Questionnaire for the Operations/Production Manager Name of Drugstore: (Optional)Respondent No. _________ ___________________________ Instructions: Please put a check mark (? ) on the appropriate box to correspond your answer in each questions. Part I: Business Profile 1. Length of Business Operation? ?Less than one year ?1 year to less than 5 years ?5 years to 10 years ?More than ten years 2. Average annual capital? ?Less than P100,000 ?P100,001 to P500,000 ?P500,001 to P1,000,000 ?More than P1,000,000 3. Type of business organization? ?Sole proprietorship ?Partnership ?Corporation Others pls. specify ________ 4. Average annual net income? ?Less than P100,000 ?P100,001 to P500,000 ?P500,001 to P1,000,000 ?More than P1,000,000 5. How many employees do you have as to: •Accountants: _____ •Inventory supervisor: _____ •Operational/Production supervisor: _____ Part II: Inventory Management 1. Where do you purchase the supply of tablet medicine in your drugstore? ?Within Naga City ?Outside Naga City ?Outside Bicol Region ?Others pls. specify ____________ 2. Do you experience purchase delays? ?Never ?Seldom ?Always 3.
If there are delays, do they affect your daily operations in your drugstore? ?Never ?Seldom ?Always 4. When you purchase, do you take quantity discounts? ?Never ?Seldom ?Always 5. Do you use stock keeping unit (SKU) or barcode system to specify the name, amount of dosage and usually the location of tablet medicine in your drugstore? ?Yes ?No 6. When do you update this inventory management policy? ?Annually ?Monthly ?Weekly ?Daily ?Others pls. specify ______________ 7. What type of inventory system do you use? ?First In, First Out (FIFO) ?Last In, First Out (LIFO) ?Others pls. specify _________________ 8.
When do you usually conduct the inventory of tablet medicines? AnnualDailyWeeklyMonthlyOthers pls. specify: •Active? ? ? ? ? ___________ •Damaged? ? ? ? ? ___________ •Expired? ? ? ? ? ___________ 9. Was there a time that there are unaccounted inventories in tablet medicines for: 0-Never1-Seldom2-Often3-Always •Active 0 1 2 3 •Damaged 0 1 2 3 •Expired 0 1 2 3 10. Do you return the damaged or expired tablet medicine to your supplier? ?Yes ?No 11. Are there times when you receive return of purchased item from the customers? ?Never ?Seldom Always 12. Please rate your: 1-Low 2-Average 3-High •Level of transportation cost 1 2 3 •Handling and maintenance cost 1 2 3 •Cost of storage facilities 1 2 3 13. Are you satisfied with the profitability of your business? Why? ?Very satisfied ____________________________________________ ? Satisfied____________________________________________ ?Not satisfied ____________________________________________ Ateneo de Naga University College of Business and Accountancy Naga City Inventory Management of Tablet Medicine in Naga City Drugstores
An Undergraduate Thesis presented to the Faculty of the Accountancy Department, Ateneo de Naga University, in partial fulfillment for the requirements in BREM400B- Business Research Submitted by: Pentecostes, Mariesole B. Ynacay, Ma. Chrystal F. Jamito, Tristan Noel L. Doluntap, James Y. Bisenio, Kristine S. Saunar, Lalaine D. Presented to: Ms. Marissan F. Jarcia, MPA, CPA Mr. Adrian Ongog, MSA, CPA Dr. Eufemia Ceguerra, DBM March 2010 TABLE OF CONTENTS Contents Page Title Pagei Certificate of Approvalii Acknowledgement iii Abstractiv Table of Contents v List of Tablesvi List of Figures vii I. Introduction 1 . 1 Background of the Study1 1. 2 Statement of the Problem4 1. 3Statement of the Objectives5 1. 3. 1 General Objectives5 1. 3. 2 Specific Objectives5 1. 4 Scope and Limitation of the Study6 1. 5 Assumptions7 1. 6 Significance of the Study7 1. 7 Operational Definition of Terms8 II. Review of the Related Literature and Studies11 2. 1Related Literature and Studies11 2. 2Theoretical Framework18 2. 2Conceptual Framework19 III. Research Methodology20 3. 1Research Design20 3. 2Respondent21 a. Target Population21 3. 3Method of Data Collection21 3. 3. 1 Research Instrument21 3. 3. 2 Data Gathering Procedures22 3. 4Method of Data Analyses23
IV. Data Presentation and Analysis24 V. Summary of Findings, Conclusions and Recommendations43 5. 1Summary of Findings43 5. 2Conclusions45 5. 3 Recommendation46 Bibliography Appendices LIST OF TABLES TableDescription Page 1 Length of Business Operations, Capitalization Level and Net Income 25 2Type of Business Organization and Number of Key Employees 26 3Type of Business Organization and Sources of Tablet Medicine Supplies 27 4Sources of Tablet Medicine Supplies and Net Income 29 5Net Income and Purchase Delays 29 6Net Income and Effect of Purchase on Delays on Daily Operations 30 Net Income and Quantity Discounts 31 8Drugstores Using Stock Keeping Unit (SKU) or Barcode System, Capitalization and Net Income 32 9Net Income and the Time the Drugstores Updates Inventory Management Policy 33 10Net Income and Type of Inventory System 34 11Frequency Conducting the Inventory of Tablet Medicine 35 12Unaccounted Inventory of Tablet Medicine 36 13Net Income and the Return of Damaged/Expired Tablet Medicine to Supplier 37 14Net Income and the Returned of Purchased Item from the Customers 38 15Rate of Level of Transportation Cost, Handling and
Maintenance Cost, Cost of Storage Facilities 39 16Type of Inventory System and Profitability of the Business 40 17Lengthof Business Operations and Profitabilityof the Business 41 18Net Income and Satisfaction on Profitability of the Business 42 LIST OF FIGURES Figure Descriptions Page 1 Maximizing Profitability through Inventory Management- Carl J. “Skeet” Haag, CPA (2004) 18 2 The conceptual framework of the study 19 ACKNOWLEDGEMENT This research was done with much dedication and effort with the help and contribution of some people.
We would like to extend our deepest gratitude to the following people who made the realization of this research possible. To the City Government of Naga, for providing us the data needed in conducting he survey. To the respondents of this survey, we greatly appreciate the time you’ve given to accommodate the researchers. To the faculty member of Accountancy Department, Mr. Oroseo Tuy II, CPA for providing us with the honest opinions and suggestions on our study. Your comments guided the improvement of the study. To our Business Researchers adviser, Ms. Marissan F. Jarcia MPA, CPA, and Mr. Michael P.
Balbastre, MSA, CPA for helping us with all their best efforts and providing us with the needed advices to finish this study and the patient in checking and rechecking our draft. To researcher’s panelists, Mr. Adrian Ongog, MSA, CPA and Mrs. Eufemia Ceguera, DBM we thank them for criticizing our work and for offering us suggestion to improve our research. To researchers’ parents for being so supportive with this research, thanks you for attending to our needs, moral and financial. Lastly, to the almighty God for being with us all throughout the realization of this project. This would have not been completed without you, Thank you very much.
ABSTRACT The study was conducted to determine the inventory management of tablet medicines used by the drugstores in Naga City and its factors that contribute in maximization of profit. The findings of this study were gathered through survey questionnaire and interviews in which twenty six (26) drugstores out of the thirty two (32) respondents located in Naga City participated positively in the research study The researcher found out that the respondent that operates more than 10 years invest more capital that they used through expansion and adding more products in order to generate more profit and stabilizing their business.
Most of the respondents have their operational/production supervisor as greater in number other than any other key employees. This shows that they focus much on the operation and production to be more effective and efficient. Majority of the drugstores are purchasing their tablet medicines outside Bicol Region. FIFO inventory system is widely accepted by almost all of the drugstores. Although there are some using LIFO and First-expiry, First-Out by which they are used to it or for its advantage of best matching the net income by matching the cost of sales with most recent costs to replace inventory sold.
Most of the drugstores frequently conduct inventory more on active medicines which is on a weekly or monthly basis rather than the damaged and expired ones. Maintenance and handling cost form a bigger part of inventory management cost among majority of the drugstores. Drugstores tend to minimize the cost by focusing on inventory management, thus, achieving profitability. The researchers found out that the Inventory management is not a major factor for achieving profitability. The factors enumerated and indicated in the tables regarding inventory management does contribute to net income but just a little.
