Reduce Shrinks and inventory waste to improve CVS Pharmacy inventory control performance
By: Vanessa Fotso
Tags: Decision Making

Introduction

Pharmacies have evolved to more complex practices. Success in the practice mainly depends on a good management of resources (information, time, material, manpower and money) (Wiedenmayer K et al., 2006). The exponential growth and cost of multiple pharmaceutical products make inventory the key asset of pharmacies. Inventory in pharmacy operations is defined as the target stock of pharmaceutical products needed to meet current and future demand. The basics of pharmacy inventory are well portrayed in the following table:

CVS Pharmacy has a unique perpetual inventory management system (AIMRx) that establishes a target inventory level (TIL) for drugs, tracks transactions and automatically maintain those set quantities for each drug. Pharmaceutical supplies are ordered from its warehouse or outside vendor (Cardinal), which both have a return process that can be used in case of excess accumulation of drugs on the shelves. The purpose of this paper is to propose CVS Pharmacies with bad inventory control effective procedures to reduce shrinks and lost due to expiration or deterioration, and therefore reduce unnecessary supply order, increase inventory turnover, and improve pharmacy efficiency and on time patients care.

Why is Inventory Management Important?

Efficient inventory maintenance provides great advantages for the business and operational aspect of a pharmacy. On the financial level, well managed inventory increases profits by reducing the cost of acquired drugs and associated operational expenses (Ali, 2011). According to the National Community Pharmacists Association (NCPA), pharmaceutical products stock stayed on pharmacies’ s shelf for an average of 33 days in 2012. Excess inventory on hand for long periods of time translates to less profitability and risk of losing products to expiration. On the operational level, efficient management of inventory helps meeting patient demands and providing them with the best quality care ( Carroll NV, 1998). Unavailability of a drug, especially a lifesaving one, when needed by patients may lead to the pharmacy losing their customers.

Moreover, bad inventory management could be harmful to patients. This could be a result from dispensing expired, damaged and recall products to patients. Thus, pharmacy staffs must conduct ongoing drug inventory maintenance, which include cycle count of products and recall checks (tasks generated by AIMRx at CVS) , on a daily basis and removal of expired product on a monthly basis.

Factor Affecting Pharmacy Inventory

Drug inventory is affected by a great number of factors which include patent expirations, drug recalls, unclaimed prescription, and inventory shrinkage. Expiration date of a drug is defined by the United States Pharmacopeia (USP) as the time during which the article may be expected to meet the requirements of the pharmacopeial monograph provided it is kept under the prescribed conditions. CVS Pharmacy has a specific policy regarding stocks rotation to minimize lost. Upon delivery of new stocks, new products must be shelved behind old ones so that the ones with shorter expiration dates are used first. Additionally, product with shorter expiration date should be marked with colorful stickers to increase visibility. Labeling products alert staffs to properly conduct returns to wholesalers on time, meeting all the requirement to receive credits. Constantly returning products before they expire maximize the practice profits.

Another situation in which drugs are returned is when they have been “recalled”. A drug recall is a process of removing a drug from the market after discovery of safety problems that may endanger consumers’ safety. Processing recalls in a timely manner helps protecting patients ‘health and increase patients trust in their pharmacy, thus promoting customer loyalty.

Unclaimed prescriptions negatively impact profit if they stayed too long in the bins. Studies show that unclaimed prescription in a pharmacy range between 0.28% and 30.0% (Esposito et al, 2008). At CVS, the threshold time period for returning prescription to shelf is 14 days. CVS policies ensure initiative are taken to remind patients about the filled prescriptions. This enhances customers care and also promotes sales.

Last, inventory shrinkage has a great effect on pharmacy sales. Shrinkage in pharmacy is the loss of pharmaceutical products due to theft, robbery, mal-organization of the pharmacy, bad handling inbound transfers and vendors fraud. A store to store transfer results in inventory shrinkage when the receiving store do not receive the transferred product(s), and no action is taken to check the status of the transfer. Moreover, misplacing products and failure to properly check orders to ensure all items were received leads to shrinks. It is important for pharmacy staffs to be alert of their environment, properly check orders upon delivery, and ensure items are well organized in their respective location in order to reduce shrinks.

Problem Description

Managing and maintaining inventor control system is a common task for pharmacy technicians at CVS Pharmacy. The chain has a powerful perpetual inventory system that tracks all products transaction in real time, providing staffs with continuous visibility of the balance on hand (BOH) of products. The system helps technicians and pharmacists determine the excess inventory (by comparing the BOH to the TIL), low stocks, and how much is invested in each medication. However, the software cannot well perform or provide accurate information if the required daily, weekly or monthly manual tasks are not properly conducted on a regular basis and in a timely manner.

