Inventory Management For Your Pharmacy

One of the most important reports in the RMS system is the Sales & Profit Analysis Report. This is a valuable report for any pharmacy as it helps you make informed decisions about your inventory.

No matter the size of your front end, there’s a lot to be learned from your pharmacy sales data.

However amazing reports are though, (we love our reports at RMS!) they can only take you so far. For pharmacies that want to really optimize their profits through front end sales, more granular inventory management is key.

But what does inventory management even mean? What differentiates the necessary basics of selling OTC and retail items from a streamlined and efficient inventory management process? Moreover, how can that help to improve your profitability and cash flow?

When diving into pharmacy inventory management, there are a few key concepts to familiarize yourself with. These concepts will help you navigate your own inventory management program, generate accurate reports and make the right decisions to optimize your pharmacy’s front end. Let’s dive in!

Inventory Turns

The inventory turns calculation (cost of goods sold divided by average inventory cost) measures the number of times you sell through your inventory during a given amount of time. Usually, we measure inventory turns by the year.

Gross Profit Return on Investment (GPROI)

The GPROI calculation (Gross profit divided by average inventory cost) measures the amount returned on every dollar invested in pharmacy inventory

Average Inventory Cost

Inventory value of every single item in your pharmacy over a given period of time. (Note that a true average inventory cost for the year is best achieved when your pharmacy inventory management solution is tracking that number daily.)

Types of Inventory Control

Inventory management isn’t one size fits all. And one pharmacy might use different methods for different products or departments. There are a couple of different approaches depending on your needs, inventory size and workflow preferences.

  • Calculating current value – You can calculate average cost to calculate the current value of your inventory or you can use first in first out (FIFO). FIFO assumes that the oldest products in your inventory are sold first and the costs paid for those oldest products are the ones used in the calculation.
  • On hand quantities and negatives – You may choose to allow a negative on hand quantity in your system. This requires a bit of extra leg work, but if done properly shouldn’t impact your average cost too severely over the course of the year. If you want the most accuracy and you closely monitor your inventory, not allowing on hand quantities in your system is the way to go. This doesn’t mean you can’t sell products by any means, but you’ll need to reconcile any negative on-hand quantities.

RMS Inventory Control

Pharmacy profitability is one of our passions here at RMS. We think that every pharmacy, RMS customer or not, can grow their pharmacy business with the right practices, processes, motivation, and education. But we also think that the right tools can help too. So if you’d like to learn more about how inventory management works in our system, just click this link to watch a product deep dive with RMS Founder & CEO Brad Jones. Even for pharmacies without an RMS system, there are some important concepts to learn and use as building blocks in your pharmacy. (On a personal note, I never get tired of listening to Brad talk about inventory management. I learn something new every time!)

P.S.  There’s so much more great content from Brad along with great industry experts, next level speakers and insightful panel discussions. You can find them here!