It merely minimizes the cost incurred of the drugstores, failure to ensure proper inventory management does not mean loss to a business, which even established drugstores are having difficulties in inventory management although reports show high level of net income. Competition is what most of the drugstores have said that slows or hinders their profitability. BIBLIOGRAPHY •Inventory Management Reprints Falls church, VA: American Production and Inventory control society, copyright 1986 Ix, 548; ill; 23cm •Decision System for Inventory Management and Production Planning (Second
Edition) Silver, Edward A (Edward Allen) 1937 New York; Wiley 1985 •Methods of Research and Thesis Writing Laurentina Paler- Calmorin and Melchor A. Calmorin First Edition, 1995 •The Inventory Optimization practice at RPE encompasses Planning, Allocation, Replenishment and Space Management •Accounting Perspectives; The basis of Inventory accounting •FIFO vs. LIFO accounting •Inventory Management and Inventory Control •Automated Dispensing Technology •Automation in drug inventory management saves personnel time and budget •Current status of preparation and distribution of medicines NoInk Launches Medical Device Inventory Management Solution •Management Health Solutions, Inc. Announces Release v1. 0 to Clinical Inventory Valuation Solution APPENDIX A- Letter to the Office of the City Treasurer Office of the City Treasurer Magsaysay Avenue, Naga City Dear Sir/ Madam: Greeting of Peace! We are students of Ateneo de Naga University, enrolled in Business Research/ Feasibility Studies (BREM400A). One of the requirements of this subject is to conduct research regarding topics within the scope of accounting.
Our Business Research group has decided to focus its study on the Inventory Management of Tablet Medicine in Naga City Drugstores. In view of this, may we sincerely request for information regarding the list of Drugstores in Naga City? We hope this request will be given favorable action and kind consideration. Thank you! Sincerely yours, __________________ Tristan Noel L. Jamito Group Leader Noted by: ___________________________ Michael P. Balbastre, MSA, CPA Adviser (BREM400A) APPENDIX B- Letter to the Operational/ Production Manager The Operational/ Production Manager Name of Drugstore) Naga City Dear Sir/ Madam: Season’s Greetings! We are fourth year students of Ateneo de Naga University conducting our research study for Business Research/ Feasibility Studies (BREM400B). Our study, Inventory Management of Tablet Medicine in Naga City Drugstores, will tackle on how medicine units specifically tablets are inventoried, purchased, handled and utilized. To make this research possible, we are humbly asking for your cooperation and response by simply answering the questionnaire we have prepared and an interview, if necessary.
The instruments are devised as straightforward as possible and could be answered by providing simple and direct facts and information from your company. The data that we will gather is presumably confidential and will be used for research purpose only. After the questionnaire has been filled- up; we will come back to retrieve it for us to start the data analysis. In case you have questions, comments, and feedbacks, we will be happy to hear from you anytime through our contact numbers 09078689212/ 09396322570. In behalf of my research group and the Accountancy Department of Ateneo de Naga University, Masaganang Pasko sa inyong lahat!!
Truly yours, __________________ Tristan Noel L. Jamito Research Leader Endorsed by: ____________________________ Ms. Marissan F. Jarcia, MPA, CPA Adviser (BREM400B) PART II: Inventory Management Question 9 Classification of Tablet MedicineNever (0)Seldom (1)Often (2)Always (3)Mean active514431. 2 damaged615411 expired615411 Question 12 Low (1)Average (2)High (3)Mean Level of transportation cost81621. 77 Handling and maintenance cost71721. 81 Cost of storage facilities91611. 69 CHAPTER I Introduction 1. 1 Background of the Study The trend of people’s activity nowadays is to engage in business in order to earn and maximize profits.
To establish a business, one must also invest industry, labor, knowledge and skills. Every proprietor or owner expects a return from his/her investment. To be able to receive a return the business must become successful. The proprietor or the owner of the business must not only focus in the profits earned. He/she must also focus in the other areas of business specifically the inventory management. Inventory was first recorded in 16011. It came from the French term “Inventaire” which means detailed list of goods. The starting point for the management of inventory is the customer demand.
A company maintains inventory to meet its own demand and its customer’s demand for items. Inventory management is primarily about specifying the size and placement of stocked goods. It is required at different locations within a facility or within a multiple locations of a supply network to protect the regular and planned course of production against the random disturbance of running out of materials or goods. The scope of inventory management concerns in the fine lines between replenishment lead time, carrying costs of inventory, asset management, inventory forecasting, inventory valuation, inventory isibility, future inventory price forecasting, physical inventory, available physical space for inventory, quality management, returns and defective goods, and demand forecasting. The objective of inventory management has been to keep enough inventories to meet customer demand and also be cost-effective. However, inventory has not always been perceived as an area to control cost. Companies maintained “generous” inventory levels to meet long-term customer demand because there were fewer competitors and products in a generally sheltered market environment.
In order for a business to stay in the market, it must have the products that will suit to the demands of the customer. In many cases uncertainty is created by poor quality on the part of the company or its suppliers or both. This can be in the form of variations in delivery time, uncertain production schedules caused by late deliveries or large numbers of defects that require higher levels of production or service than what should be necessary, large fluctuations in customer demand, or poor forecasts of customer demand. If the inventory is not good then sale is lost.
Instead of managing one’s inventory to maximize profit and minimize cost, the business has to make inventory decisions that will benefit the entire production of a product. In response to the health needs of the society, most of the business here in Naga City is drugstores. Drugstores include more traditional roles such as compounding and dispensing medications. It also includes more modern services related to patient care including clinical services, reviewing medications for safety and efficacy, and providing drug information.
Drugstores sell two types of products: the prescription drugs and front-store products which include over-the-counter (OTC) drugs, health and beauty aids, and general merchandise. About two-thirds of all prescriptions are dispensed as solid dosage forms, and half of these are tablets. Tablet medicine is the most popular dosage form in use today. It can be formulated to deliver an accurate dosage to a specific site, it is usually taken orally. The tablet is just one of the many forms that an oral drug can take such as syrups, elixirs, suspensions, and emulsions. It consists of active pharmaceutical ingredients (A.
P. I. ) with biologically inert excipients in a compressed, solid form. Tablet medicines were originally made in the shape of a disk of whatever color their components determined. But nowadays, tablets are made in many shapes and colors to help users to distinguish between different medicines that they take. Tablets are often stamped with symbols, letters, and numbers, which enable them to be identified. Drugstores generally buy drugs and other products directly from manufacturer of large wholesalers and distribute them to their stores through a warehouse system.
The operations of a drugstores focus on merchandising, advertising, billing, personal management, and inventory management. Inventory management in drugstores determine the controlling stock levels within the physical distribution function to balance the need for product availability against the need for minimizing stock holding and handling costs. It also handles all functions related to the tracking, management and monitoring of supplies move in and out of stockroom locations, and the reconciling of the inventory balances. Customers are given a price discount when purchasing large quantities of a product.
This frequently results in inventory in excess of what is currently needed to meet demand Since business in Naga City, specifically the drugstores are rapidly increasing. The researchers had conducted this study to investigate how inventory management contributes to its success. Inventory management has been a silent indicator to the wealth of a profitable company. Most companies operate because it is their operations that make their business sustainable without knowledge to the reasons why their cost of goods sold is high or low.
Generally, this research attempts to conform the fact that inventory is one of the factor that sustain to the company’s growth, like the drugstores in Naga City. How inventory is managed and how inventory is affected in the ordinary course of business cycle is what the research had tried to discover deeper. 1. 2 Statement of the Problem The study tried to investigate and discover the Inventory Management practices of selected Drugstores in Naga City. Specifically, it will give answer to the questions, to wit: 1. What is the profile of the Drugstores in Naga City, as to: a. Years of operation b. Average capital . Average annual net income d. Type of organization e. Key employees 2. How do Drugstores in Naga City deal with their inventories ,as to : a. Acquisition of supplies b. Type of inventory system c. Management of active, damaged, and expired tablet medicine d. Level of transportation cost, handling and maintenance cost, and cost of storage facilities 3. What is the effect of Inventory Management to the profitability of the Drugstores? 1. 3 Statement of the Objectives 1. 3. 1 General Objective: This research aims to study the inventory management practices in tablet medicines of selected Drugstores in Naga City.
