How to nail inventory management in the pharmaceutical industry

By Anna Sophie Gross Jun 22, 2016

If you’re in the pharmaceuticals industry we know that you’ve dealt with the endless bugbear of excess stock, or dwindling supplies of your most popular products. When this happens, there’s pretty much nothing you’d like more than for your partners – whether they be marketers or vendors – to flog the product you’ve got too much of.

For many pharma companies, inventory represents the largest single investment of their total assets. Here’s why:

Inventory itself is expensive. To hold inventory, companies need to pay for storage, security, picking and handling, insurance, and so on and so forth. Thus, measuring and controlling investment in your inventory is of the utmost importance for achieving profitable operations.

Pharmaceutical companies, and particularly bio-pharmaceutical companies, have much higher inventories than companies in other industries. Financial analysts track inventory turnover to assess company health and they found that pharma companies’ yearly inventory turnover is often below 2, and can fall as low as 1 (which means that the company holds a year’s worth of sales in its stock). This is both highly expensive and inefficient.

For a more concrete example:  Teva has a yearly turn rate of 2 while Taro Pharmaceuticals was evaluated at 1.5. The hi tech company Dell, on the other hand, has a yearly turn rate of 32.

The main reasons for low turnover in the pharma industry are:

  • Demand growth predictions are often inaccurate: once a new treatment has regulatory approval, demand might not shoot up straight away because financers haven’t whipped out the money to cover treatment costs.
  • Education of patients and physicians: sometimes they just don’t know that much about new treatments.
  • Patent expiration: patent protection ends after 20 years so pharmaceutical companies need to maximize sales in that time. If the fill rate falls below 100%, lost sales are incurred which the company can’t get back.
  • Manufacturing regulations and complexity: Bio-pharmaceutical manufacturing processes are extremely complex and fragile. Small variations, interruptions, and alterations in the process can affect the production results to the point where a whole batch might become useless. To buffer against the possible impacts from manufacturing variations, additional inventory is held.

Is there a solution?

Well, robust engagement technology has inbuilt inventory management software which means you can easily manage your products, whether you have one Stock Keeping Unit (SKU) or thousands. Clearing your inventory doesn’t have to be the headache it once was.

One important way that cloud-based technology can lighten the load is by enabling manufacturers to gather accurate data from their vendors and marketers, hence increasing their understanding of what's going on in the channel. Intelligent technology enables vendors to draw up custom reports on channel activity and customer behaviors so that they can make incremental strategic decisions in real time, honing in on specific groups, demographics, characteristics, histories and time frames.

Using this kind of data-informed technological infrastructure, pharmaceutical companies gain important market wisdom which empower them as strategists, enabling them to determine the products, campaigns, rewards and communication methods that truly drive engagement and ROI.

Engagement software also means that your manufacturing company can clear inventories of generic and patented drugs by incentivizing marketer and store-based promotions. Marketers and vendors get points towards rewards based on sell-in of particular products, driving them to push certain products by offering discounts, extra product information, promotions, or by simply guiding customers towards one product over another.

Engagement software automates the inventory control process, making clearance less of a drag and more of a pleasure, for you and your channel partners.  You gain insights and visibility into channel activity, reduce excess inventory and increase sales, while your partners gain rewards and improve their commercial condition.

Free Dwonload - The Quick Guide to Measuring Your Channel Incentive Programs