Monday, September 1, 2014

Forecasting for the Pharmaceutical Industry

Last week, the articles and readings focused on the use of forecasting to meet customer demand in a timely manner. Overestimation can lead to high costs, high inventory and underestimation can lead to a low customer satisfaction which can be bad for a company’s reputation and credibility. Forecasting is done by companies in every segment to ensure that they have just enough supply to meet the customer demand. Global companies use sophisticated softwares while small companies use statistical tools like moving averages and exponential smoothing to include seasonality.  (1)

Pharmaceutical industry is highly regulated throughout the world. They have to comply with WHO standards along with their own local pharmaceutical and manufacturing standards. Additionally, pharmaceutical supply chain forecasts are complicated and unpredictable so managing forecasts is really important in this business. According to a report by Accenture- improved demand forecasting will help reduce inventory by $46B worldwide. Two basic problems faced in this industry are: lack of collaborative practices with downstream customers and poor forecasting quality. These two problems can lead to excessive inventory and missed forecasts as sales and operational planning are affected. (2) Transporting medicine is also a complicated process. There are strict requirements for each product with regards to their temperature control and the vehicles in which they can be transported. Routes need to be mapped in advance to take weather and bad roads into account. Therefore, poor forecasts can add additional transportation costs as well.

Every link in the supply chain depends on forecasts and therefore it is a vital process. A cardinal sin in this industry is to run out of stock- which can lead to replacement by another supplier. Improving a single step in Supply Chain Management-Forecasting can really lead to profitable outcomes with increased customers. This can be better explained with an example: Cipla Medpro is South Africa’s fastest growing pharmaceutical company and among the top key market leaders. When the company started, they had limited products and it was easier for them to forecast using excel spreadsheets. As they scaled up, it became increasingly difficult for them to have accurate forecasts. They therefore implemented a software, which helped them better manage their inventory and meet customer expectations along with increasing operational efficiency. (3)

What’s interesting to find is how small companies and start-ups determine their inventory levels and be at par with industry benchmarks as they don’t have enough capital for software implementation. Would they still use excel spreadsheets and forecast or are there any other options available they can use for accurate forecasts which are cost efficient?

1.       Importance of Forecasting in supply chain management –
3.       Improve your supply chain forecasting-

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