Inventory

Question 1

important considerations for product stocking decisions

Answer 1

• What does your target market need or want?
• What are your competitors carrying?
• From which source are you likely to get the best service?
• How often do you plan to restock?

Question 2

What are the purchasing objectives?

Answer 2

• Obtain the right products
• Obtain products in the right quantity
• Obtain products at the right time
• Obtain products at the right price
• Obtain products from the right vendor

Question 3

What are things to consider when considering the right product mix?

Answer 3

• What breadth and depth of products do patrons expect to find when they visit your business?
• What items meet expectations with respect to quality and price?
• What image do you wish for your business to portray?
• What kind of capital do you have to invest in inventory?

Question 4

When considering the right product mix, what research strategies / tools should be included?

Answer 4

• Personal observations
• Scanning media and press
• Knowledge of prescribing habits of local physicians
• Product movement reports, statements from insurance claims, drug utilization reviews
• Your expectations or those of your organization

Question 5

When considering the right product mix, what factors should influence whether or not to stock the product?

Answer 5

• Procurement costs
• Storage, maintenance, deliver
• Third-party payments

Question 6

When considering the right product quantity, how do you decide how much of each item is the optimal amount to balance supply with demand?

Answer 6

• Seek to avoid “out of stock” incidents
• Reduction of out of stock risk must be balanced with having an acceptable amount of funds tied up in inventory – balance between “too much” and “too little”
• profitability is dictated by inventory; keeping inventory consistent is what drive profitability

Question 7

define stock depth

Answer 7

• the quantity at which you may be reasonably certain that the item will be available when needed
• Determining appropriate depth for each item requires consideration of timing of review and delivery, as well as average daily demand

Question 8

What are things to consider when determining the right time to order?

Answer 8

• stock depth
• capital costs
• storage costs
• cost of risk

Question 9

What must the timing of purchase coincide with?

Answer 9

coincide with the sale of item

Question 10

What is JIT purchasing?

Answer 10

• “Just in time” purchasing

- purchasing a unit as the last unit of an item is sold; the next unit arrives before it is needed

Question 11

What are product costs considerations?

Answer 11

• price at which the product is purchased from the supplying vendor
• COGS (cost of goods sold)
• carrying costs
• procurement costs

Question 12

How can procurement costs be minimized?

Answer 12

• more efficient purchasing
• minimized by purchasing tools provided by vendors and discounts available from vendors such as:
  • Quantity discounts
  • Cash discounts
  • Product bundling
  • Minimum purchasing

Question 13

What are the types of purchasing incentives?

Answer 13

• Quantity Discount
• Cash Discount
• Product Bundling
• Minimum Purchasing
• Generic Utilization

Question 14

Quantity Discount

Answer 14

Reduction in price gained by buying in quantity, either on a single order or across a set period of time; bulk discount

Question 15

Cash Discount

Answer 15

Reduction in price for prompt payment

Question 16

Product Bundling

Answer 16

Reduction in price of one item gained by simultaneous purchase of another product, often related

Question 17

Minimum Purchasing

Answer 17

Reduction in price of a featured generic or brand medication along with a minimum generic order

Question 18

Generic Utilization

Answer 18

Rebates based on generic purchasing

Question 19

What are factors to consider when choosing a vendor?

Answer 19

• Delivery schedule
• Frequency of out-of-stock situations
• Breadth of merchandise lines and assortments
• Assistance with product placement and floor layout
• Available technology and other services
• Returned goods policies
• Financing and credit terms and options

Question 20

What are the types of inventory control method?

Answer 20

• Visual Inventory Control Method
• Periodic Inventory Control Method
• Perpetual Inventory Control Method

Question 21

Visual Inventory Control Method

Answer 21

• Visually observing the number of units in inventory and comparing them with a prescribed list of how many units should be carried (stock depth)
• When stock falls below desired number, order more
• Method is informal, convenient, and inexpensive, but less effective (potential for error is great)

Question 22

Periodic Inventory Control Method

Answer 22

• Stock counts at intervals defined by policy, and compares the number on hand to predefined minimums (determined by stock depth)
• May require more personnel time than visual method
• Measures only a single point in time, rather than continuous evaluation

Question 23

Perpetual Inventory Control Method

Answer 23

• Monitor inventory constantly using technology
• Can generate a report at any given moment to reveal precisely the amount of inventory that should be on hand for any product in the system
• Provides the most accurate and comprehensive picture of both units and actual financial investment in inventory

Question 24

Calculate inventory turnover rate

Answer 24

• ITOR = COGS/Average Inventory
• ITOR = inventory turnover rate = rate at which supply of an item is exhausted and replaced
• Ideally shoot for a range of 12-15