Methods of
Codification
Effective codification and pricing of materials are essential for the efficient
management of a drug store. This presentation explores various methods of
codification and pricing strategies to ensure accurate inventory control and fair
pricing for customers.
by MedEdHub
Alphabetical Codification
1 Simple and Straightforward 2 Limited Flexibility
The alphabetical method assigns letters While suitable for smaller inventories,
to represent different classifications, the alphabetical method lacks the
making it easy to identify and remember capacity to accommodate a large
the codes. number of items.
3 Prone to Confusion
Without a clear reference index, the mnemonic meaning of the codes can be easily
forgotten, leading to potential mix-ups.
Numerical Codification
Decimal System Block System Flexibility and Expansion
In the decimal system, each digit The block system reserves Both the decimal and block
represents a sub-group or sub- specific number ranges for systems offer greater flexibility
account, allowing for a more different product categories, and the capacity to expand the
organized and expandable making it easier to identify and coding system as the inventory
coding structure. locate items. grows.
The main advantage is the ability This method is more The choice between the two
to accommodate new items straightforward and can be more depends on the specific needs
without disrupting the existing suitable for larger inventories. and size of the drug store.
system.
Mnemonic Codification
Easy Identification Limited Expansion
Mnemonic codes are designed to be easily While mnemonic codes are user-friendly, they can
recognizable and associated with the be restrictive in terms of accommodating a
corresponding product, making them intuitive for growing inventory, as the codes must be
users. manually assigned and maintained.
Reliance on Reference Combination Approach
Without a comprehensive reference index, Combining mnemonic and numerical methods
mnemonic codes can be difficult to interpret, can leverage the benefits of both, providing a
leading to potential confusion and errors. flexible and intuitive coding system.
Pricing Strategies
Average Cost
FIFO The Average Cost method calculates a weighted
The First-In-First-Out (FIFO) method prices issues average price based on the total value and
based on the cost of the oldest consignments, quantity of all stock, providing a more stable
ensuring the oldest stock is cleared first. pricing approach.
1 2 3
LIFO
The Last-In-First-Out (LIFO) method prices issues
based on the cost of the most recent
consignments, prioritizing the newest stock.
Replacement Price Method
Market-Driven Pricing Adaptability to Changes
The Replacement Price method sets the issue This method allows the drug store to quickly
price based on the current market price, ensuring adjust prices in response to fluctuations in the
the pricing remains relevant and competitive. market, maintaining profitability.
Transparency for Customers Potential Volatility
By basing prices on the current market rate, the Relying solely on the market price can introduce
Replacement Price method provides a clear and instability, as prices may fluctuate frequently,
transparent pricing structure for customers. requiring constant monitoring and adjustments.
Standard Price Method
1 Predetermined Pricing 2 Stability and Consistency
The Standard Price method sets a fixed This method provides a more stable and
price for a specific period, based on a consistent pricing structure, allowing
careful analysis of market conditions the drug store to maintain a predictable
and trends. pricing policy.
3 Periodic Revisions
To ensure the standard prices remain accurate and relevant, they should be reviewed and
revised periodically to account for market changes.
Inflated Price Method
Accounting for Waste Maintaining Profitability
The Inflated Price method factors in the expected By incorporating the cost of normal wastage into
waste or loss of materials during storage and the pricing, the drug store can maintain
handling, ensuring the pricing covers these profitability and avoid financial losses due to
incidental costs. unavoidable losses.
Transparency and Fairness Potential Overpricing
This method provides transparency to customers If the estimated wastage is not accurately
by clearly communicating the pricing structure calculated, the Inflated Price method may result
and the rationale behind the inflated prices. in overpricing, which could negatively impact
customer satisfaction.
Actual Price Method
Detailed Tracking Customized Pricing Limited Applicability
The Actual Price method records This method is particularly useful While the Actual Price method
the acquisition cost of each for non-standardized materials or provides the most accurate
material in a separate ledger, specific customer orders, where costing, it can be cumbersome and
allowing for precise tracking and the actual cost of each item is time-consuming, making it less
costing of specific items. crucial for accurate pricing. suitable for large-scale inventory
management.
Legal Requirements and Price
Control
Bulk Drug Pricing
The Drug (Price Control) Order, 1987 authorizes the government to fix the maximum
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sale price of bulk drugs manufactured in the country, based on factors such as
return on capital and production costs.
Formulation Pricing
The retail price of drug formulations is calculated using a formula that considers
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material cost, conversion cost, packing materials, and a maximum allowable post-
manufacturing expense.
Pricing Regulations
Manufacturers, importers, and distributors must adhere to the government-
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mandated pricing structure, with specific discounts allowed for sales to wholesalers
and retailers.
Pricing Transparency
Retail Price Display Pricing Breakdown
The retail price of drug formulations must be clearly Manufacturers are required to provide detailed
displayed on the product label, ensuring transparency information on the various cost components that
and compliance with government regulations. make up the final retail price, promoting transparency
and accountability.
Conclusion
1 Effective Codification 2 Pricing Strategies
Choosing the right codification method Adopting appropriate pricing methods,
is crucial for efficient inventory such as FIFO, LIFO, or Average Cost, can
management and accurate pricing in a help maintain profitability and
drug store. competitiveness.
3 Regulatory Compliance
Adhering to government-mandated pricing regulations and ensuring transparency in pricing
structures is essential for drug stores to operate legally and ethically.
Key Takeaways
Codification Flexibility Pricing Considerations Regulatory Compliance
Numerical codification methods, Factors like market conditions, Strict adherence to government-
such as the decimal or block expected waste, and regulatory mandated pricing regulations and
system, offer greater flexibility and requirements should be carefully transparent pricing structures are
expansion capabilities compared evaluated when selecting the essential for the successful and
to alphabetical or mnemonic appropriate pricing strategy. compliant operation of a drug
approaches. store.
