Welcome to the NCPA Inventory Calculator.

This workbook is designed to analyze how various inventory decisions will affect your independent community pharmacy. This is done by calculating what an acceptable safety inventory level would be compared to what other independent community pharmacies typically use, as well as determining the equilibrium order lot size using the Economic Order Quantity (EOQ) model. Learn more about the EOQ model in Chapter 17 of the "Effective Pharmacy Management" CD-ROM from www.NCPAnet.org.

How to optimize use of this calculator. The most important tab for this calculator is the one labeled "Inputs". The more accurate the numbers chosen for the inputs the better the analysis this workbook will provide.

Fixed Cost per Inventory Order. This variable represents the flat cost attributed to every inventory order and is not tied to the variable costs. For many pharmacies there is no fixed cost associated with an inventory order, in which case please put a 0 for this input.

Acquisition Cost for the Average Prescription Drug. This input represents the average cost it takes to purchase a single prescription drug from a wholesaler. For many pharmacies this value will be 78% of the average retail price for a prescription drug. In the 2008 NCPA Digest, sponsored by Cardinal Health, the average prescription drug cost was $58, thus for many pharmacies the average acquisition cost for a prescription drug was $45.

Daily Demand for Prescription Drugs at Current Selling Price (in dollars). This input represents the dollar amount of prescription drugs sold in a single day. For simplicity this workbook assumes that the pharmacy is open 365 days a year. If you need help with this input, please record your annual prescription sales in the box below for a suggested value.

Annual Prescription Sales Daily Demand (in dollars) $0.00

Selling Price for Average Prescription Drug This input represents the average prescription drug price. It will be influenced by the generic utilization rate of your pharmacy, market conditions, and other factors. To calculate this value take annual prescription sales and divide it by the number of total prescriptions dispensed by your pharmacy. If you need help use the boxes below for a quick calculation.

by the generic utilization rate of your pharmacy, market conditions, and other factors. To calculate this value take annual prescription sales and divide it by the number of total prescriptions dispensed by your pharmacy. If you need help use the boxes below for a quick calculation.

Annual Prescription Sales Prescriptions Dispensed (annually) Average Prescription Price #DIV/0!

Current Inventory Lot Size (in dollars). This input represents the average input lot size per inventory order. For many pharmacies this lot size is determined by the fixed cost per inventory order, the amount necessary to satisfy demand each day, and due to personal preferences of management. The inventory lot size will also influence how often the pharmacy places an inventory order. Current Average Monthly Inventory (in dollars). This input represents the average amount of inventory (at cost) that the pharmacy currently holds. To determine this value, take the dollar amount of inventory (valued at cost) at the beginning of the month, and add it to the dollar amount of inventory (valued at cost) at the end of the month, and then divide that value by 2. For a quick calculation, use the boxes below. Inventory Dollar Amount Beginning of Month Inventory Dollar Amount at End of Month Current Average Inventory 0 Payment to Wholesalers. This input represents how payments are collected by the wholesaler. Available options from the pull down menue for this calculator are that payment will be made every week, every two weeks, and on a monthly basis. For most pharmacies payment will be made on the 1st and 15th of every month, or every two weeks. Other Daily Operating Expenses (in Dollars). This input represents the expenses that will be paid day to day that are not associated with prescription inventory. Other Weekly Operating Expenses This input represents expenses that will be paid on a weekly basis that are not tied to inventory. Other BiWeekly Operating Expenses (in Dollars) This input represents the expenses that will be paid every two weeks that are not tied to prescription inventory costs. For many pharmacies this would include payroll costs.

This input represents the expenses that will be paid every two weeks that are not tied to prescription inventory costs. For many pharmacies this would include payroll costs. Other Monthly Operating Expenses (in Dollars) This input represents the expenses that will be paid at the end of each month. Practical examples would include rent, utilities, and telephone bills.

Once all "Inputs" have been defined, the workbook will determine suggested inventory management levels for this particular independent community pharmacy. To see how these values are calculated please refer to NCPA's "Effective Pharmacy Management" 9th Edition CD-ROM Chapter 17 "Purchasing & Inventory Control", or contact the author of this workbook at devin.stone@ncpanet.org or by phone at 703-600-1188.