After analyzing the inventory system of critical CVS pharmacies and observing the staff’s workflow and behavioral patterns related to inventory, two main issues were identified in regard to what causes huge discrepancies in the inventory control system and large product waste:

1. Inorganization of products on the shelves and storage conditions.

2. Mishandling of orders, transfers, returns and expired or damaged products.

Discussion

1. Inorganization of products and storage conditions

CVS follows a specific guideline for arranging drugs on shelves. Drugs should be arranged in alphabetical order, with each dosage properly separated and organized by expiration dates and opened bottles. Plus, drugs should be stored in a specially designed area (room temperature, refrigerator, freezer) to avoid spoilage and guarantee quality and potency of drugs during shelf life.

In the targeted pharmacies, we noticed upon delivery, products are not put up on shelves in a timely manner, and drugs are sometimes misplaced due to look-alike product packages or simply inattention due to the work flow. Misplaced products affect the daily cycle count of products, leading to incorrect counts to be reported on the system, thus creating a discrepancy. Moreover, temperatures are not constantly monitored causing some products to deteriorate.

2. Mishandling of orders, transfers, returns and expired or damaged products

Drastic workflow at critical pharmacies lead pharmacists and technicians to solely focus on immediate patient demands, neglecting daily inventory activities. Observations led to notice that orders are not properly checked upon arrival, leading to inability to capture missing products when it occurs. Additionally, returns and expired/damaged products are not processed on time or invoices are not tracked for reimbursement. This mishandling is very costly to the pharmacy and endanger patient safety. Furthermore, pharmacy staffs do not usually track transfer of drugs from other CVS pharmacies. When a transfer is initiated and the receiving pharmacy does not verify the reception of the transferred products or act to resolve the non-reception, it results in inventory shrinkage.

Proposed solution and conclusion

The main source of bad inventory management in those targeted pharmacy is the overwhelming daily workload. When interviewing the concerned pharmacies staffs, they reported they have inadequate personnel hours compare to the demand, which make them be constantly understaffed and unable to perform inventory activities. We propose the scheduling of an extra technician (for adequate hours) who will solely focus on the daily maintenance of inventory, assuring tasks are timely and properly done following the involved companies’ policies and guidelines. The actions that should be taken improve inventory management and maintenance are described in the Analytical Requirement Documents attached in appendix A. Scheduling an extra staff may be seen to be costly to the pharmacy as they might go over the budget. On the other hand, good inventory maintenance will ensure that the right drugs are acquired in correct quantities, returns are processed on time to be eligible for reimbursement or bonuses, orders are properly checked (for missing item, sealed packages and expiration dates) and damaged products are timely processed.

The overall improvement of inventory management in the long run will lead to better adherence of drug availability and demand, the ability to use data to make smarter buying decisions, and greater staff engagement to reduce shrinkage (Vercammen, 2017). Finally, better inventory management will minimize the total variable cost of operation, increase the working capital available to pharmacies, increase customer satisfaction while ensuring their safety, and allow pharmacists to focus on direct patient care.

Appendix A:

CVS inventory management

Decision Requirements Diagram

Develop strategic plans to maintain and improve the inventory management system accuracy of targeted CVS Pharmacies.

Decision Requirements Diagram

Optimize Inventory maintenance in targeted CVS Pharmacy

Operational Decision

Assure the proper conduction of routine manual inventory tasks (generated by the inventory system or initiated by staffs) to improve accuracy, reduce shrinks and sustain the inventory management system performance

Question:

Answer Type

Answers

Default Answer:

Supporting Information:

Requirements Network

Shelf organization

Know how– Best Practice

organize shelves in alphabetical order, properly separate drugs strength, organize bottles by expiration dates, label products expiring the following year and label shelves with products name and NDC. Also watch out for look-alike packages. This will prevent storing items in wrong location

References:

Ali AK. Inventory management in pharmacy practice: a review of literature. Archives of Pharmacy Practice. October-December 2011; 2(4):151–156.

Carroll NV. Accounting for Inventory and Cost of Goods Sold. In: Carroll NV, editor. Financial Management for Pharmacists, 2nd ed. Baltimore: Williams & Wilkins; 1998. 41 p.

Esposito D., et al. Prevalence of Unclaimed Prescriptions at Military Pharmacies. J Manag Care Pharm. 2008;14(6):541–52

National Community Pharmacists Association (NCPA). Managing the pharmacy inventory. Retrieved from

http://bccpharmacytech.weebly.com/uploads/7/5/0/4/7504847/ownership-managinginventory.pdf.

Okeke CC, Bailey L, Medwick T, Grady LT. Revised USP standards for product dating, packaging, and temperature monitoring. Am J Health-Syst Pharm. 2000;57:1441–1445

Vercammen, Victor. Optimizing Perpetual Inventory Systems for Retail Chain Pharmacies. November 13, 2017. Retrieved from:

www.mckesson.com/blog/optimizing-perpetual-inventory-system-for-retail-chain-pharmacies/

Wiedenmayer K, Summers RS, Mackie CA, Gous AGS, Everard M, Tromp D. Developing Pharmacy Practice: A Focus on Patient Care. Working Draft for Field Testing and Revision. Geneva: World Health Organization & International Pharmaceutical Federation; 2006. 15 p.