Pharmaceutical Management

ABC and VED Analysis of the Pharmacy Store of a Tertiary Care

Teaching, Research and Referral Healthcare Institute of India
Devnani M, Gupta AK, Nigah R1
Department of Hospital Administration and 1Pharmacy, Post Graduate Institute of Medical Education and
Research (PGIMER), Chandigarh, India
Address for correspondence: Dr. Mahesh Devnani; E-mail: [email protected]

ABSTRACT
The ABC and VED (vital, essential, desirable) analysis of the pharmacy store of Post Graduate Institute of
Medical Education and Research (PGIMER), Chandigarh, India, was conducted to identify the categories of
items needing stringent management control. The annual consumption and expenditure incurred on each item
of pharmacy for the year 2007-08 was analyzed and inventory control techniques, i.e. ABC, VED and ABC-VED
matrix analysis, were applied. The drug formulary of the pharmacy consisted of 421 items. The total annual drug
expenditure (ADE) on items issued in 2007-08 was Rs. 40,012,612. ABC analysis revealed 13.78%, 21.85%
and 64.37% items as A, B and C category items, respectively, accounting for 69.97%, 19.95% and 10.08% of
ADE of the pharmacy. VED analysis showed 12.11%, 59.38% and 28.51% items as V, E, and D category items,
respectively, accounting for 17.14%, 72.38% and 10.48% of ADE of the pharmacy. On ABC-VED matrix analysis,
22.09%, 54.63% and 23.28% items were found to be category I, II and III items, respectively, accounting for
74.21%, 22.23% and 3.56% of ADE of the pharmacy. The ABC and VED techniques need to be adopted as a
routine practice for optimal use of resources and elimination of out-of-stock situations in the hospital pharmacy.
Key words: ABC analysis, ABC-VED matrix, inventory management, pharmacy, VED analysis
DOI: 10.4103/0975-1483.63170

INTRODUCTION

About one-third of the annual hospital budget is spent on

buying materials and supplies, including medicines.[1] The
pharmacy is one of the most extensively used therapeutic
facilities of the hospital and one of the few areas where
a large amount of money is spent on purchases on a
recurring basis. This emphasizes the need for planning,
designing and organizing the pharmacy in a manner that
results in efficient clinical and administrative services.[2]
The goal of the hospital supply system is to ensure that
there is adequate stock of the required items so that an
uninterrupted supply of all essential items is maintained.
A study conducted by the Department of Personnel and
Administrative Reforms in India has revealed that not
J Young Pharm Vol 2 / No 2

only does the quantity of medicines received fall short

of the requirement but also the supply is often erratic.
Even common medicines are out of stock and remain so
for a considerable period.[3] Of the various explanations
for non-availability of even simple medicines in the third
world countries, a large number are related to materials
management. A study from a 1,500-bedded state-funded
hospital has claimed that review and control measures for
expensive drugs brought about 20% savings.[4]
Inventory control in hospital pharmacy is very essential in
a developing country like India.[5] As resources are limited,
it is essential that the existing resources be appropriately
utilized. With the existing drug budget, if rational drug use
and improved drug management practices are followed,
201

