaining) of the items are lowest value and their inventory accounts for the relatively small balance, i.e., 10%.

In this classification system all items used in industry are identified. All items are listed as per their value. The number of items are counted and categorized as high-, medium- and low-value. The percentage of high-, medium- and low- valued items are determined.

Annual $ Value of items

AA

BB CC

High

Low

Few Many Number of Items

A - Very important B - mod. Important C - Least important

Figure C: ABC Analysis

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Figure D: Pareto Curve Economic Order Quantity: How much of inventory is ordered at a time. Its a mathematical device for arriving at the purchase quantity of an item that will minimize the cost. It helps to calculate the minimum annual cost for ordering and stocking each item in inventory and identify the most economical way to replenish inventory by showing the best order quantity. EOQ can be determined by the following way Tabular determination of EOQ: No. of order need to be placed. Sl.No. No. of order per year Annual ordering

cost Annual inventory

carrying cost Total annual cost*

* Total annual cost=ordering cost+ carrying cost

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Graphical presentation of EOQ:

Figure E: Graphical presentation of EOQ

Algebraic formula in determination of EOQ Optimal order quantity is found when annual setup cost equals annual holding cost. Annual setup cost= (Q/2)H Annual holding cost= (D/Q)S So, (Q/2)H = (D/Q) S Q2 = 2DS/H Q* = 2DS/H Q= Number of pieces per order Q*= Optimal number of pieces per order (EOQ) D= Annual demand in units for the inventory item S= Setup or ordering cost for each order H= Holding or carrying cost per unit per year

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TC Q H DQS= +

2

The Total-Cost Curve is U-Shaped

Figure F: Cost involved in EOQ

As demand for the inventoried item occurs, the inventory level drops. When the inventory level drops to a critical point, the order point, the ordering process is

triggered. The amount ordered each time an order is placed is fixed or constant. When the ordered quantity is received, the inventory level increases. A perpetual inventory accounting system is usually associated with this type of system.

In this system, Only one product is involved. Annual demand requirements known. Demand is even throughout the year. Lead time does not vary. Each order is received in a single delivery. There are no quantity discounts. Annual demand (D), carrying cost (C) and ordering cost (S) can be estimated. demand occurs at a uniform rate no inventory when an order arrives stock-out, customer responsiveness, and other costs are inconsequential

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CONCLUSION:

ement has become highly developed to meet the rising challenges in most nventory managIcorporate organizations and this is in response to the fact that inventory is an asset of distinct feature. Inventory management as one of the key activities of business logistics has always been a major preoccupation for the companys survival and growth. It has been used to develop models to meet items assembling and requirement under conditions of uncertain demand. REFERENCE:

f inventory management. J. David Viale

eon. Lachman, H.A Liberman, J.L Kanig.

ladesh. M. E. Hoque and N.

d Control in a Pharmaceutical Company. OLUWANISOLA SEUN

Basics o The theory and practice of industrial pharmacy. L Working capital management practiced in Pharmaceutical companies listed in Dhaka stock

Exchange. Anup Chowdhury, BRAC Business School. Dhaka-1212, Bangladesh and Md. Muntasir Amin, Department of Finance. University of Dhaka

Inventory Management of Pharmaceutical Industries in BangPaul. Department of Mechanical Engineering, Rajshahi University of Engineering &

Technology, Bangladesh

Inventory Management anEMMANUEL.http://ezinearticles.com/?expert=Oluwanisola_Seun

Wikipedia, the free encyclopedia

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