The researchers tried to determine if inventory management is a factor which influences profitability. 1. 3. 2Specific Objective: 1. To be able to know the profile of the selected Drugstores in Naga City as to years of operation, range of capital, and type of organization. 2. To be able to know how Drugstores in Naga City deal with their inventories as to acquisition of supplies; type of inventory system use; management of active, damaged, and expired tablet medicines; and level of transportation cost, handling and maintenance cost, and cost of storage facilities. . To be able to find out the effect of inventory management to the profitability of the drugstores in Naga City. 1. 4 Scope and Limitations of the Study The study focused on the use of accounting information specially Inventory Management as one of the success factors in generating profits of Drugstores in Naga City. As the basis of this study, the researchers request information to the Office of the City Treasurer for the total population of Drugstores in Naga City. The total population of Drugstores are fifty five (55) including the branches.
The researchers decide to exclude the branches of the Drugstores and focus only to the main thirty two (32) Drugstores in Naga City. The primary data available for the researchers was only limited due to the policies imposed in the company. The data used in this research primarily came from the thirty two (32) Drugstores that had coordinated with the researchers. The main respondent is the operational/productions manager or if not the one who is overall in charge of managing the inventories. In fact, the data used in this research was primarily 81. 25% or twenty six (26) out of thirty two (32) of the total population.
The researchers did not get the full thirty two (32) respondents because: (1) other drugstores are tight with their policy of giving information, (2) the attending personnel did not have enough knowledge of inventory management practices and their operational/production manager or drugstore owner were not present, (3) other drugstores were not cooperative, and lastly (4) some of the operational/production managers, which is our respondents, are too busy and they have no time to cooperate with us because of some important business transactions that they should first consider.
One of the major limitations of the study is the researcher’s proficiency in research field. The methods that we used might not be as accurate as used by the experts in the field. The findings of the study would therefore be true only for the subjects concerned and for the given period of time set for the research. 1. 5 Assumptions These are the hypotheses of the researchers regarding the system of inventory management within the business and of the whole study: 1.
There are no policies implemented on how to manage inventory. 2. There is one key employee that decides on managing the inventory. 3. The drugstores did not consider effective inventory management as the primary reason of their profitability. 1. 6 Significance of the Study The study provide insights about the importance of inventory management, as effective tool to meet the customer demand and cost effective in generating profit, to the Drugstores in Naga City Philippines and to the other usinesses. The researchers emphasize the importance of this study which will benefit the following: Drugstores. This study will contribute to the drugstores since it is the subject by which the researchers will mainly focus on. The business will be more aware of its operations and this will help them through recommending some factors which will increase their profitability and which field they must focus on. Key employees.
The top level management including the one incharge of implementing the policies on inventory management can use this study to be the basis of revising, editing or adding more policies that will further improve their inventory operations. Investors. The investors or the stockholders can benefit to this study since the researchers will assess or evaluate every drugstores here in Naga City in terms of how they really manage their inventory along with its profile including average annual net income and average capital, the investors will now have a hint where to put their investments on. Government.
The government will be presented with the information about the drugstores’ policies and system and may utilize this as a basis for improving further the guidelines to monitor the business and implementing tax policies and other laws which will be helpful on the drugstore itself and on achieving the goals of the government. Teachers. The whole population of commerce teachers could use this as a basis or reference on their discussions or a supplement to their knowledge regarding this field. Commerce students. This study will have an impact on the students since their chosen field involves this certain subject.
The whole output of this research will help the students to understand more the system of inventory management, and how it affects the profitability of the business. Future Researchers. This study could be a supporting basis for the researchers who will conduct future studies under the scope of inventory management. This will serve as guide to those who will tackle related research on this field. 1. 7 Operational Definition of Terms Operational definitions are the researchers own definition of the study’s important terminology that maybe necessary to the reader’s understanding of the research.
The terms, such as phrases and words used in this study have the following meanings as used in the research. Inventory Management – The method or manner of controlling the flow of the inventory (in and out). Tablet Medicine – Powdered form of medication that are compressed or molded in its manufacture with therapeutic purpose after intake. Drugstores – or “Pharmacies”. These are the businesses that sell medicines and medical and health products. Inventory – The product, either manufactured or being merchandised, that are being sold by a business.
Inventory Management Policy – Rules and procedures being followed in controlling the flow of inventory Profitability – The rate or chance of having a financial gain (after deducting all expenses incurred from the total income). Operational/Production Manager – The personnel, usually the branch manager responsible for the administration and management of the products in the regular business cycle. Active Tablet Medicine – When talking about business, active tablet medicines refer to the tablet medicines that are usually bought.
And when talking about medical terms, active tablet medicines refer to tablet medicines that are within its consumable date. Damaged Tablet Medicine – These are the tablet medicines which have deficiencies, caused by exposure to moisture or to other factors that would affect its therapeutic purposes. Damaged tablet medicines are dangerous for it may have other effects aside from its intended purpose. Expired Tablet Medicine – These are the tablet medicines that have already exceed its useful terms. Medicines work best when taken in before its date of expiration.
Level of Transportation Cost – Range of cost incurred in the delivery of the products from the seller to the buyer. Handling and Maintenance Cost – These are the expenses incurred in managing and preserving the products so as not to be affected by external factors such as humidity or exposure to heat. Cost of Storage Facilities – Expenses incurred for the amenities used in the keeping of the products. CHAPTER II Review of the Related Literature and Studies This chapter exhibits relevant literature and studies, theoretical and conceptual framework that provided necessary insights for the realization of this study. . 1 Review of the Related Literature and Studies Starting in the 1920’s, decision makers began to put an increased emphasis on the liquidity of assets, such as inventories, until fast turnover became a goal to be pursued for its own sake in many organizations. Whitin (1957) reported that “Inventories are often referred to as the “graveyard” of American Business, as surplus stocks have been a principal cause of business failures. Inventories are also considered a destabilizing influence in business cycle. Businessmen have developed an almost pathological fear of increasing inventories. According to Herron (1979) reports that for many firms’ inventory costs are approximately as large as before-tax operating profits. Thus, we see that even a small percentage reduction in costs will be transformed into a huge absolute savings, when viewed from a national or international perspective. According to Lovell (1964) and Mack (1967) in their empirical studies of aggregate inventory behaviour in the economy, it is generally agreed that expectations about the future held collectively by decision makers in the economy are the major determinants of whether and to what degree inventory will fluctuate.
The severity of inventory fluctuations depends on the degree which expectations are in error and on the speed with which decision maker are capable of reacting to errors in there expectation in a rational manner. Expectation about the future had been showed to depend on the following variables: the trend of recent sales and new orders, the volume of unfilled orders, rice pressures, the level of inventory in the recent past, the ratio of sales to inventories (turnover ratio), interest rates on business loans, the current level of employment, and the types of decision-making systems used by management.
According to Hupp (1969), using data that were originally compiled by Dun’s Review on the inventory management policies of merchants (retailers and wholesalers) from 17 industries, concluded that: “If the typical unsuccessful company did as well as a successful one, it could double its sales with no increase in quantity of goods on hand. Or, with no change in sales, it could reduce stocked by 50%. ” That is, a typical “successful company” (on basis of profitability) seemed to turn over its inventories twice as often as an “unsuccessful” one in the same industry.
Hupp (1969) said that the companies studied the sold same goods, hired the same type of operating personnel, and had access to the same tools and techniques of successful inventory management. The one major factor that was not the same in all companies studied was the attitude of top management. In the more successful companies top management tended to become more directly involved with aggregate inventory and production planning policy determination by considering it as an integral part of corporate strategy.
In similar research carried out of by Hill (1974) companies in the retail and wholesale trades were found typically to have greater top management involvement in the management of inventories. In most other industries top management tended to become concerned only from time to time if inventory got “ out- of – line”, which often meant higher than at the same time last year. More concern was also likely to be expressed when money supply from conventional sources became so tight that a reduction in the investment in inventory was perceived as being the most ready source of cash in the short- run perspective.
Theory of Constraints Cost Accounting Eliyahu M. Goldratt developed the Theory of Constraints in part to address the cost-accounting problems in what he calls the “cost world”. He offers a substitute, called throughput accounting, that uses throughput (money for goods sold to customers) in place of output (goods produced that may sell or may boost inventory) and considers labor as a fixed rather than as a variable cost. He defines inventory simply as everything the organization owns that it plans to sell, including buildings, machinery, and many other things in addition to the categories listed here.
Throughput accounting recognizes only one class of variable costs: the truly variable costs like materials and components that vary directly with the quantity produced. Finished goods inventories remain balance-sheet assets, but labor efficiency ratios no longer evaluate managers and workers. Instead of an incentive to reduce labor cost, throughput accounting focuses attention on the relationships between throughput (revenue or income) on one hand and controllable operating expenses and changes in inventory on the other.
