Strategies for Inventory Management

February 2011 : Biologics - Vol.8 No. 2 - Page #12
Categories: GPOs, Inventory Management Software

With product shortages, recalls, and fluctuations in demand, managing pharmaceutical inventory is tough in today’s dynamic supply chain environment. Developing inventory management strategies for biologics adds a new layer of complexity to this challenge. However, by following some simple steps, you can support improved inventory turnover while continuing to maintain quality of care.

Forecasting Utilization
The first step is to review your current and past utilization of biologics (for the past six months to one year) with your physicians and clinical pharmacy staff. In addition to discussing the volume used in your facility, it is key to ascertain whether physicians are satisfied with the current choice of biologics or if they foresee a switch to a superior product(s) in the near future. Also important is determining if their services are going to expand or contract based on future patient demand, if new service lines that require biologics will be developed, and identifying fluctuations in physician prescribing patterns (ie, change in dose, frequency, or product preferences). In the past, because the amount of product has been limited in the marketplace, we have seen the transfer of patients from one facility to another based merely on having the patient’s product in stock. As shortages are expected to diminish in the coming year, determine how this will affect your facility’s volume levels and account for this in your forecast planning.

Biologics Supply and Diversification
When items such as biologics are in tight supply, there is a natural tendency to hoard, which increases the possibility that other facilities may run short of product and therefore magnifies the shortage. In many cases, manufacturers have been able to produce enough of a product to treat patients, but the inefficiencies in the supply chain and the purchasing tactics followed at some facilities do not allow for the product to be allocated appropriately. Facilities should act responsibly in purchasing practices; a large part of the purchasing function is to forecast utilization accurately.

While there are certainly economic benefits to driving your purchasing volume through a primary supplier, with biologics it is important to diversify and establish relationships with alternative entry points into the supply chain. I would never recommend grey market purchasing, but establishing relationships directly with the manufacturer or with a certified distributor will help manage demand fluctuations when the GPO allocation of product does not meet facility requirements. The goal is for the GPO price to be honored and for there to be no question on the pedigree of the product. Ask the supplier if it will meet the GPO price, and then verify that this has been done on each order. Investing the time necessary to establish these accounts will help provide additional points to procure product, which can serve as a critical stop gap in time of need.

Par Levels and Loan Protocol
Correctly establishing par levels requires a focus on utilization, but also consider the lead time required for ordering and receiving product to ensure adequate supply. After par levels have been established, focus next on developing the health system supply chain. While your facility may have a set allocation of product, fluctuations in demand will create pressure within the supply chain. Within your health system, communicate with other pharmacy locations that may be stocking similar products and determine what products and in what quantities they stock on average. Develop a clear policy that outlines the steps to borrow or loan product in times of fluctuation. 

GPO Communications
Your GPO is most likely requesting your preference of biologics and your utilization levels on an annual basis. It is critical to provide this information in a timely and accurate manner. For the most part, GPOs have been able to meet the allocation demands of their facilities or have been able to provide upwards of 80% of their requested allocations. The most important goal is to stay in constant communication with your clinical team. A facility’s ability to diagnose patients carries little value if it is unable to treat the diagnoses. Information should be communicated back to the clinical team, not only to obtain their buy-in and support in efficiently managing the supply chain process, but also to have real-time feedback regarding product needs and potential prescribing or dosing changes.  

If these processes are followed, an improvement in your supply chain process should be noticeable shortly thereafter. In an efficiently run facility, patients will receive excellent care in a timely manner, without the institution sacrificing financial performance.

Michael McCarrell, MBA, is regional vice president of Pharmacy Systems, Inc, a hospital pharmacy management and clinical consulting company in Dublin, Ohio. He has over ten years’ experience working in supply chain and operations management.


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