McKesson : How to Optimize Inventory Cycle Counts Using Technology

Knowing how many of your most popular drugs are on hand at a given time is crucial to patient care at your chain pharmacy. You gather this data through cycle counting, and you can optimize cycle counting through technology.

Let me explain how your chain pharmacy should be doing cycle counts and how technology can make that a more effective process. Then I'll suggest some best practices that create several business benefits for your pharmacy and, more importantly, clinical benefits for your patients.

The drawbacks of annual cycle counts

Although it's an important part of every business, doing inventory management is no one's favorite job. That's especially true if you do it manually. And it's why many businesses do it once a year: It's time-consuming and costly. But doing it annually creates other problems. One, you'll only have an accurate inventory count once a year. And two, you'll likely have big variances between what you have on hand and what you think you have on hand throughout most of the year.

That's not good for any business or its customers. But it's a much more serious problem for your chain pharmacy given what you do: dispense health-improving and life-saving drugs to your patients.

That's why your pharmacy should be doing daily cycle counts. It's also why you should be using technology to make those cycle counts more effective.

Use tech to fuel your cycle counts

When your pharmacy does cycle counts, what you're doing is counting a small portion of your total drug inventory every day and comparing that count with what your pharmacy management system (PMS) says you should have in stock.

Here's why cycle counts are effective:

• They take less time than an annual count of your entire drug inventory
• They're cheaper, because you're using excess staff hours to do them rather than using an outside vendor
• They ensure on-hand accuracy of your drug inventory on a daily basis
• They reduce the size and frequency of variances between what you think you have and what you actually have on the shelves

Now, you can do your cycle counts manually at your chain pharmacy. That means you're manually counting a subset of your drug inventory on a daily basis and checking that count against what's in your PMS.

There is a better way to do it, and that's using technology. You can integrate cycle count technology into your PMS that lets you:

• Identify the right drugs that you need to cycle count based on how often you dispense them
• Create a cycle count schedule to make sure you're counting all your drugs on a regular basis
• Verify that your staff completed its scheduled cycle counts on a daily basis
• Eliminate variances by automatically ordering drugs that are in short supply

A more informed cycle count strategy

The other thing technology lets you do is create a cycle count strategy that's right for you.

For example, you may do a lot of generic substitutions for brand name drugs. That creates the potential to have too many brand-name drugs on hand and not enough of their generic equivalents.

You may have an issue with diversion, meaning some drugs go missing from your shelves. From a staff accountability standpoint, that creates the need to know immediately when they go missing.

With technology, you can collect and track all the data that will help your pharmacy execute your cycle count strategy more effectively based on your specific needs.

Adopt these cycle count best practices

As with any business process, there are a few cycle count best practices I've learned from our chain pharmacy clients. Some examples include the following:

1. Assess current inventory and set target accuracy levels. The first steps to improved inventory control are through assigning stocking locations and defining procedures for ordering, receiving, put away and picking. Once established, you can determine the accuracy level of your current inventory and then set realistic target levels. Inventory accuracy goals can be done at the organizational level and/or at the item level.

2. Perform the cycle count. Determine how many items you count each day and at what frequency. You should perform cycle counts a minimum of two to three times per week, though the frequency largely depends on your goals. Several pharmacies limit counts to 20 items per cycle count. This helps manage workloads and may vary depending on the volume of your pharmacy and size of your staff. Additionally, it's recommended to complete your cycle counts before your pharmacy opens. That way, you won't interrupt filling prescriptions or providing other services to your patients.

3. Track variance causes. Compile cycle count results so that you can compare physical counts with general ledger balances. This helps identify acceptable and unacceptable count variance thresholds and to perform root cause analysis on the operational drivers causing the variances.

4. Continue improving accuracy levels. As cycle counts progress over time, you can use data to measure improvements in the accuracy of the items counted.

5. Compare current and target accuracy levels. By setting inventory accuracy goals and monitoring progress, the probability of inventory variance decreases along with the number of items that need to be counted each day.

6. Leverage scanning capability. Use bar codes and scanners as an enabler to improve the efficiency of performing your cycle counts. Plus, you'll be able to update your counts in your PMS automatically.

Business benefits for your pharmacy

When your pharmacy uses cycle count technology to improve inventory management and follows the best practices that I mentioned above, you and your patients benefit in many ways.

You'll see lower inventory and operating costs because:

• Your staff, versus an outside vendor, does your cycle counts
• You avoid overstocking drugs that are dispensed less frequently
• You quantify and manage drug inventory shrinkage, which are drugs that are lost or missing
• You eliminate phantom inventory, which are drugs that you think are in stock but are not
• You make informed purchasing decisions based on accurate on-hand counts
• You minimize the number of times your staff has to handle the same prescription because a drug was out of stock or in short supply, necessitating a partial fill

Clinical benefits for your patients

The most obvious benefit to your patients is clinical. They get the right drug at the right time when they need it. They don't have to wait, come back another time or try an alternative drug. They also benefit from you spending more time with them directly. This is because you're spending less time chasing down a drug that you thought you had in stock.

That positive patient experience translates into better business, because it will promote customer loyalty to your pharmacy. Patient satisfaction is everything. The flipside is a dissatisfied patient who will take their business elsewhere. There is a lifetime value of a patient, and that starts with doing accurate and timely cycle counts.

If you don't know what you have in your pharmacy, it's hard to know what you should order. On-hand accuracy means everything to your business and to the patients who depend on you.

Related: Learn more about McKesson's cycle count technology for chain pharmacies