Those relationships direct attention to the constraints or bottlenecks that prevent the system from producing more throughput, rather than to people – who have little or no control over their situations. Perishable Inventory Management According to the study of Borga Deniz Nahmias’ (1982) about the perishable inventory management, he said that there are two special distribution systems. First the rotation (or recycling) system, where all unsold units that have not expired at the retailers are returned to the supplier at the end of each period.
These units are distributed among the retailers along with the new supply of freshest goods at the beginning of the next period. Second the retention system where each retailer keeps the entire inventory allocated. In the Prastacos model, the supplier does not stock any goods, i. e. all the inventory is allocated and shipped to the retailers at the beginning of a period, there are no inventory holding costs at any location, and the goal is to minimize shortage and outdating costs that are uniform across all the retailers.
In a rotation system, the total number of units to outdate in a period depends only on how the units with only one period of lifetime remaining are allocated in the previous period, and the total amount of shortage depends only on how the inventory is allocated, regardless of the age. Purchasing and Inventory Management In the article of Charles Dominick entitled “Purchasing and Inventory Management Hook Up! ” (December 27, 2006) that there are three functions to merge in purchasing and inventory management.
First, you must know how much inventory to have on hand to ensure continuity of supply in the event of an uncharacteristic increase in either demand and/or lead time. This quantity of inventory is called the safety stock. Second, you must know when to reorder materials for inventory. Generally, this point in time is determined when the quantity of materials in stock decreases to a certain level, called the reorder point. Lastly, you must know how much to order. A complex mathematical equation determines the Economic Order Quantity, or EOQ.
It recognizes the tug of war between acquisition costs and inventory carrying costs: when you order bigger quantities less frequently, your aggregate acquisition costs are low but your inventory costs are high due to higher inventory levels. Conversely, when you order smaller quantities more often, your inventory costs are low but your acquisition costs are higher because you are expending more resources on ordering. The EOQ is the order quantity that minimizes the sum of the two costs. Automation in Drug Inventory Management Saves Personnel Time and Budget According to the studies of Awaya, Ohtaki, and Yamada (2005) the automation n the drug distribution processes is helpful to pharmacists in creating new clinical services. They had ameliorated the drug inventory control system seamlessly connected with the physician order-entry system. This control system application, named “Artima”, allows inventory functions to be faster and more efficient in real time. The medicines used in the hospital are automatically fixed and arranged to sold-packages, and are ordered from each wholesaler by a fax-modem every day. “Artima” can search the lot number and expiration date of drug in the purchase and delivery records.
These functions are powerful and useful in patient’s safety and cost containment. They surveyed the inventory amount stored in the computer database, and evaluated time required for inventory management by tabulating working records of employees during past decades. Inventory decreased by 70% along with the continuous improvement of the system during the past decade. The workload in the inventory management in each section of the Pharmacy Department as well as in clinical units was dramatically reduced after the implementation of this system.
The automation system in the drug inventory management allows creating new clinical positions for pharmacists. This system also could pay for itself in time. Bar-Code Technology In the study of Ryozo Oishi (2009) in the “Current Status of Preparation and Distribution of Medicines”, estimate that the Japanese hospital pharmacists spend about 60% of their time dispensing medicines to inpatients and outpatients, 15% of their time preparing inject able products, another 15% providing clinical pharmacy services on the wards, and 10% performing other services (e. . , drug information services, therapeutic drug monitoring, inventory management, pharmaceutical manufacturing, investigational drug studies). In improving the efficiency of dispensing and preparing medicines through the use of computer technology can reduce the amount of time spent on product-oriented activities and can enable pharmacists to devote more time to specialized patient-oriented clinical services. The use of bar-code or other machine-readable technology at the bedside to reduce the risk of medication errors is well established.
A bar-code medicine packaging and distribution system was shown to enhance inventory control as well as dispensing accuracy. A hospital pharmacy-based, bar-code repackaging center was established to allow the scanning of bar codes on sterile and nonsterile medicines during the dispensing and administration processes. Quality control procedures for the repackaging process with oversight by a pharmacist were effective for detecting errors in repackaging. On February 25, 2004, the U. S.
Food and Drug Administration (FDA) finalized a rule requiring barcodes on the labels of most human drugs and biological products to improve patient safety. Inventory Management: Improving Profit Performance According to R. Michael Donovan and Co. , a truly effective inventory management system will minimize the complexities involved in planning, executing and controlling a supply chain network which is critical to business success. The opportunities available by improving a company’s inventory management can significantly improve bottom line business performance.
Too much inventory and not high enough customer service is very common, but unnecessary. There are proven methods that can help you accurately project customer demand and to calculate the inventory you will need to meet your defined level of customer service. Using the right techniques for sales forecasting and inventory management will allow you to monitor changes and respond to alerts when action needs to be taken. The right approach to inventory management can produce dramatic benefits in customer service with lower inventory, no matter how complex your network is.
Modern inventory management processes utilize new and more refined techniques that provide for dynamic optimization of inventories to maximize customer service with decreased inventory and lower costs. These improved approaches to inventory management are of major consequence to overall competitiveness where the highest level of customer service and delivered value can favorably impact market share and profits. Inventory management is a vital function to help insure the success of manufacturing and distribution companies.
The effectiveness of inventory management is directly measurable by how successful a company is in providing high levels of customer service, low inventory investment, maximum throughput and low costs. Certainly, an area where management should apply a philosophy of aggressive improvement. 2. 2 Theoretical Framework “Successful companies have found that employees committed to change combined with great customer service and optimum inventory levels, lead to great profits” Haag (2004).
Based from Haag’s statement, inventory and customer service as well really plays an important role in the business industry particularly in achieving its goal on profit maximization. He also considered inventory as the lifeblood of the company. Figure 1: Maximizing Profitability through Inventory Management Carl J. “Skeet” Haag, CPA (2004) So as to increase profit, one must have effective inventory management at its optimum level. Proper controlling and managing of inventory leads to the aspect of minimizing the cost attributable to the inventory on its acquisition and storage and maximize the profit by less inventory failures. . 3 Conceptual Framework The conceptual framework is the researchers’ structural representation on how they interpret the concept of the study. Figure 2: The conceptual framework of the study Using the theory formulated by the inventory experts, the researchers suggested adapting this conceptual framework of the research. The inventory being managed and controlled by the drugstores are part of their business operations and their policies and practices will affect their profitability.
It is considered that a business cannot achieve profitability without being able to maintain an inventory management system for their inventories. CHAPTER III Research Methodology This chapter discusses the research design, the respondents, the method of data collection, and the method of data analysis. 3. 1 Research Design . The primary interpretation of research design is that it is concerned with undertaking research into the design process. While the secondary interpretation would refer to undertaking research within the process of design.
The overall intention is to better understand and improve the design process. The researchers prefer descriptive method to be used in this study. The aim of descriptive method is to verify formulated hypotheses that refer to the present situation in order to elucidate it. The purpose is to find new truth. The truth may have different forms such as increased quantity of knowledge, a new generalization or a new “law”, an increase insight into factors which are operating, the discovery of a new casual relationship, a more accurate formulation of the problem to be solved and many others.
Applying to the situation of the research project, the descriptive survey is necessary to determine the psychological and social aspects of research by way of application or implementation of evidence to recognize between facts and influence. Furthermore, the descriptive method will be used in this study as the most convenient approach for the researchers as starters in the field. 3. 2 Respondent a. Target population The respondents of this study are the Drugstores here in Naga City which operates in the year 2009 until present.
The target population of this study is not wide and can be counted, thus the respondent determination was not a problem for the purpose of the research. The total population of Drugstores in Naga City is fifty five (55) including its branches. While some part of the population may not be available, the researchers still hope to yield good result of this study. This study will choose a particular number of respondents, which is more convenient to time factors and technical expertise. In this study the research identified thirty two (32) main drugstores here in Naga City excluding the branches, as the main target population of this research. . 3 Method of Data Collection Being the basic step in every research, data collection serves as the lifeblood of the results and the conclusions chapter. 3. 3. 1 Research Instruments Guided with the descriptive research design framework, survey questionnaire serves as the primary data gathering instrument. Primary data collection is concerned with getting the needed information and data to supplement the requisites of the study. The questionnaire is formulated by the researchers according to the following classifications: a. ) Years of Operation; b. ) Average Capital; c. Average annual net income; d. ) Type of organization; e. ) Key employees; f. ) Acquisition of Supplies; g. ) Type of Inventory System; h. ) Management of Active, Damaged, and Expired Tablet Medicines; i. ) Level of Transportation Cost, Handling and Maintenance Cost, and Cost of Storage Facilities. For the study to be accurate, validity should be given importance and emphasis. Thus, the researchers made sure that the questionnaire itself is reliable and valid. The questionnaire will undergo several stages so as to ensure that the results of the survey will be of high reliability.
