Best Practices: Over-The-Counter Inventory Management

Managing inventory is a daunting task. Businesses with good inventory controls will have key processes in place to handle the procurement, oversight, and sales of the products it carries. Pharmacies have a dual challenge with inventory control, because they have to separate products into one set for prescription drugs and another set for over-the-counter (OTC) products. In many cases, both sets of items will be procured from the same vendor. Managing the OTC products is difficult for pharmacies because they typically source items from a variety of vendors. Each vendor may have a different process for placing orders, which requires a flexible system capable of handling the ordering and receiving tasks.

Let's walk through what a gold-standard OTC inventory solution should look like and how it can improve your pharmacy's POS process. 


Perpetual Inventory

This can be a very confusing concept for many people. At a high-level, perpetual inventory is an accounting system that tracks purchasing of inventory items and the sale of those items. This system typically functions as a back-office software application that handles processing of purchases and sales from external applications, like a point of sale (POS). The same system must also account for items that are purchased but do not sell. Examples of this would be items that have reached an expiration date, were broken in a store, or were transferred to another location.

The inventory control system should create a digital record for each type of transaction that impacts inventory. Each OTC shipment received in a pharmacy should record the quantity received and cost paid for each item. Item costs may change over time, and you want to know how much is invested in all of your OTC inventory. Emporos’ perpetual inventory tracking handles all of this for you. If you received 20 units of an item at $2.20 each and then 30 more at $2.50 each, our inventory tracking shows your total quantity on hand as 50, and total cost as $119.00. We also calculate your average cost of each unit, which would be $2.38 in this example.

The same system should include transaction records for each item sold to a customer. It is important to capture the price each item was sold to help you determine profitability. When you sell an item, the system will remove quantity and cost from the Inventory record. Systems using average cost will reduce your total inventory cost for one item sold by the average cost of that single unit. Selling one of the items mentioned above removes 1 from quantity on hand, and $2.38 from total cost on hand. If you sold the item for $3.98, your profit is calculated as $1.60 on that sale. 



Good inventory management provides for accounting adjustments. Pharmacies face ongoing demands to remove expired OTC medication from the sales floor. This must be removed for patient safety, and it must be recorded in the inventory system. Best practices include using reason codes for each item adjustment so your finance team will be able to see why items were removed from inventory. Be sure to set up a good, descriptive set of adjustment reasons for your pharmacy teams to use. Emporos’ adjustments feature gives you the tools to record all of this information, including a customizable reason code solution. 


Physical Counts

No matter how solid your controls are for inventory management, you will almost always experience shrink. Shrink is when your inventory accounting system shows that you have items in stock that are no longer on the shelf. This can happen because of theft, mistakes made during order receiving, unaccounted breakage in stores, or for other reasons. The best way to avoid this is to implement regular counting checkpoints. Perform a full inventory count at least once per year, and recurring cycle counts in between that. Physical counts should be done with your pharmacy doors closed (prior to opening or after closing). Count every item found on the sales floor and in your stockroom, then reset your inventory accounting system to that count. Do this for each pharmacy location. This will show you variances, and expose the amount of shrink you have in each location. Emporos provides a robust physical counts feature that allows you to perform all of these steps. 


Cycle Counts

Cycle counts should be done in between your full counts, and is a great way to stay on top of shrink. Perform partial OTC counts on the shelf once a week or every other week, focusing on areas with high sales volume or with items at risk for theft. Rotate the areas or departments you cycle count to increase your coverage. Count bandages one week, pain relievers the next week, and then eye care after that. Regular cycle counts with good pharmacy coverage should result in a more accurate annual full count. Cycle counts can alert you earlier to areas of your OTC inventory where you have issues with shrink. The Emporos cycle count feature makes this process easier for you to enter counts, see variances, and make the adjustment corrections to your inventory record. 


Inventory History

Inventory accounting systems should allow you to see an item on hand quantity and cost in all locations. It should also be able to show you how you reached those values. Ideally, you have a way to look at each transaction that caused the item's inventory to move up or down. This can help in troubleshooting items with inaccurate on hand values. Within Emporos’ item maintenance feature, you have the ability to pick an OTC item and see its current on hand values and the transaction history.



If you have a solid foundation of OTC inventory management practices in place, you will have good visibility into sales and profitability. Using Emporos’ suite of inventory module features will help provide you with reporting to understand areas that are making you more profit, and others that may not be profitable.


Emporos understands pharmacy operation, and we have the OTC inventory management tools that can help you put strong controls in place. The Emporos POS inventory module provides all the important accounting features necessary to manage your OTC products. 

Features include:


Put best-in-class inventory management tools in place and get control over your OTC products. Drop us a note here to see a demo of our inventory module features.


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