Inventory management to reduce costs: a case study

This paper presents the 2-year goals that were set by the Department of Pharmaceutical Services at Sioux Valley Hospital in 1992 regarding inventory cost savings. These goals included decreasing inventory by 10%, increasing turnover rate, controlling formulary additions, removing low-usage drugs from the formulary, ensuring compliance with group contracts, and the appropriate selection of generic equivalents for all multisource drugs. By using available computer technology offered by the prime vendor wholesaler, these objectives were accomplished. Cost containment was monitored from May 1, 1992 to April 30, 1994, two fiscal years. Inventory decreased by 16%, turnover rate increased on the top 90% of dollar-volume pharmaceuticals from 31 to 46, 72 drugs were removed from the formulary, and savings generated by using group contracts was 32% of purchase cost.