Using documentary analysis, the questions in the questionnaire are drafted based from the related studies and related literature from the earlier studies conducted by other people. After some evaluation of the questionnaire, several revisions will be made. After which, the questionnaire is now ready for implementation. Being the business language accepted worldwide, English language is used in the construction of the questions in the questionnaire for the easy understanding of both the respondents and the researchers as well. Having in mind to have quantitative results, each question in the questionnaire will require only one answer.
Thus, soliciting specific answers from the respondents. In some instances, semantic differential manner is used for the respondents to rate specific items. 3. 3. 2 Data Gathering Procedures To deal with the primary data, the researchers sent questionnaires to the main thirty two (32) branches of Drugstores in Naga City. The process of data gathering commenced by sending letters to the respondents asking their permission for the survey. After the confirmation from the respondents, the researchers started to conduct the formal data gathering procedure. With the pproved research instrument, the researchers met with the respondents, as to this study, the operational/productions manager. The researchers also ensured that the data are not tampered, and though incomplete, should also be accurate. The respondents were given sufficient time, two to three days, for the completion of the questionnaires, and only then the researchers collected the research instruments. And in dealing with secondary data, the researchers referred to previous studies and previous gathered data. In this case, both qualitative and quantitative data are included.
They could be used for both and explanatory and descriptive researches. The essence of these secondary data is for the reason of obtaining past information for accepted and reliable information sources. After the primary data were gathered, secondary data played an important part in the descriptive research because of its vitality to aid in its analyses. 3. 4 Method of Data Analyses The research tried to examine and illustrate the methods and practices used by the drugstores in Naga City, Philippines in the area of inventory management. Hence, quantitative and qualitative data analyses were conducted in this study.
The researchers are concerned in the data collected which shows the results of the business in the field of inventory management in terms of numerical values. Moreover, a precise measurement and analysis was needed. Thus, quantitative methods was the most applicable for this study because quantitative method is more generalized, predictable and can present causal explanations (Peshkin 1992). Quantitative method of data analysis was more efficient and more accurate in understanding the data and to suffice the questionnaires given by the researchers.
The researchers adapted the quantitative method of data analysis for fast and efficient understanding of the data that had been collected upon giving survey questionnaires. This method easily facilitated the analysis of the results to determine the inventory practices and policies of the drugstores here in Naga City. CHAPTER IV DATA PRESENTATION AND ANALYSIS This chapter contains the analyses and the interpretations of the data to answer the following questions presented in the study. 1. What is the profile of the Drugstores in Naga City, as to: a.
Years of operation b. Average capital c. Average annual net income d. Type of organization e. Key employees 2. How do Drugstores in Naga City deal with their inventories ,as to : a. Acquisition of supplies b. Type of inventory system c. Management of active, damaged, and expired tablet medicine d. Level of transportation cost, handling and maintenance cost, and cost of storage facilities 3. What is the effect of Inventory Management to the profitability of the Drugstores? The results of this research are confined on the framework in Chapter II.
The questions on the instrument by which every respondent was asked to point out specific choices and with each choice are tabulated by their corresponding value. Part 1: Profile of Naga City’s Drugstores Table 1: Length of Business Operations, Capitalization Level and Net Income Length of Business OperationsCapitalization LevelNet Income P100,000 & belowP100,001-P500,000P500,001 -P1,000,000More than P1MP100,000 & belowP100,001-P500,000P500,001 – P1,000,000More than P1M •Less than 1 year00010100 •1 year to less than 5 years01201200 •5 years to 10 years03153411 •More than 10 years14352623 Total1861161334
Table 1 shows the relationship of length of business operations along with their capitalization and net income. Majority of the drugstores operates more than 10 years which have a capitalization level of more than P1 million and an annual net income of P100, 001- P500, 000. One respondent that operates less than 1 year has a capitalization level of more than P1 million and an annual net income of P100, 001- P500, 000. On the other hand, those drugstores that operate 1 year to less than 5 years have a capitalization level of P500, 001- P1, 000, 000 and have an annual net income of P100, 001- P500, 000.
While the drugstores that operates 5 years to 10 years have a capitalization level of more than P1 million and an annual net income of P100, 001- P500, 000. The data shows that even with the big investment on capital from P100, 000 to more than P1 million, majority of the drugstores’ average annual net income just ranges P100, 001- P500, 000. The net income did not reflect what they invest on capital This shows that investment of capital is not mainly on the sole purpose of generating income or there can be other factors which affect the income even of greater capital investment.
Investment on expansion could be one of the factors. The length of business operations also not influence the income of the business. Some of the drugstores that operates more than 10 years invest more capital that they used through expansion and adding more products in order to generate more profit and stabilizing their business. Although these drugstores invest more capital they do not earned more income because of the stiff competitions. But since the medicines are consider one necessity of people more drugstores still invest in this business.
Table 2: Type of Business Organization and Number of Key Employees Type of Business OrganizationAccountantsInventory SupervisorOperational/ Production Supervisor Sole Proprietorship141419 Partnership222 Corporation13824 Others (Foundation)101 Total302446 Table 2 shows that the drugstores use key employees to manage the inventory properly. Under sole proprietorship, the total key employees as follow: 14 accountants, 14 inventory supervisor and 19 operational/production supervisor. On partnership: 2 accountants, 2 inventory supervisor and 2 operational/production supervisor.
On the corporation: 13 accountants, 8 inventory supervisor and 24 operational/production supervisor and others which is a foundation: 1 accountant and 1 operational/production supervisor. Sole proprietorship drugstores having 19 respondents says that they have their operational/production supervisor either one or two, while some of them have their drugstore manager as accountant and inventory supervisor at the same time. However, some of the drugstores failed to indicate the number of their key employees as to accountants, inventory supervisor and operations/production supervisor.
Partnership drugstores having 2 respondents say they have each of the individual key employees in their business while corporation of 4 respondents indicated that they have 13 accountants, 8 inventory supervisors and 24 operation/productions supervisors. This numbers in the corporation, however, are not distributed equally among the four respondents, since they have varied answers on the number of key employees they have indicated in the questionnaire. Other respondent, the foundation, says that they have an accountant and an operation/production supervisor only.
This is because their operation/production supervisor also performs the task of an inventory supervisor. Drugstores hire key employees for operation and decision making purposes. Most of the respondents have their operational/production supervisor as greater in number other than any other key employees. This shows that they focus much on the operation and production to be more effective and efficient. Part 2: Inventory Management Table 3: Type of Business Organization and Sources of Tablet Medicine Supplies Type of Business OrganizationSources of Tablet Medicine Supplies
Within Naga CityOutside Naga CityOutside Bicol RegionOutside Philippines Sole Proprietorship38110 Partnership1010 Corporation1031 Others (Foundation)1100 Total69151 The result in table 3 implies the purchasing of tablet medicine supplies. The total respondent in this study is 26 but in this table shows that the number of respondents exceed to 30. It means that some of the drugstores purchase their supplies not only in one location, because according to some respondents not all tablet medicine supplies can purchase here within or outside Naga City.
Out of the 19 respondents of sole proprietorship drugstores, 3 respondents choose two sources, within and outside Naga City. Also, in the corporation, out of 4 respondents, one also opt two areas for their sources of tablet medicines, outside Bicol and outside Philippines. All of these choices from the respondents results to a total of 31. On the table above, almost all the types of business organization purchase their tablet medicine supplies outside Bicol Region except for the foundation which acquire their medicine supplies within and outside Naga City.
Some of the medicine supplies can only be purchased outside the country specifically those branded and imported tablet medicines. One respondent in the corporation purchase their supplies of tablet medicine in other countries like India, USA, Germany, and Korea. Majority of the drugstores tend to acquire their tablet medicines outside Naga city or outside Bicol Region. This could mean that purchasing within Naga city resulted on heavy competition or shortage of suppliers so they diverted to other geographical locations outside the region.
