Simulation Study to Determine Purchasing Methods to Reduce Drug Inventory Total Cost: A Case Study at Warinchamrab Hospital

Abstract

By theory, an inventory management system which integrated economic order quantity (EOQ) and ABC inventory model could reduce inventory total cost. However, ther are only few studies that determined whether the method could be used in a drug inventory management of Thai hospital system. The purpose of this simulation study was to determine an appropriate inventory management method to minimize inventory total costs at Warin Chamrab Hospital, Ubon Ratchathani province. A simulation of an inventory management system which integrated economic order quantity (EOQ) and ABC inventory model was compared with the in-use system in terms of total costs of inventory management from 1 October 2006 to 30 September 2007. The activity-based costing technique was applied to calculate the inventory management costs consisting of order and storage costs. Only the total costs of 59 drugs in category A and 59 drugs in category C were compared. Comparisons of the total costs of drugs in categories A and C showed that in case of a purchase order contained one, two, or three items of drugs, the inventory management total costs of the EOQ method were lower than those of the in-use inventory management method by 290,255.44 baht, 325,523.55 baht, and 337,827.63 baht per year respectively. The study suggested that the use of the EOQ method appeared to be an effective way to reduce the inventory management total costs. However, should the EOQ method be put into practice, modification would be needed for individual drugs since drug use rates are inconsistent through each year since, by theory,the EOQ method is suitable for products that have constant using rates.