Why is there a need to hold a large inventory?

Unlike in FMCG, pharmaceutical companies are reluctant to reduce inventory due to the critical nature of certain drugs which calls for higher levels of availability.

In addition, organizations operate under hard to predict environmental and epidemiological conditions which can impact the demand for prescription drugs. Whilst external factors such as the weather also plays a role, marketing and promotional activities carried out by the company as well as the competitors can influence demand.

Apart from demand uncertainty, supplier lead time can also have an uncertainty too has a significant impact on inventory. Violations of contractual lead times by the principals and minimum order quantities force importers to stock up.

Furthermore, inefficiencies in regulatory framework such as registration of drugs and import licensing can encourage importers to maintain a large inventory to minimize the risk of going out of stock.

How does FORECAST² inventory planning work?

Using Machine Learning algorithms to deliberate over many factors that can affect demand, FORECAST² accurately estimates the most likely demand for each month. It also recognizes that the demand can still vary due to unforeseen factors. Therefore, it estimates not only the demand but also the variability of the demand forecast. FORECAST² also estimate the lead time and the variability of the lead time for each supplier.

This gives FORECAST² a framework to run millions of simulations with different yet viable demand and lead-time combinations. This process enables us to ascertain the optimal purchasing plan.