5 Rules for managing expiry dated stock

Expired stock?

Managing expiry dated, use by or best before dated stock can be a real headache for the inventory manager.  My background is in pharmaceuticals and medical devices but many of the same principles apply to food as well.   I also think that even non-expiring product has a use by date;  particularly electronics and fashion or anything that behaves like these products.  Once it gets old, you either can't sell it at all or its value diminishes rapidly.  So here are my rules for managing expiry
in the pharmaceutical industry but I am sure there are useful ideas here for food and other industries as well.

1. Develop a supply policy for minimum shelf life from suppliers

The first step you need to take when managing expiry dated stock is to control what you accept from your suppliers.  Determine what your customers expect in terms of shelf life and then add on your own internal lead times depending on how often you turn over your stock.  This will vary widely depending on what business you are in.  Manufacturers must control the shelf life of raw materials that will subsequently impact the expiry date of finished goods.  Wholesalers must manage the shelf life of their products that are shipped to hospitals or pharmacies which will have varying demands on shelf life.

Set a general policy that you make part of your conditions of purchase or contract with suppliers so that if you receive stock with less shelf life than required you can either send it back or accept it on a sale or return basis.  The aim is to develop a strong relationship with your suppliers and collaboratively manage the use of expiry dated stock and limit your risk of stock loss due to expiry.  Accurate records and a formal approval process of any special arrangements signed by the senior responsible person at your supplier will help with subsequent claims for expired stock.

2. Rotate stock to sell by FEFO

FEFO stands for First Expiry First Out and is the inventory policy that should be supported by any modern stock management system or warehouse system.  If you manage your inventory manually on a paper based system or do not track batch and expiry dates in your business system then you must make sure that you rotate batches of stock physically by checking the expiry of current stock and received stock during put-away to place the earliest expiring stock at the front of the shelf so that it its picked first.

For business systems tracking batch and expiry then the pick rules and pick area replenishment rules must be set to FEFO to ensure stock rotation.  Best practice is also to prevent different batches of the same stock being put-away to the same shelf or rack location.  This eliminates the need for physical stock rotation and prevents mis-picks of incorrect batches

3. Remove un-saleable stock from sale

Stock may become unsaleable some time before it expires.  This will vary from business to business and even from customer to customer.  Customer shelf life restrictions are hard to manage as the functionality does not exist in many business systems and it must be controlled procedurally.  Stock with a shelf life below what any customer will accept, has become unsaleable, and should be removed from the shelf, changed to a quarantine status or written off from stock and placed into a quarantine area awaiting destruction.

If you track batch and expiry on your business system then you will be able to print a report every month of stock that has become unsaleable that should be removed.  If you do not track expiry on your system then you will need to manage this procedurally.  Ideally your pickers should be checking expiry dates as they pick (but this does slow the process) or the only other option is to check every bin once per month for stock below the minimums acceptable shelf life, this is time consuming but if you do not do this then you will likely ship expired or unsaleable product to your customers.

3a. manage customer shelf life expectations

The implications of this is that as much effort must be put into managing the policies of shelf life outbound to your customers as is put into managing shelf life inbound from your suppliers.  Just as you have inbound policies so do your customers and a good relationship will go a long way to ensuring that you don’t have unsaleable stock that could have been sold if the customer relationship was more flexible.

4. Manage expiry risk

All stock represents a risk of being left unsold and expiry dated stock doubly so, as it has a defined end date after which it is a total loss.  Ideally you should be tracking batch and expiry dated stock on your system.  If you do this then you can use a spreadsheet to calculate the risk of stock expiring in the future (WPI members only) or print shelf life reports to check on short dated stock.  If you are managing stock manually or without tracking expiry dates then it puts more emphasis on the procedural controls already mentioned.

Stock can be safely consumed up to the day of expiry (when stored correctly) so sometimes short dated product can be sold (maybe at a discount) to a customer who will use it before expiry.  It is also worth establishing relationships with some of your competitors for the purpose of helping each other with excess stock that is likely to expire.  In Australia www.Pharmstock.com.au has been established to help pharmacies and wholesalers trade short dated and unsaleable stock.

5. Dispose of expired stock properly

Lastly when all else has failed and the stock has expired and been written off it must be disposed of properly.  Drugs are poisons and can contaminate the ground water if disposed into landfill or rivers and oceans if illegally dumped.  Drugs must be destroyed by high temperature incineration which breaks down the chemicals into less harmful compounds which can be safely disposed into landfill.  All manufacturers and suppliers of medicines already have a legislated requirement to dispose of waste drugs this way but only relatively recently has the issue of waste drugs in the general community been addressed.

Australia has the RUM project  (http://www.returnmed.com.au/) a federally funded program to allow the general public to return their unused medicines to a community pharmacy for proper disposal.

What next?

The cost of expired medicines and medical products to the community is huge.  Some of this cost is hidden at the manufacturer and inevitably built into product cost, some of it is a direct burden on publicly funded healthcare providers.  Some is a personal loss by individuals who buy medicines and do not use them.  From a supply chain perspective I feel that a lot of this cost burden can be mitigated through better supply chain coordination as well as an incentive for the manufacturer to take more responsibility for what happens to their products once they have shipped them.

The financial loss of expired stock increases as it moves down the supply chain as the selling price rises from manufacturer to wholesaler to retailer/hospital.  Yet the manufacturing cost of drugs is often small compared to their selling price.  So at least some of the profits made by manufacturers comes from product that is discarded and never used. 

Given the community funding of these items and the public good from reducing healthcare costs, it would not seem too much of a stretch to me to return all expired products back to manufacturers for a rebate of product selling price less (manufacturing cost and return and disposal costs).  This approach combined with some serious attempts at developing collaboration and planning information across the whole supply chain to improve inventory management and eliminate waste due to expiry would go a long way towards reducing overall costs to the community for the supply of medicines (and other medical products).

See the Linked In community online discussion on this topic.

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