Hospital Inventory Management: ABC-VED Cut-Offs and Expiry Rules

Hospital inventory management comes down to two decisions: which items deserve tight control, and what happens to stock before it expires. Everything else (purchasing, counting, software) follows from those two.

A hospital store holds drugs, consumables, implants and equipment.

Two terms matter. ABC analysis ranks items by annual spend: A is the top group, B the middle, C the rest. Our page on ABC analysis covers the method in full. VED analysis ranks items by clinical importance: Vital (life-saving or essential to treatment), Essential, Desirable. Combining the two gives a matrix of three categories. Category I needs the strictest control.

The commonly used layout is:

Studies can define the matrix differently, so the Category I shares in the table below are not strictly comparable.

The share of items in group A varies from 14% to 26% across three Indian studies even though the spend cut-off sits near 70% in each, because drug mix and formulary (the hospital's approved drug list) size differ. The Vital list varies more, because it is a clinical judgement.

The PGIMER study covered annual drug expenditure of Rs 40,012,612. The Gondia study covered January to December 2023. The New Delhi study used one year of pharmacy procurement records.

Three points follow from the table.

• The A group sits near 70% of spend in every study (69.97%, 71.1% and 70%), but it holds 14% to 26% of items.
• The Vital list is a judgement. The same label covered 12% of items in one store and about 30% in two others.
• The tight-control category is not small. Category I was 22%, 43% and 48% of items.

Our calculation: the count load. If a store counts only Category I items monthly, the monthly count lines fall by 1 minus the Category I share of items. At PGIMER, Category I was 93 of 421 items, so counting only those cuts lines by 78% (1 − 93/421) while covering 74.21% of spend. At Gondia, 47.88% of 142 items is about 68 items, a 52% cut. In New Delhi, 1,967 of 4,581 items (42.93%) gives a 57% cut. These are our calculations from the published figures.

Limits. All three are large teaching or tertiary institutions, and all cover drug stores, not consumables or implants. The PGIMER data is from 2007–08. A small hospital or nursing home may see different splits. Our recommendation is to treat these numbers as a range to expect, not a target.

Build one sheet with a row per item and these columns, then fill it in five steps.

The count frequencies are our recommendation, not a published rule. They follow the logic of the table above: Category III at PGIMER was 98 items, 23.28% of the list, but only 3.56% of spend, so it earns the least counting. Our page on cycle counting gives a schedule and count sheet.

The five steps:

1. List every item with annual quantity and last purchase rate.
2. Sort by annual value, high to low. Write the cut-offs for A and B before you apply them. Our recommendation: start near 70% and 90% of cumulative spend, which is where PGIMER and New Delhi landed, then adjust.
3. Have a named clinician or the drugs and therapeutics committee mark each item Vital, Essential or Desirable, and sign the list.
4. Combine the two classes into Category I, II or III using the table above, and set count frequency.
5. Review the sheet once a year, or after a large change in formulary or suppliers.

A hospital store should follow first-in, first-out (FIFO) by default and first-expiry, first-out (FEFO) when newer stock expires sooner, then move near-expiry stock to a labelled shelf and keep expired stock locked and registered. This is our recommendation, drawn from the near-expiry procedure of the Central Pharmacy at AIIMS Raipur, the All India Institute of Medical Sciences. That procedure is one hospital's draft: the copy carries no document number or effective date, so treat it as one hospital's working rule, not a national standard.

Its main steps:

• Record batch number and expiry date at receipt, and check both again before dispensing.
• Keep drugs expiring in the next 6 months on separate, labelled shelves.
• Try to transfer near-expiry stock between departments, or get a replacement from the supplier, before it lapses.
• Inspect monthly, with a half-yearly committee review of how much stock reached near-expiry.
• Keep expired drugs in a locked room or cupboard marked "Expired drugs not for use", and record name, formulation, strength, batch, expiry, quantity and department in a register.
• List expired stock to the drugs and therapeutics committee, then return it to the supplier or dispose of it under the Bio-Medical Waste Management Rules.
• Aim for a declining trend in near-expiry stock over time.

The procedure also notes that an expiry written as month and year means the product can be used to the last day of that month.

One inconsistency worth fixing in your own rule. The same procedure defines "near-expiry" as 3 months from expiry, but moves stock to separate shelves at 6 months. Our recommendation is to pick one window per item, based on how fast the item is used and how long a supplier return or transfer takes. A slow-moving injectable needs a longer window than a fast-moving tablet. Our page on the goods receipt note shows where batch and expiry should be captured at the door.

The procedure cites the Drugs and Cosmetics Act, 1940, the Drugs and Cosmetics Rules, 1945 and the Pharmacy Act, 1948 as its references. Check your own accreditation standard and licence conditions for anything stricter, including the standards of the National Accreditation Board for Hospitals and Healthcare Providers (NABH) if your hospital is accredited.

Hospital stock software should prove five things on your own item list. Run these tests in any demo, ours included, using ten real items.

What we offer. Arka Inventory is cloud software for inventory, warehouse and purchase management, built natively on Salesforce. For the store side of the sheet, as of 27 October 2026, lot, batch, expiry-date and serial-number tracking is on our Enterprise plan; see lot and serial tracking. Our Basic plan and above include multiple warehouses, purchase orders and transfers, barcoding and low-stock alerts. Custom reports and dashboards are also available. Serial tracking suits equipment: it records each unit by serial number and location. Our page on serial number tracking explains the setup. Our case study of a regional home healthcare provider, not a hospital, describes serialised medical devices tracked across 14 locations: read the case study.

As of 27 October 2026, Basic is US$199 a month and Advance US$499 a month, billed annually, on our pricing page. Lot, batch and expiry tracking needs Enterprise, which is priced on request. Setup takes a minimum of two weeks, depending on how ready your item and stock data are, and a control sheet like the one above is the best preparation. As of 27 October 2026, the trial is 15 days with full access and no credit card. To see it on your own item list, book a demo through our contact-sales page.