Please note that inventory decisions are primarily determined by the preferences of management. Although inventory theory can be used to get a general idea of what should be practiced, it is the responsibility of management to make inventory decisions based upon what they feel comfortable with. One easy way to influence the Economic Order Quantity is by adjusting the carrying costs for this pharmacy. The variable given to carrying costs though, will be determined by the subjective preferences of the pharmacy owner. This is because carrying costs not only include actual accounting costs such as business insurance for the inventory, costs associated with storing inventory safely and appropriately, but also includes opportunity costs that are far more subjective. Economists define opportunity cost as the next best alternative of what a resource could have been used for. One pharmacy owner may decide that the opportunity cost associated with inventory to be relatively high, as inventory represents cash tied up that could have been invested into new workflow technologies, or money that could be used to remodel the pharmacy, provide additional training to employees, or any other investment that could increase profits in the future. Another pharmacy owner may decide that the opportunity cost associated with inventory to be fairly low.

Inventory Calculator Needed Inputs: Fixed Cost per Inventory Order (in Dollars) 0 Acquisition cost of Average Prescription Drug (in Dollars) 40 Carrying Cost of Average Prescription Drug (in Dollars on an annual basis) 10 Average Number of Prescriptions Dispensed Daily 196 Selling Price for Average Prescription Drug 54.79 Current Inventory Lot Size (in Dollars) 3000 Current Average Monthly Inventory (in Dollars) 240000 Payment to wholesalers: Every 2 weeks Other Daily Operating Expenses (in Dollars) 200 Other Weekly Operating Expenses (in Dollars) 2450 Other BiWeekly Operating Expenses (in Dollars) 5000 Other Monthly Operating Expenses (in Dollars) 7000 The inventory management and cash flow calculator is presented for discussion purposes only. Contact your accountant or other qualified professional to create a management plan that addresses your individual or business requirements. IN NO EVENT SHALL NCPA OR ITS AGENTS OR OFFICERS BE LIABLE FOR ANY DAMAGES WHATSOEVER (INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF PROFITS, BUSINESS INTERRUPTION, LOSS OF INFORMATION) ARISING OUT OF THE USE OF OR INABILITY TO USE THE INFORMATION PROVIDED.

Once all values have been inputed, please click on the tab titled "Equilibrium" to see what is recommended for your pharmacy's inventory management.

Inventory Model Gross Margin on Inventory 441% Current Inventory Turns 11.76 Current Inventory Lot Size (in units) 75 Current Inventory Lot Size in Dollars $3,000.00 Current Average Monthly Inventory $ 240,000 Current Safety Stock Inventory Level $ 238,500 Current Annual Inventory Related Costs* $ 2,400,000 Suggested Gross Margin on Inventory 453% Suggested Inventory Turns 12.09 Suggested Inventory Lot Size (in units) 196 Suggested Inventory Lot Size in Dollars $7,840.00 Suggested Monthly Average Inventory $ 233,487

Suggested Safety Stock Inventory Level $229,567 Safety Inventory levels may be low for your ph cause a high level of 'out of stocks'. The costs Annual Inventory Related Costs been factored into this calculator. in Equilibrium Model* $2,334,867.41

Savings (loss) from Suggested Model** $65,133 *Annual Inventory Related Costs include the opportunity cost of money tied up in inventory. **Note that one of the most important determinants for the savings or loss are the carrying costs tied to your inventory.

Learn how to improve your inventory lot size and inventory turn number in NCPAs "Effective Pharmacy Management" CD-RO

The inventory management and cash flow calculator is presented for discussion purposes only. Contact your accountant or create a management plan that addresses your individual or business requirements. IN NO EVENT SHALL NCPA OR ITS AGEN ANY DAMAGES WHATSOEVER (INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF PROFITS, BUSINESS INTERRUP ARISING OUT OF THE USE OF OR INABILITY TO USE THE INFORMATION PROVIDED.

Once finished, please click on the tab titled "Weekly Cash Flow Graphs" to see how your pharmacy currently fairs with what is recommendend in regards to Cash Flow on a weekly basis.

entory levels may be low for your pharmacy which could possibly gh level of 'out of stocks'. The costs of such 'out of stocks' have not red into this calculator.

ng costs tied to your inventory.

tive Pharmacy Management" CD-ROM.

es only. Contact your accountant or other qualified professional to NO EVENT SHALL NCPA OR ITS AGENTS OR OFFICERS BE LIABLE FOR SS OF PROFITS, BUSINESS INTERRUPTION, LOSS OF INFORMATION) THE INFORMATION PROVIDED.

Inventory Cash Flow Report

Weekly Cash Flow Projections for Suggested Inventory Management Model.

120000 100000 80000 60000 40000

REPORT GOES UNDER GRAPH

20000 0 -20000 -40000 -60000

Weekly Cash Flow Projections for Current Inventory Management

120000 100000 80000 60000 40000 20000 0 -20000 -40000 -60000

Inventory Payment to Creditors Weekly Net Cash Flow

Inventory Payment to Creditors

Weekly Net Cash Flow