Role of FORECAST Squared in Pharma

The challenge

Organizations that import and distribute prescription drugs in Sri Lanka typically maintain a very large inventory, sometimes worth as much as several billion rupees. Apart from a significant working capital requirement, this model leads to higher wastage owing to expirations and regulation constraints.

 

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.

What does FORECAST Squared inventory planning do?

FORECAST SQUARED generates an optimal purchasing plan for each drug for 6-9 months in to the future which minimizes inventory while avoiding an out of stock scenarios. 

How does FORECAST Squared inventory planning work?

Using Machine Learning algorithms to deliberate over many factors that can affect demand, FORECAST SQUARED 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. FORECAST SQUARED also estimates the lead time and the variability of the lead time for each supplier.

This gives FORECAST SQUARED 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.

What industry specific parameters does it consider to derive the optimal order plan?

It considers many industry specific parameters such as;

  • Contractual minimum order quantity
  • Import license expiration
  • Product registration expiration
  • Shelf life
  • Contractual lead time
  • LC status
  • Batch wise expiration dates

 

The Outcome?

Reduces inventory levels by 20-25% for most drugs while maintaining sufficient stock levels

Reduces working capital requirement by 15-20%

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