Devnani, et al. J Young Pharm. 2010;2(2): 201-205

more number of patients can be served. It is essential that
health managers use scientific methods to maximize their
returns from investment at a minimal cost.[5-8]
Drug inventory management stresses on cost containment
and improved efficiency.[9] Each item may be considered
critical and there is a perceived need to supply very high
levels of service.[10] There is no denying that stocking
hospital pharmaceuticals and supplies can be expensive
and tie up a lot of capital, and bringing efficiencies to
such important cost drivers - often 30-40% of a hospitals
budget - can present meaningful savings.[11] Thus, a hospital
materials manager must establish efficient inventory system
policies for normal operating conditions that also ensure the
hospitals ability to meet emergency demand conditions. [12]
But, it is impossible and unnecessary too to monitor every
drug used in the health system. High-cost and high-volume
drugs come in priority, whose intervention is likely to cause
the greatest clinical and economic impact. In the whole
process, it is important to trace the costliest medicinal
products first, those that consume the major portion of
the budget, and then design a strategy to further study and
identify their use pattern. The study of use pattern will help
in designing appropriate corrective measures. ABC analysis
is an important tool used worldwide, identifying items that
need greater attention for control.[5-8,13]
ABC analysis is a method of classifying items or activities
according to their relative importance. It is also known as
separating the vital few from the trivial many because,
for any group of things that contribute to a common
effect, a relatively few contributors account for a majority
of the effects. The analysis classifies the items into three
categories: the first 10-15% of the items account for
approximately 70% of cumulative value (cost) (category
A), 20-25% are category B items that account for a further
20% of the cumulative value and the remaining 65-70%
are category C items, amounting for a mere 10% of the
total value.[5-9,14-16]
The limitation of ABC analysis is that it is based only
on monetary value and the rate of consumption of the
item. In a hospital, an item of low monetary value and
consumption may be very vital or even life saving. Their
importance cannot be overlooked simply because they do
not appear in category A. Therefore, another parameter
of the materials is their criticality.[7]
VED analysis is based on critical values and shortage cost
of the item. Based on their criticality, the items could be
classified into three categories: vital, essential and desirable.
There could be serious functional dislocation of patient
202

care services in hospital when vital drugs are not available

even for a short period. If essential items are not available
beyond a few days or a week, the functioning of the hospital
can be adversely affected. The shortage of desirable
items would not adversely affect patient care or hospital
functioning even if shortage is prolonged.[5,7,17]
A combination of ABC and VED analysis (ABC-VED
matrix) can be gainfully employed to evolve a meaningful
control over the material supplies. Category I includes all
vital and expensive items (AV, BV, CV, AE, AD). Category
II includes the remaining items of the E and B groups (BE,
CE, BD). Category III includes the desirable and cheaper
group of items (CD).[17]
In the present study, ABC, VED and ABC-VED matrix
analysis of the pharmacy store of PGIMER, Chandigarh
(a 1,500 bed tertiary care teaching, research and referral
health institute catering to the major portion of northern
India), was performed to identify the categories of drugs
needing stringent management control.
The specific objectives of this study were to: (1) analyze the
annual consumption of items of pharmacy and expenditure
incurred on them for the year 2007-08, (2) evolve a priority
system based on ABC and VED and ABC-VED matrix
analysis, (3) identify the item categories requiring greater
supervisory monitoring.
MATERIALS AND METHODS

The data of annual consumption and expenditure incurred

on each item of the pharmacy for the financial year 2007-08
were collected. The data were then transcribed in an MS
Excel spreadsheet. The statistical analysis was carried out
using the MS Excel statistical functions.
ABC analysis
The annual expenditure of individual items was arranged
in descending order. The cumulative cost of all the items
was calculated. The cumulative percentage of expenditure
and the cumulative percentage of number of items
were calculated. This list was then subdivided into three
categories: A, B and C, based on the cumulative cost
percentage of 70%, 20% and 10%, respectively.
VED analysis
The VED criticality analysis of all the listed items was
performed by classifying the items into vital (V), essential (E)
and desirable (D) categories. The items critically needed for
J Young Pharm Vol 2 / No 2

ABC and VED analysis of pharmacy store

the survival of the patients and those that must be available

at all times were included in the V category. The items with
a lower criticality need and those that may be available in the
hospital were included in the E group. The remaining items
with lowest criticality, the shortage of which would not be
detrimental to the health of the patients, were included in the
D group. The VED status of each item was discussed with
justification by a group comprising of physician, surgeon,
pediatrician and pharmacist.
ABC-VED matrix analysis
The ABC-VED matrix was formulated by cross-tabulating
the ABC and VED analysis. From the resultant combination,
three categories were classified (I, II and III). Category I
was constituted by items belonging to AV, AE, AD, BV
and CV subcategories. The BE, CE and BD subcategories
constituted category II, and the remaining items in the CD
subcategory constituted category III. In these subcategories,
the first alphabet denotes its place in the ABC analysis, while
the second alphabet stands for its place in the VED analysis.