Also, the availability of tablet medicines is higher when purchased on different locations other than Naga or Bicol Region. Table 4 relates net income to the sources of tablet medicines. Majority of the drugstores earning P100, 001- P500, 000 and more than P1, 000, 000 annual net incomes purchase their tablet medicine supplies outside Bicol region. Table 4: Sources of Tablet Medicine Supplies and Net Income Net IncomeSources of Tablet Medicine Supplies Within Naga CityOutside Naga CityOutside Bicol RegionOutside Philippines P100,000 & below2240 P100,001- P500,0004560
P500,001 -P1,000,0000030 More than P1M1121 Total78151 Purchasing of tablet medicine outside Naga City and Bicol region will increase transportation cost but not affecting the income of the drugstores. It could be inferred that it is more profitable if the drugstores will purchase on different areas other than Bicol Region to avoid competition on limited suppliers. Table 5: Net Income and Purchase Delays Net IncomePurchase DelaysTotal NeverSeldomAlways P100,000 & below2316 P100,001- P500,00029213 P500,001 -P1,000,0000303 More than 1M0404 Total419326
Table 5 presented above shows the net income and the frequency of their purchase delays. About 73% of the total respondents seldom experience purchase delay. On the other hand only 15% said that they never experience purchase delays and 12% said always. Among the ranges of net income, 9 out of 26 or 35% of the total respondents earning P100, 001- P500, 000 net income said that they seldom experience purchase delays. On the other hand, 3 out of 26 or 12% of the total respondents said that they always experience purchase delays with an income of below P100, 000 and P100, 001- P500, 000.
While 4 out of 26 or 15% of the total respondents earning an income of below P100, 000 and P100, 001- P500, 000 never experienced purchase delays. The data implies that big income earners seldom experience purchase delays, however, the one that earning less income have the record of always experiencing it, though others said that they never encounter purchase delays. It relates that purchase delays may affect net income of drugstores since purchase delays can lead to inventory shortage and unavailability of tablet supplies.
This could be solved by implementing effective inventory policies particularly on the terms of purchasing their medicine supplies. Table 6: Net Income and Effect of Purchase Delays on Daily Operations Net IncomeEffect of Purchase Delays on Daily OperationsTotal NeverSeldomAlways P100,000 & below3126 P100,001- P500,00017513 P500,001 -P1,000,0000213 More than 1M0224 Total4121026 Table 6 illustrates the effect of purchase delays on daily operations and net income of drugstores. About 46% or majority of the respondents said that the purchase delays rarely affect the daily operations of their business.
On the other hand 39% of the respondents said that it affects always their daily operations and 15% said that purchase delays never affect their operations. In terms of net income, drugstores which earn P100, 000 and below have 3 respondents on never, 1 on seldom, and 2 on always. On the other hand, drugstores which earn P100, 001- P500, 000 have 1 respondent on never, 7 on seldom, and 5 on always. The drugstores that earn P500, 001 – P1, 000, 000 have 2 respondents on seldom and 1 on always. While the drugstores which earn more than P1, 000, 000 have 2 respondents on seldom as well as on always.
This data not necessarily mean that the effect of purchase delays on their operations does not determine their income. Based from these data, it shows that purchase delays have an effect on the daily operations of the business. Purchase delays affect daily operations since delays always slow the flow of income in terms of sales on tablet medicines. If tablet medicines were purchased late, inventory could be exhausted until there are no more supplies available and there will be an operation lag. There are also times when the delay is caused by the supplier, and thus, affect the daily operation of the drugstores.
Furthermore, the respondents cited that stiff competition and lack of variability of their products are the other factors which results to low income aside from the purchase delays. Table 7: Net Income and Quantity Discounts Net IncomeQuantity DiscountsTotal NeverSeldomAlways P100,000 & below0246 P100,001- P500,00006713 P500,001 -P1,000,0000123 More than 1M0314 Total0121426 Table 7 shows the purpose of knowing whether the drugstores take quantity discounts upon they purchase their supplies of tablet medicines and if it affects their net income.
About 54% of the total respondents said that they always take quantity discount upon purchasing their supplies while 46% of the respondents said that they rarely take quantity discount. In terms of net income, the drugstores which earn P100, 000 and below have 2 respondents on seldom and 4 on always. On the other hand, the drugstores which earn P100, 001- P500, 000 having 6 respondents on seldom and 7on always have little discrepancy as to rarely or always taking quantity discounts. The drugstores which earn P500, 001- P 1, 000, 000 have 1 respondent on seldom and 2 on always.
While the drugstores which earn more than P1, 000, 000 have 3 respondents on seldom and 1 on always. The data shows that even if the drugstores rarely or always avail quantity discounts their sales reflect low return on their income. The discounts are offered by their suppliers in order to cut the cost through purchasing more quantity of tablet medicine. However, quantity discounts are not the main reason why drugstores earn less or more in their operations. Table 8: Drugstores Using Stock Keeping Unit (SKU) or Barcode System, Capitalization Level and Net Income OptionsCapitalization LevelNet Income
P100,000 & belowP100,001-P500,000P500,001 -P1,000,000More than P1MP100,000 & belowP100,001-P500,000P500,001 – P1,000,000More than P1M Using SKU or Barcode system133103923 Not Using SKU or Barcode system05313411 Total1861161334 Table 8 illustrates whether the drugstores used stock keeping units (SKU) or barcode system and compared with their capitalization level and net income. The result shows that majority of the drugstores who are using SKU or barcode system have a capitalization level of more than P1 million. But on the other hand, the drugstores with SKU or barcode system earn an income P100, 001- P500, 000.
However, on those drugstores not using SKU or barcode system, majority of the drugstores having a capital of P100, 001- P500, 000 and the net income reflects to P100, 001- P500, 000 also. Based from the data, drugstores which are using SKU or barcode system have high capitalization level. It implies that it costly to have an SKU or barcode system on the business because it needs a really high capital investment. But the impact of SKU or barcode system on income does not reflect much of profitability. In terms of net income, 17 out of 26 or 65% respondents are using SKU or barcode system.
Out of these 17 respondents, 3 of these said that their income is P100, 000 and below, 9 of these said that their income only ranges from P100, 001- P500, 000, 2 of these have an income of P500, 001- P1, 000, 000, and 3 of these said that they are earning more than P1, 000, 000. However, majority of the 9 drugstores which not using SKU or barcode system fall under the range of P100, 001- P500, 000 net income. This shows that drugstores need more capital investment for having SKU or barcode system in their operations. Costly as it is, it has little effect on net income.
Drugstores, whether they are using or not using SKU or barcode system, did not contribute or little it contributes to profitability. Having of SKU system could rise up expense but will improve the efficiency of the operation in the long-run. Some drugstores say that the SKU system is beneficial even if it’s expensive to implement. Table 9: Net Income and the Time the Drugstores Updates Inventory Management Policy Net income Time the Drugstores Updates Inventory Management Policy AnnuallyQuarterly MonthlyWeeklyDaily Total P100,000 & below104106 P100,001- P500,0005251013 P500,001 -P1,000,000101103
More than 1M400004 Total112103026 Table 9 shows the net income and how often drugstores update their inventory management policy. Majority of the drugstores update their inventory policy either monthly or annually. Drugstores which earn more than P1 million always update their inventory policy annually while majority of drugstores which earn P100, 001- P500, 000 updating their policy monthly. Two respondents update their inventory policy quarterly. This shows that drugstores generally change their inventory policy in order to comply with any changes regarding the policies imposed in the business.
Drugstores tend to update their policy frequently to answer the problems encountered on generating income, whether the policy is effective or not. Large income earners of more than P1 million are just updating annually since their inventory policy is established enough for their operations, while the drugstores having low income updates monthly to improve their current policy and aim for higher income. Table 10: Net Income and Type of Inventory System Net income Type of Inventory SystemTotal FIFOLIFOOthers (First- Expiry First- Out) P100,000 & below4116 P100,001- P500,000112013 P500,001 -P1,000,0003003
More than 1M4004 Total223126 Table 10 states the relationship between the net income of drugstores and its inventory system. The manner by which drugstores manage their inventories is important since it may affect their profitability. It is clearly illustrated that First-in, First-out (FIFO) inventory system are widely used among drugstores having 85% of the total respondents. First-in, First-out (FIFO) is the most used/applied inventory system because this will ensure that the oldest stock tablet medicine is distributed and/or utilized before a newer and identical stock item is distributed and/or utilized.
