Friday, September 13, 2013

Principles of Foresting Global Healthcare Products

The cost of keeping the quality and efficiency of drugs before selling to customers is high. Some drugs require to be stored in special conditions. So forecasting the demand of those products are very important for cost saving and inventory management. In addition, drugs have a very long life cycle. The forecasting of demand is necessary even throughout the whole R&D process as a reference for decision makers in investment in different phases of clinical trials.
There are 10 principles that would be helpful for forecasting the demand. The purpose of these principles are increasing credibility and understanding of the market, improving accuracy, reducing risks and saving costs in inventory management.
Those principles are:
1. Identify the principal customers/decision-makers of the forecast and clearly understand their needs.
2. Understand and clearly communicate the purpose of the forecast and the decisions that it will affect.
3. Create a forecasting process that is independent of planning and target setting
4. Protect the forecasting process from political interference and ensure it is transparent.
5. Embed the forecast into the broader environment taking into account market conditions, public policy, competitive forces, regulatory changes, health program guidelines.
6. Create a dynamic forecasting process that continually incorporates and reflects changes in the market, public policy and program capabilities.
7. Choose the methodologies most appropriate to the data and market environment. Obtain decision-makers agreement on the methodologies to be used.
8. Keep the methodology simple and appropriate to the situation. Don’t introduce too much complexity, but include sufficient detail to address the investment risk and level of accuracy required.
9. Make forecast assumptions clear and explicit.
10. Understand data and their limitations. Use creativity and intelligence in gathering and introducing data into forecasts. Incorporate qualitative inputs rigorously and systematically.
I think the most interesting and important principle is the 6th principle. Since drugs have a long life cycle and the safety and efficacy information is often updated phase by phase, a rolling forecast is necessary. Even products have launched on the market, company should also have standard practice to identify market drivers, limitations, competitors, regulatory policies, etc. For newly launched drugs, which often have a higher risk, forecasting should be done more frequently. Company could even hire an external vendors to do the forecasting together in order to ensure accuracy, credibility and quality of the result.
An interesting question for readers is: Since rolling forecasting is helpful, how to decide the frequency of forecasting? What factors we need to consider in order to decide the frequency?


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