Figure 1: ABC analysis cumulative curve (2007-08)

are shown in Table 1 and Figure 2. About 12.11% (51),

59.38% (250) and 28.51% (120) items were found to be V,
E and D category items, respectively, amounting for 17.14%
(Rs. 6,857,814), 72.38% (Rs. 28,963,447) and 10.48% (Rs.
4,191,351) of ADE of the pharmacy.
ABC-VED matrix analysis

RESULTS

The drug formulary of the hospital consisted of 421 items.

The total ADE of the pharmacy on items issued in 200708 was Rs. 40,012,612.
ABC analysis

Table 2 shows the ABC-VED matrix analysis. Nine

different subcategories (AV, AE, AD, BV, BE, BD, CV, CE
and CD) were studied using this analysis. These nine were
further grouped into three main categories, categories I,
II and III [Table 1].

On ABC analysis, 13.78% (58), 21.85% (92) and 64.37%

(271) items were found to be A, B and C category items,
respectively, amounting for 69.97% (Rs. 27,996,865),
19.95% (Rs. 7,981,331) and 10.08% (Rs. 4,034,416) of ADE
of the pharmacy [Table 1 and Figure 1]. The cut-offs were
not exactly at 70/20/10%, and differed marginally, which
is permissible.[18]

There were 93 (22.09%) items in category I, 230 (54.63%)

items in category II and 98 (23.28%) items in category
III, amounting for 74.21% (Rs. 29,691,956), 22.23% (Rs.
8,895,160) and 3.56% (Rs. 1,425,496) of ADE of the
pharmacy, respectively [Table 1 and Figure 3].

VED analysis

Provision of care in tertiary care hospitals is sensitive to

the timely availability of facilities, including drugs. In case
of drugs, besides the criticality factor, the cost factor must

The findings of the VED analysis of the present study

DISCUSSION

Table 1: The ABC, VED and ABC-VED matrix analysis of the PGIMER pharmacy (2007-08)
Category
A
B
C
V
E
D
I
II
III
J Young Pharm Vol 2 / No 2

No. of items
58
92
271
51
250
120
93
230
98

% of items
13.78
21.85
64.37
12.11
59.38
28.51
22.09
54.63
23.28

ADE (Rs.)
27,996,865
7,981,331
4,034,416
6,857,814
28,963,447
4,191,351
29,691,956
8,895,160
1,425,496

% of ADE of the pharmacy

69.97
19.95
10.08
17.14
72.38
10.48
74.21
22.23
3.56
203

Devnani, et al. J Young Pharm. 2010;2(2): 201-205

Table 2: ABC-VED matrix analysis of the PGIMER pharmacy (2007-08)

A
B
C
Total

No.

16
16
19
51

3.80
3.80
4.51
12.11

V
Annual
expenditure
(Rs.)
5,162,722
1,398,518
296,574
6,857,814

E
%

No.

12.90
3.50
0.74
17.14

36
60
154
250

8.55
14.25
36.58
59.38

Annual
expenditure
(Rs.)
21,495,547
5,155,508
2,312,392
28,963,447

No.

53.72
12.88
5.78
72.38

6
16
98
120

1.43
3.80
23.28
28.51

D
Annual
expenditure
(Rs.)
1,338,595
1,427,260
1,425,495
4,191,351

3.34
3.57
3.57
10.48

Note: % indicates percentage of total items in drug list/total ADE of the pharmacy.

