Inventory Management

Question 4 Illustrate Guardian pharmacys reorder system to manage their inventory so meet customer expectation. 25 marks.

To use order point system and periodic review system. Illustrate its characteristics/advantage in the context of managing inventory in a pharmacy.

For example:

1. Order point system - When the quantity of an item on hand in inventory falls to a predetermined level, an order is placed.

The quantity ordered is based on economic order quantity (EOQ).

Order quantity are usually fixed.

The order point is determined by the average demand during the lead time.

If the average demand or the lead time changes, there is no corresponding change in the order point, effectively there is a change in the safety stock.

The interval between replenishment are not constant but vary depending on the actual demand during the order cycle.

Usually used for stocks that are longer to sell from the store so to replenish those stock would subject to the stock level on hand and will only initiate to replenish once it falls to its buffer level. To provide examples

2. Periodic review system

The quantity on hand of an item is determined at specified, fixed-time intervals and an order is placed.

The periodic review is fixed and the order quantity is allowed to vary.

The quantity on hand plus the quantity ordered must be sufficient to last until the next shipment is received.

The quantity on hand plus the quantity ordered must equal the sum of demand during the lead time plus the demand during the review period plus the safety stock.

Usually apply to replenish fast moving goods and generally store would plan for a fixed delivery date weekly, biweekly to meet refill the shortfall of those consumed/sold stock. To provide examples.