While 12% of the total respondents said that they used Last-in, First-out (LIFO). Last-in, First-out (LIFO) is still used by some of the drugstores because sometimes the tablet medicines that purchased have an earlier expiration date than the tablet medicines that they have on their stocks. So they have to sold it first in order to avoid return of expired tablet medicine to their suppliers and do not affect the net income. One of the sole proprietorship used other inventory system which is First- Expiry First- Out.
First- Expiry First- Out is a new system used by the drugstores in which the stock having an earlier expiry is sold first. First- Expiry First- Out is a distribution procedure that ensures the stock with the earliest expiry date is distributed and/or used before an identical stock item with a later expiry date is distributed and/or used. Using FIFO as an inventory system seems to be effective since some drugstores achieve an income of more than P1 million using this system. While the other ones using LIFO and First-expiry-First-Out just has an income of P100, 001- P500, 000.
This is because almost all of the drugstores are more familiar to FIFO and it is now accepted on accounting standards rather than LIFO or any other type of inventory system. Table 11: Frequency Conducting Inventory of Tablet Medicine: (According to classification) Classification of Tablet MedicineAnnuallyQuarterlyMonthlyWeeklyDaily Active41894 Damaged311246 Expired211544 Table 11 discusses the frequency the drugstores usually conduct the inventory of tablet medicines according to its classification. For active tablet medicines majority of the drugstores conduct their inventory every week.
While on damaged and expired tablet medicine conduct their inventory every month. This means that active tablet medicine should be the most monitored since these are the medicine bought by the consumer and directly contribute to the profitability of the business. Frequency of conducting inventory on damaged and expired is lesser than of active medicines, though it contributes to losses. Since damaged and expired tablet medicines are minimal in percentage, the active tablet medicines form a bigger part of inventory and have a big impact on income.
These minimal losses could be frequently inventoried but this will take much time because damaged medicines happen by chance of accident and these medicines are not frequently experienced. Thus, priority of conducting inventory is on active first then damaged and expired. Table 12: Unaccounted Inventory of Tablet Medicine: (according to classification) Classification of Tablet MedicineMean Active 1. 12 Damaged 1 Expired 1 Legend: MeanInterpretation 0. 0 – 0. 50Never 0. 51 – 1. 50Seldom 1. 51 – 2. 50Often 2. 51 – 3. 0Always Table 12 shows the frequency of unaccounted inventory of tablet medicine.
Data shows that each classification of tablet medicine rarely experience unaccounted inventory of tablet medicine. The mean computed in active which is 1. 12, 1 for damaged and 1 for expired interprets it seldom. The active tablet medicine has the highest mean computed on the unaccounted tablet medicine. Since this is the tablet medicine which is saleable to the customers, sometimes the returned of purchased by the customers do not automatically updates the SKU or barcode system. So sometimes the negligence of the employees on the drugstores is the reason why there are unaccounted inventories.
The drugstores monitor the number of tablet medicine sold and left in their stock, since majority are using SKU or barcode system. For this reason, the drugstores avoid some unaccounted inventories of tablet medicine which directly contributes to the efficiency of the operations of the business. Unaccounted damaged and expired may have a bearing but since the respondents said these damaged and expired form just little percentage of the total inventory, it will not affect much of the profit. Table 13: Net Income and the Return of Damaged/Expired Tablet Medicine to Supplier Net IncomeOptionsTotal YesNo P100,000 & below426
P100,001- P500,00010313 P500,001 -P1,000,000303 More than 1M314 Total 20626 Table 13 shows the relationship between the purchased returns to the supplier and the annual net income of the drugstores. About 77% of the total respondents return the damaged/expired tablet medicine to their suppliers while 23% does not return. Majority of the drugstores earning P100, 001– P500, 000, always return damaged or expired tablet medicine to suppliers. This shows that return of damaged/expired tablet medicine to suppliers may affect net income, although one of the respondents which never return the tablet medicines has an income of more than P1 million.
Nevertheless, this respondent said that their income is not affected even if they do not return damaged/expired tablet medicines since they have strict inventory policy on managing these inventories and there are factors that contribute to their profitability. The table gives an idea that those drugstores which return the damaged/expired tablet medicine influence the operation of their business. Sometimes the number of tablet medicine supplies returned to the suppliers is more than the available stocks they have. The return of damaged/expired tablet medicine depends on the supplier’s policy.
Some of the suppliers accept only those return damaged tablet medicine which is still sealed and the packaging or cover is not broken. For the expired tablet medicine it should be return to the suppliers 1 month before its expiration date. Also some of the suppliers allowed only those branded tablet medicines to be return if damaged/expired, but if it’s generic tablet medicines they do not accept it. Table 14: Net Income and the Returned of Purchased Item from the Customers Net IncomeReturned of Purchased ItemTotal NeverSeldomAlways P100,000 & below0606
P100,001- P500,000210113 P500,001 -P1,000,0001203 More than 1M0314 Total321226 Table 14 shows the frequency of returning purchased item from the customers with their income. About 81% or majority of the total respondents said that they seldom experience return of purchased items from their customers. With regards to income those drugstores that earn P100, 000 and below experienced return of purchased from customers rarely. On the other hand, drugstores which earn P100, 001- P500, 000 have 2 respondents on never, 10 on seldom, and 1 on always.
Drugstores which earn P500, 001- P1, 000, 000 have 1 respondent on never and 2 on seldom. While those drugstores earn more than P1 million have 3 respondents on seldom and one on always. The data shows that the return of purchased item from the customers has a direct effect on the income of the drugstores. The more return purchased item that they received from the customers the more likely to decreased their net income. The reasons why the customers return their purchased is because they bought incorrect brand name of tablet medicine, the packaging cover is broken and the tablet medicine is already expired.
The drugstores control the return of purchased from the customers because of the policies imposed in their business. Table 15: Rate of Level of Transportation Cost, Handling and Maintenance Cost, Cost of Storage Facilities Net IncomeLevel of Transportation CostHandling and Maintenance CostCost of Storage Facilities P100,000 & below1. 671. 61. 6 P100,001- P500,0001. 621. 851. 79 P500,001 -P1,000,000222 More than 1M1. 7521. 5 Legend: MeanInterpretation 1. 0 – 1. 50Low 1. 51 – 2. 50Average 2. 51 – 3. 0High
Table 15 illustrates the range of net income of the drugstores with regards to their level of transportation cost, handling and maintenance cost, and cost of storage facilities. Drugstores which earn P100,000 and below have an average of 1. 6 to all cost attributable to managing inventories, while other drugstores which fall within the range of P100, 001- P500, 000 net income have their handling and maintenance cost as higher than the two other costs. The drugstores with P500, 001- P1, 000, 000 income earners have their all costs at a mean of 2 and the drugstores earning more than P1 million have lso their handling and maintenance cost as higher than other two costs. This table implies that drugstores, whatever their income ranges may be, consider handling and maintenance cost as the most expensed factor on managing the inventory, second and third in line is the level of transportation cost and cost of storage facilities. This means that drugstores are much concerned in maintaining and preserving the supplies of tablet medicine. Table 16: Type of Inventory System and Profitability of the Business Type of Inventory SystemProfitability of the Business Total Very Satisfied SatisfiedNot Satisfied
FIFO119121 LIFO0303 OTHERS (First- Expiry First- Out)0202 Total124126 Table 16 discusses about the relationship of the inventory system to the satisfaction of the respondents on the profitability of the business. Out of 26 respondents, 19 or 73% said that they are satisfied on their profitability under FIFO system. Other drugstores are using LIFO and First-Expiry First-Out Method, 3 and 2 respondents respectively, indicated that they are also satisfied with their profitability. One respondent under sole proprietor said that they are very satisfied and one under corporation said that they are not satisfied.
These drugstores both use the FIFO inventory system. This table proves that inventory system did not affect the profitability of the business. Having FIFO both used by a satisfied and dissatisfied respondents, it concludes that inventory system is not a factor for a business to determine profitability. Other respondent said that it is due to intensive competition among drugstores that deter their profitability and not on the inventory system they are using. Table 17 shows the effect of the length of business operations regarding the profitability of the business.
About 92% of the total respondents said that they are satisfied to the profitability of their drugstores and majority of these operates more than 10 years. Table 17: Length of Business Operations and Profitability of the Business Profitability of the Business Length of Business OperationsVery Satisfied SatisfiedNot SatisfiedTotal Less than 1 year0101 1 year to less than 5 years0303 5 years to 10 years1809 More than 10 years012113 Total124126 One respondent that operates 5 years to 10 years is very satisfied with their profits because beside from drugstore, they also a distributor of medicines here in Naga City.