Table 3: Comparison of ABC, VED and ABC-VED matrix analysis of different studies in India
Category
A
B
C
V
E
D
I
II
III

Present study

GMCH, Goa study[17]

13.78
21.85
64.37
12.11
59.38
28.51
22.09
54.63
23.28

12.93
19.54
67.53
12.36
47.12
40.52
22.99
41.67
35.34

Service hosp., AFI

study[20]
14.46
22.46
63.08
7.39
49.23
43.38
20.92
48.92
30.16

GMCH, Nagpur
study[9]
10.76
20.63
68.61
23.76
38.12
38.12
29.15
41.26
29.59

CGHS study[19]
17.81
22.60
59.59
5.14
58.90
35.96
21.58
56.16
22.26

Note: All figures are in %, GMCH, Government Medical College and Hospital; AFI, Armed Forces of India; CGHS, Central Government Health Services of India.

Figure 2: VED analysis cumulative curve (2007-08)

Figure 3: ABC-VED matrix cumulative curve (2007-08)

also be taken into consideration, as can be seen from our

study, where about 10% of the drugs consumed about
70% of ADE of the pharmacy. This is the group requiring
greater monitoring as it has fewer drugs consuming most
of the money. We also noted that not all the drugs in this
group were vital or essential. It also had drugs from the
desirable category. Categorization of drugs by the ABCVED matrix model helps to narrow down on fewer drugs
requiring stringent control.

the recommended 58 (13.78%) items in the A category,

with almost 70% of ADE of the pharmacy, but it would
compromise on the availability of items of vital nature
from B and C categories (35 items, 8.31%). The results of
the study are comparable with similar studies conducted
in India [Table 3].[9,17,19-20]

ABC analysis
The present study showed that if ABC analysis is considered
alone for drug inventory, it would help effectively control
204

VED analysis
If VED analysis alone is considered, ideal control can be
exercised on the identified vital and/or essential items,
accounting for 89.52% of ADE of the pharmacy. However,
category A also contains six desirable items with 3.34%
of ADE of the pharmacy and hence it is not possible to
J Young Pharm Vol 2 / No 2

ABC and VED analysis of pharmacy store

ignore the desirable group completely. The comparison

with similar studies in India showed high variation in the
percentage of vital, essential and desirable items [Table
3].[9,17,19-20] This could be because different institutes have
different service profiles, depending on the specialty
services available.
ABC-VED matrix analysis
In a combination of ABC and VED analysis, the resultant
matrix makes it possible to focus on 93 (22.09%) items
belonging to category I for strict managerial control as these
items are either expensive or vital. The annual expenditure
of these items was 74.21% of ADE of the pharmacy. AV,
AE and BV subgroups of category I consist of 68 items
(16.15%) that are expensive (70.12% of ADE), and their
being out of stock is unacceptable as they are either vital
or essential. To prevent locking up of capital due to these
items, low buffer stock needs to be maintained while keeping
a strict vigil on the consumption level and the stock in hand.
A two-bin method of ordering needs to be followed for these
as this will eliminate the risk of item shortage. CV items (19,
4.51%) are drugs of low cost but high criticality and take
up 0.74% of ADE of the pharmacy. Because this amount
is negligible, these items can be procured once a year and
stocked as their carrying cost is low.
AD items (only six, 1.43%) consume 3.34% of the ADE.
These items should be monitored for economic order quality,
and their order placement must be made after careful study
of the need. Rational use of items in this subgroup, including
their removal from the list if possible, can bring about
substantial savings without affecting patient care.
Category II items (230, 54.63%) consumes 22.23% of the
ADE. These items can be ordered once or twice a year,
thereby saving on ordering cost and reducing management
hassles at a moderate carrying cost and without blocking
substantial capital. Category III items (98, 23.28%)
consume 3.57% of the ADE. These items can also be
ordered once or twice a year, thereby saving on ordering
cost at a moderate carrying cost and without blocking
substantial capital. The comparison with similar studies in
India is shown in Table 3.[9,17,19-20]

making in purchase and distribution of specific items

and close supervision on items belonging to important
categories. ABC and VED analysis identifies the drugs
requiring stringent control for optimal use of funds and
elimination of out-of-stock situations in the pharmacy.
REFERENCES
1.
2.
3.
4.
5.
6.
7.

8.
9.
10.
11.
12.
13.
14.
15.
16.

17.
18.

CONCLUSION

19.

