System to Maximize Inventory Performance in a Small Hospital

A computerized system to maximize inventory performance in a small hospital is described. An inventory control system, which integrates economic order quantity (EOQ) and ABC inventory models was implemented in a 146-bed hospital. The perpetual inventory control data base, supported by the hospital's mainframe computer, generates monthly inventory statistics that are segregated into A, B, and C reports. Using a hand-held computer that interfaces with the perpetual inventory system, a series of inventory management reports were developed. These reports, which are based on the EOQ model, provide the following information for each drug line item: EOQ, EOQ proposed carrying cost, actual inventory carrying costs, safety stock, order point, average inventory, and the "on hand/on order" point. Several supplemental inventory management reports were also developed. While implementing the computerized inventory system, the pharmacy also changed its purchasing strategy from predominantly direct accounts to a progressive prime-vendor wholesaler. From December 1980 to December 1981, the ABC/EOQ system with progressive prime-vendor involvement essentially doubled total aggregate inventory turnover. A 46.5% reduction in standing inventory levels occurred. The drug cost per line item dispersed remained relatively constant over the one-year period, despite price increases. The application of the computerized ABC/EOQ inventory model to an online perpetual inventory control data base effectively reduced the inventory operation costs.