6.2 Fill Rate, Carrying Cost & Stockout Cost

If Section 6.1 is about capital efficiency (how fast inventory moves), Section 6.2 is about service and the cost of holding stock. The three KPIs here — fill rate, carrying cost, and stockout cost — answer the questions: are we serving patients, what does sitting stock cost us, and what does running out cost us?

Fill Rate

Fill rate measures service level — the percentage of requested orders (or units, or order lines) that you actually dispense complete from stock. It is the KPI that most directly tracks patient experience: a low fill rate means patients are turned away or told to come back.

Fill Rate = Orders Filled ÷ Orders Requested, expressed as a percentage.

The numerator and denominator must use the same unit. "Orders filled" can mean:

• Line fill rate — order lines filled ÷ order lines requested (most common in pharmacy wholesale)
• Unit fill rate — units filled ÷ units requested
• Order fill rate — complete orders ÷ total orders (stricter; one missed line fails the whole order)

Pick the one the question names. If the question says "95% of order lines were filled," it is line fill rate. If it says "480 of 500 units were dispensed," it is unit fill rate.

Worked Example

A pharmacy receives 200 order lines from prescribers in a week. Of those, 186 are dispensed complete from on-hand stock the same day; 14 are short or out of stock and must be ordered or redirected.

Line fill rate = 186 ÷ 200 = 0.93 = 93%

Interpretation: 7% of demand went unmet from shelf. In community pharmacy, line fill rates of 95–98% are typical targets; lower than about 90% usually triggers a par-level review for the shorted items.

Carrying (Holding) Cost

Carrying cost (also called holding cost) is the total cost of holding inventory over a period, expressed either as a dollar amount or as a percentage of average inventory value per year. It represents the "price of sitting stock."

Components of Carrying Cost

In retail generally, carrying cost is often quoted at roughly 20–30% of average inventory value annually. Pharmacy can differ because of cold-chain storage costs, hazardous-drug handling (USP <800>), and controlled-substance security, so the exam tests the concept and components rather than a single pharmacy-specific number. Know the components and that carrying cost rises with both the amount of inventory held and how long it is held.

Worked Example (concept)

If average inventory is $50,000 and the carrying cost rate is 25%, annual carrying cost ≈ $50,000 × 0.25 = $12,500. Reducing average inventory to $40,000 (by turning faster) drops carrying cost to $10,000 — a $2,500 annual saving with no change in unit cost. This is why turnover matters financially: faster turns shrink average inventory, which shrinks carrying cost.

Stockout Cost

A stockout occurs when demand cannot be met from on-hand stock. Its cost has two layers:

1. Lost sale — the immediate revenue (and margin) that goes uncollected, often permanently if the patient fills elsewhere.
2. Lost goodwill / patient harm — the patient may not return, may delay therapy, or may suffer a clinical consequence. In pharmacy, this is more serious than in ordinary retail because a missed dose can have clinical consequences (e.g. a missed antiepileptic, anticoagulant, or insulin dose).

The Overstock vs. Stockout Trade-Off

These two costs push in opposite directions:

The goal is not zero stockouts and not zero inventory — it is the total-cost minimum somewhere in between. Total inventory cost ≈ carrying cost + stockout cost, and the lowest point on that combined curve is the target. KPIs tell you where you sit: a high fill rate (e.g. 99%) with a low turnover (e.g. 3 turns) suggests you are carrying a lot of inventory to protect service — check whether safety stock is excessive. A high turnover (e.g. 14 turns) with an 88% fill rate suggests you are understocking — raise par or safety stock.

How KPIs Drive Ordering Decisions

Pharmacy managers do not optimize KPIs in isolation — they trade them off:

• If fill rate is dropping while turnover is steady, the fix is to raise par levels or safety stock for the shorted SKUs, or add a secondary supplier.
• If turnover is dropping while fill rate is fine, the fix is to lower reorder quantities, tighten min-max ceilings, or return slow movers through a reverse distributor before they expire.
• If carrying cost is climbing (more cold-chain space, more expired-product waste), the fix is to order smaller lots more often (a just-in-time lean), accepting slightly higher order frequency.
• If stockouts cluster on a few high-velocity items, those SKUs need their own par-level recalculation (Section 6.3) — the problem is par level, not overall inventory.

The key insight: every ordering decision changes at least one KPI. The point of measuring them together is to see whether you are trading capital efficiency against patient service on purpose or by accident.

Worked Example (decision)

A pharmacy has turnover of 12 and fill rate of 88%. Two interpretations are possible — high velocity is real, but service is suffering. The right move is to raise par and safety stock on the shorted fast-movers, accepting that turnover will fall to perhaps 9–10 and fill rate will rise to 95%+. This is a deliberate trade: giving up some capital efficiency to recover service. Doing the opposite (chasing even higher turnover) would worsen the stockout problem and lose patients.