On the other hand one respondent that operates more than 10 years is not satisfied in their profit. The reason is because of low income they achieved despite the bigger capital they invest on the tablet medicines. It chooses to increase the sales volume of its products by expanding its marketing outlets. The length of business operations does not affect the profitability of the business because of the very stiff competition nowadays. Smaller drugstores that started in this kind of business experience difficulties in getting back the capital they invested.
Even those big drugstores experience difficulty in achieving more profit. However, these drugstores having strategic location achieve greater profitability than other drugstores because it more convenient to sell medicines if you are in a prime location. Table 18 illustrates the net income of the drugstores with regards to the satisfaction in their profit. Majority or 92% of the total respondents said that they are satisfied on their profits and majority of these has a net income of P100, 001- P500, 000. Table 18: Net Income and Satisfaction on Profitability of the Business
Net IncomeProfitability of the BusinessTotal Very Satisfied SatisfiedNot Satisfied P100,000 & below1506 P100,001- P500,000012012 P500,001 -P1,000,0000303 More than 1M0415 Total124126 Two of the respondents have indicated opposite answers with respect to their profitability. One respondent said that even if they are earning P100, 000 and below, they are very satisfied with their profitability since they are just starting their business and their capitalization level is not that high. On the other hand, one drugstore said that they are not satisfied even if they are earning more than P1 million.
This is because, they spend too much on investing capital for expansion, and they are expecting to earn more from this expansion. Presence of other competitors is the main reason why they are not satisfied with their profitability. CHAPTER V Summary of Findings, Conclusions and Recommendations This study is a descriptive research that primarily focused on the inventory management on tablet Medicines in Naga City. Data were gathered from 26 drugstores out of the 32 respondents located here in Naga City. Both the self questionnaire and casual interview were employed to make data gathering possible.
Data analyses were performed using statistical tools such as distribution of frequency, percentage and ranking as well. 5. 1 Summary of Findings The summary of findings is presented based from the research study to achieve its three main objectives: ? The first is to know the business profile of the drugstores in terms of length of business organization, capitalization level and annual net income. The investment of capital is not mainly on the sole purpose of generating income or there can be other factors which affect the income even of greater capital investment. Investment on expansion could be one of the factors.
The length of business operations also not influence the income of the business. Some of the drugstores that operate more than 10 years invest more capital that they used through expansion and adding more products in order to generate more profit and stabilizing their business. Although these drugstores invest more capital they do not earned more income because of the stiff competitions. Drugstores hire key employees for operation and decision making purposes. Most of the respondents have their operational/production supervisor as greater in number other than any other key employees.
This shows that they focus much on the operation and production to be more effective and efficient. ?Second is to determine the inventory management practices/policies on tablet medicine in terms of acquisition of tablet supplies; type of inventory system; usage of SKU or barcode system; management of active, expired, damaged tablet medicines; and all costs attributable in inventory management. Majority of the drugstores are purchasing their tablet medicines outside Bicol Region. FIFO inventory system is widely accepted by almost all of the drugstores.
Although there are some using LIFO and First-expiry, First-Out by which they are used to it or for its advantage of best matching the net income by matching the cost of sales with most recent costs to replace inventory sold. Moreover, although SKU or barcode system is used by a greater part of the respondents, they still experience unaccounted tablet medicines especially on active medicines. Most of the drugstores frequently conduct inventory more on active medicines which is on a weekly or monthly basis rather than the damaged and expired ones.
Maintenance and handling cost form a bigger part of inventory management cost among majority of the drugstores. ?The factors regarding inventory management practices like the places where tablet medicines are acquired, experiencing purchase delays, usage of SKU or barcode system and the like shows a slight effect on profitability of the business. However, drugstores tend to minimize the cost by focusing on inventory management, thus, achieving profitability. Nevertheless, most of the drugstores pointed out that it is not the lack of proper inventory anagement that hinder their profitability but the tight competition, since the presence of drugstores here in Naga City are substantial in number and is constantly growing by adding branches and diversifying product lines in the pharmaceutical industry. 5. 2 Conclusions After scrutinizing and analyzing the data that we have gathered, the following conclusions are drawn based from the findings that were presented. The researchers therefore conclude that: ? The drugstores whether they are operating just now or fully established, do not relate or contribute to their profitability.
Since most of the drugstores which stayed more than 10 years in business had their income ranges only P500, 000 and below and one drugstore even managing for just only less than one year has reached an income of more than P1 million. This shows that drugstores are having some difficulties on the long-run to manage their operation in terms of gaining profits because of stiff competition and location. However some new market entrants were successful to penetrate the market and achieve high profitability by ensuring good quality performance and sufficient advertisement and promotion. Drugstore owners only employ operations/productions manager to focus more on the business processes while the owners decides to lessen the cost on compensation by multi-tasking, doing both accounting and inventory management duties. ?Capital does not determine the income. Most of the drugstores invest more capital but do not earn more income as expected. Drugstores invest more capital to expand their business and/or avail SKU or barcode system to further enhance their efficiency and effectiveness of operations, but data shows that it did not contribute to their net income.
Again, competition against drugstores is what drives their income at a low or average level even investing large capital. Since majority of the drugstores are sole proprietorship and located almost side by side near hospitals, the demand for tablet medicines is shared by many drugstores resulting in low income amidst high capitalization level. ?Having SKU or barcode system does not ensure proper accountability of the tablet medicines and contribution to net income. Based from the studies, the average of unaccounted active tablet medicines is 1. 2 or seldom had they failed to account tablet supplies even with the system. This results to other means like lack of internal control or training among employees. Also, SKU or barcode system having been implemented through a big capital investment does not reflect much more income than it is expected. ?Inventory management is not a major factor for achieving profitability. The factors enumerated and indicated in the tables regarding inventory management does contribute to net income but just a little.
It merely minimizes the cost incurred of the drugstores, failure to ensure proper inventory management does not mean loss to a business, which even established drugstores are having difficulties in inventory management although reports show high level of net income. Competition is what most of the drugstores have said that slows or hinders their profitability. 5. 3 Recommendation Having the following results of the conducted survey and interpretation of the data, the researchers have come up with these recommendations: DRUGSTORES
Since there are many drugstores in Naga City which results to stiff competition, The drugstores should come up with ways on how to gain more customers because of the stiff competition between drugstores here in Naga City. Maybe they can give discount cards or offer free services like free Blood Pressure check up and the likes like what other drugstores are doing right now to attract customers. They should also continuously find ways to improve not just their profitability but the reduction in cost and expenses which might have an impact in pricing the finished goods they offer to their customers.
Thus, find ways to get the customers’ needs and interest. KEY EMPLOYEES The improvement of inventory management is one of the core strategies that could be done to minimize the expense incurred by the drugstores. Profitability is not just by selling more but rather by having a good inventory management to further increase the net income. ?Inventory Supervisor – should always have an updated inventory of their products because outdated inventory form part of the cost of handling, maintenance and storage facilities which might have a considerable impact to their factory overhead cost. Operational/ Productions Manager – should find ways of decreasing purchase delays by choosing trusted suppliers because the supply always affects the daily operation of the business. ?Drugstore Manager – should continue monitoring/evaluating so as to assure that policies implemented are effective and whatever needs improvement will be identified. INVESTORS Investors should be very particular of the location of their stores since there are already a lot of drugstores in Naga City. Also, they should have their own way of attracting customers to patronize them. GOVERNMENT
The government should be strict in monitoring if drugstores comply with the law regarding their handling and storage since this will greatly affect the quality of the medicines that the drugstores are selling. Also be strict in ensuring that drugstores sell BFAD approved medicines, especially now that fake medicines are being widely manufactured. TEACHERS This study could help teachers, specifically on accountancy, as their basis or reference on discussions of inventory management. The result of this study can be used as an example for better understanding of this topic. COMMERCE STUDENTS
The students should know the importance of Inventory Management and how it affects the profitability of a business. This would help them understand that managing inventories is not an easy task to do and that would either make or break a business if they are already practicing their profession. FUTURE RESEARCHERS The study only focuses on the Inventory Management of Tablet Medicine in Naga City drugstores. Result of the researcher’s study may be made as basis in studying Inventory Management of other types of medicines as well. It would be interesting to compare how drugstores manage their inventories for tablet and other types of medicines.