During the year 2007-08, items of approximately Rs.

40,012,612 were issued by the pharmacy store of PGIMER.
This necessitates application of scientific inventory
management tools for effective and efficient management
of the pharmacy stores, efficient priority setting, decision

20.

J Young Pharm Vol 2 / No 2

Kant S, Pandaw CS, Nath LM. A management technique for effective

management of medical store in hospitals. Medical store management
technique. J Acad Hosp Adm 1996 and 1997;8 and 9:41-7.
Kunders GD, Gopinath S, Katakam A. Planning and designing supportive
services-Pharmacy. In: Hospitals: Planning, Design and Management. New
Delhi: Tata McGraw-Hill Publishing Company Limited; 2000. p. 273-81.
Kidwai M. Inaugural address. Logistics and supply management for health
and family planning programme: A report of inter-country course. New
Delhi: National Institute of Health and Family Welfare; 1992. p. 66-70.
Pillans PI, Conry I, Gie BE. Drug cost containment at a large teaching
hospital. Pharmacoeconomics 1992;1:377-82.
Gupta S, Kant S. Inventory control. In: Hospital stores management - An
integral approach. New Delhi: Jaypee Brothers Medical Publishers(P) Ltd;
2000. p. 60-72.
Ramanathan R. ABC inventory classification with multiple-criteria using
weighted linear optimization. Comput Oper Res 2006;33:695-700.
Das JK. Inventory Control. In: Kaushik M, Agarwal AK, Arora SB,
editors. Essentials of Logistics and Equipment Managemnt, Manual of
Post Graduate Diploma in Hospital and Health Management. New Delhi:
Indira Gandhi National Open University, School of Health Sciences; 2001.
Gopalakrishnan P, Sundaresan M. Material management: An integrated
approach. New Delhi: Prentice Hall; 1985.
Thawani VR, Turankar AV, Sontakke SD, Pimpalkhute SV, Dakhale GN,
Jaiswal KS, et al. Economic analysis of drug expenditure in Government
Medical College Hospital, Nagpur. Indian J Pharmacol 2004;36:15-9.
Beier FJ. The Management of the supply chain for hospital pharmacies: A
focus on inventory management practices. J Business Logistic 1995;16:15377.
Anonymous. Supply Chain: Cost of goods grab executives attention. Health
Facil Manage 2008;21:26-8,30,32.
Duclos LK. Hospital inventory management for emergency demand. J
Supply Chain Manage 1993;29:29-38.
Brown RB. Materials management systems. New York: John Wiley and
Sons; 1977.
Bhushan B, Gupta RS, Bharat B. Materials management system in central
drug stores under Delhi Municipal Committee. Health Popul Perspect
Issues 1996;19:96-106.
Gandhi P, Basur A. Application of ABC analysis in medical store of ESIC,
Delhi. Health Administrator 2000;9and10:90-5.
Doshi RP, Patel N, Jani N, Basu M, Mathew S. ABC and VED analyses of drug
management in a government tertiary care hospital in Kerala. iHEA 2007, 6th
World Congress: Explorations in Health Economics Paper; 2007. Available
from: http://www.ssrn.com/abstract=992566 [last accessed on 2009 Aug 14]
Vaz FS, Ferreira AM, Kulkarni MS, Motghare DD, Pereira-Antao I. A Study
of Drug Expenditure at a Tertiary Care Hospital: An ABC-VED Analysis.
J Health Manag 2008;10:119-27.
Ammer DS. Materials management and purchasing. Bombay: D.B.
Taraporevala Sons and Co. Pvt. Ltd; 1982.
Sikdar SK, Agarwal AK, Das JK. Inventory analysis by ABC and VED
analysis in medical stores depot of CGHS, New Delhi. Health Popul
Perspect Issues 1996;19:165-72.
Gupta R, Gupta KK, Jain BR, Garg RK. ABC and VED analysis in medical
stores inventory control. Med J Armed Forces India 2007;63:325-7.

Source of Support: Nil, Conflict of Interest: None declared.

205