Navigating the Pharmaceuticals Supply Chain Challenge: A Call for Inventory Optimization through Liquidation!
The pharmaceutical industry has gone through many changes in recent years, especially with globalization. The trade value of medical products has increased from $113 billion in 2000 to an enormous $629 billion in 2019. However, as the industry has grown, so has the complexity of its supply chains. This has created many challenges that affect the quality and distribution of essential medical products.
Amid the global pandemic, the pharmaceutical industry faced a significant setback. The Centers for Disease Control and Prevention (CDC) reported a 20% loss in COVID-19 vaccines due to cold chain issues. This highlighted a pressing issue in the industry: the need for robust supply chain management. The challenges of complexity, reduced visibility, lack of innovation, and inaccurate forecasting became glaringly evident, resulting in a delayed response to disruptive events.
Supply chain disruptions can have far-reaching consequences. They not only affect a pharmaceutical company's reputation and consumer satisfaction levels but also have a direct impact on potential profits. Distributing ineffective drugs can be dangerous for public health and may lead to recalls that can hinder industry growth. So, it is very important to address these issues quickly and come up with innovative solutions like liquidation. To delve deeper into the challenges faced by the pharmaceutical supply chain, a collective effort was made to tap into the experiences of global health supply chain professionals. Interviews and surveys identified and prioritized the top 10 global health pharmaceutical supply chain challenges:
1. Lack of Coordination
2. Inventory Management
3. Absent Demand Information
4. Human Resource Dependency
5. Order Management
6. Shortage Avoidance
7. Expiration
8. Warehouse Management
9. Temperature Control
10. Shipment Visibility
This collective effort contributes to the foundational knowledge of global health pharmaceutical supply chains, underlining the urgency for innovative solutions.
In light of recent developments, pharmaceutical industries must tackle the issue of excess inventory. The inventories of benchmarked companies have grown significantly by 10% year-on-year, resulting in a combined total of $150 billion. However, sales have only increased by 7%, amounting to $994 billion, while the cost of sales has gone up by 4% to $311 billion. Supply concerns and inflation played significant roles in this inventory increase, especially in raw materials, which saw a staggering 28% growth. However, this increase does not directly translate to a rise in the cost of sales immediately.
At an individual company level, 20 out of 28 companies witnessed an increase in Days Inventory Outstanding (DIO) in 2022, with the mean DIO rising by 5% to 202, and the median up to 197. This challenges the assumption that more inventory necessarily guards against shortages.
Manufacturers face structural challenges due to their large batch production with long lead times and little spare capacity. This makes it difficult for them to respond promptly to sudden shifts in demand, resulting in overproduction and subsequent write-offs of approximately 4% of inventory each year.
It may seem counterintuitive, but excess inventories and shortages often go hand in hand. Not only are excessive inventories environmentally irresponsible and a misuse of capital, but they also increase the cost of medicines. In conclusion, the pharmaceutical industry grapples with multifaceted challenges in maintaining a seamless supply chain. The key to its sustained growth lies in streamlining supply chain processes, optimizing inventory management, and responsibly disposing of excess inventory. Surpluss emerges as a valuable ally for pharmaceutical companies seeking to liquidate excess inventory responsibly, ensuring sustainability, cost reduction, and minimized environmental impact. Together, we can overcome supply chain challenges and enhance public health outcomes for all.