The Hidden Costs Tied to Your Pharmacy Inventory

Posted on Dec 20, 2023

When you’re evaluating ways to increase your pharmacy’s profitability, your inventory management strategy should be at the top of your list. Afterall, your medication and OTC inventory is the biggest ongoing expense for your store. That’s why it’s essential to have a plan to properly manage your inventory. Often, stores order more than they need because they don’t want to risk being out of stock. However, having too much inventory sitting on your shelves can cost you more than just the price of the medication. In fact, here are some of the hidden costs tied to your inventory:

Total Ordering Cost

An item’s cost is not measured simply by the price you pay for it. You also need to factor in what an item or order has cost you in terms of time. This includes the amount of time it takes to place, receive, verify, and put away an order. Plus, you’ll need to consider the taxes and shipping costs as well.

Holding Costs

This is what an order costs you in lost opportunity when your cash is tied up on your shelves. Ultimately, the more medications and OTC items you have on hand, the less cash you’ll have to invest in other areas of your business.

Waste Costs

One of the biggest risks of overordering is waste. Having a surplus on hand can result in products expiring on the shelf or becoming obsolete. This is especially true for seasonal items and brand name medications, once generic substitutions become available.

Shortage Costs

This refers to what out of stock items can cost your business. Beyond the initial lost sale, frequent stock issues can result in lost customers. Plus, increased shipping costs for expedited orders as well.

To achieve the perfect balance, many pharmacies have begun shifting to Just-in-Time (JIT) inventory management, versus the more traditional Just-in-Case (JIC) method. Rather than keeping safety stock available, Just-in-Time inventory management focuses on keeping just the minimum amount on hand and only reordering when items are about to run out. This helps pharmacies operate more efficiently and give their bottom line a boost by eliminating overstocking, reducing waste, lowering supply costs, and increasing their adaptability when demand shifts or products need to be phased out.

In order to implement Just-in-Time inventory management, it’s critical to have visibility into your inventory and sales data. That way you can monitor sales trends and easily identify your fast and slow-moving prescription and OTC items. We recommend starting by lowering or eliminating the quantity on hand for your most expensive products. Enrolling patients in MedSync and Auto Refill programs can be an effective way to ensure you will still have items when needed, instead of having them tie up your funds while they sit on the shelf between fills. You can also use sales and inventory reporting to determine your minimum and maximum quality on hand amounts for each item. When setting your min/max levels, it’s also important to consider how quickly items can reach your store, which may vary by wholesaler.

Adjusting your inventory management approach can have a significant impact on your store’s efficiency and overall profitability. That’s why BestRx offers multiple tools to help you manage your inventory effectively. Contact us today to learn more about our integrations with wholesalers, robust sales and inventory reports, and MedSync program.