Highlights of the Case Study:
|Client||A multinational pharmaceutical drug manufacturer with a diverse product portfolio comprising some well-known over-the-counter (OTC) and prescription drugs|
|Business Challenge||The client was facing issues due to fluctuations in demand for drugs, which led to frequent cancelations or delays in production plans. The inaccurate forecasting led to stockpiling of raw materials that would eventually be discarded.|
|Impact||Quantzig helped the client adapt to the rapidly changing market conditions and develop an analytics-driven raw material inventory management strategy to cut down on wastage costs and ensure supply chain agility.|
Game-Changing Solutions for the Pharmaceutical Industry
Let’s first understand the importance of inventory management solutions. Pharmaceutical companies are aware of population demographics, prevalence, diagnosis, and treatment rates of diseases. However, they often fall short in accurately forecasting the demand for their drugs and the requisite raw materials. Accurate forecasting is essential for inventory budgeting, planning production processes, and distribution in the pharmaceutical industry. One of the critical drivers that impact forecasting and supply planning is the lead time required to manufacture and deliver raw materials.
Interruptions in the supply of raw materials can eventually lead to shortages of drugs, delay the launch of new medicines, and tarnish the company’s reputation. The consultants at Quantzig offer pharmaceutical companies’ actionable data-backed insights to devise a raw material inventory management strategy that minimizes losses and ensures supply-chain agility.
The Challenges of the Client
Our client is a multinational pharmaceutical drug manufacturer with a diverse product portfolio, comprising some popular over the counter (OTC) and prescription drugs. The client approached Quantzig to optimize its demand forecasting system. Owing to the large operation scale of our client, over 100 chemical raw materials were in use in its production plants. These raw materials were being supplied by several vendors located across the globe. Therefore, the client needed an advanced material requirements planning (MRP) process to improve its overall supply chain agility.
Our client was facing intense competition in the market, as the demand for its drugs was closely linked with the condition of the regional drug market. Furthermore, the emergence of new rival medicines and changes in the Food and Drug Administration’s (FDA) policies resulted in fluctuations in demand for our client’s drugs. Fluctuations in demand for drugs led to frequent cancelations or delays in production plans. This resulted in large volumes of raw materials left to expire and, eventually, discarded.
Thus, the client sought help in achieving an accurate forecast of raw material requirements, minimizing wastage, and developing a robust supply chain design to ensure optimal inventory levels.
Quantzig’s Planning and Forecasting Analytics
The consultants at Quantzig developed an accurate inventory stocking solution for our client. The client’s existing stock-keeping policy resulted in excessive raw material inventory levels. Our consultants replaced this with an inventory stocking strategy that corrected forecast errors from demand projections.
Our approach involved developing a new raw material inventory management strategy to reduce excess inventory and optimize utilization of existing raw material inventory levels based on scientific models. Our raw material forecasting approach consisted of the following steps:
- Grouped raw materials through the ABC inventory classification method.
- Analyzed the historical demand for raw materials.
- Accurately forecasted the demand for our client’s raw materials: Computed the degree of forecasting errors through mean absolute deviation (MAD) and mean square error (MSE).
In addition, our consultants undertook a data-driven approach by using bottom-up quantitative failure analysis methods such as the Failure Modes, Effects, and Criticality Analysis (FMEA/FMECA) procedure to identify the root cause of the wastage of raw materials.
Impact Analysis of Quantzig’s Inventory Management Solutions
Our new raw material inventory management strategy helped our client accurately forecast the requirements for raw materials and achieve a reduction in the average inventory level for most of the raw materials analyzed. Our new strategy focused on managing raw materials with a short shelf life. It helped control the inventory level of expensive raw materials to reduce our client’s discard-related losses. We also suggested our client liaise with vendors and have more flexibility in determining the order quantity.
Our client achieved the following benefits by using our raw material inventory management strategy:
- Purchased a limited number of raw materials required for a production run, thus reducing excessive inventory and possible wastage
- Improved inventory control by applying effective inventory control systems
- Increased material exchange within the company
- Reduced the average inventory costs of raw materials by 27%
Key Outcomes of Inventory Management Solutions:
The overall result of these interventions was a significant reduction in excess inventory and wastage, which led to cost savings and higher profit margins. Our intervention also helped improve collaboration within the company and with raw material suppliers. Accurate demand forecasting thus paved the way for better strategic and operational planning, leading to higher revenues.
Broad Perspective on Material Forecasting for Pharmaceuticals Business
Pharmaceutical companies are exploring new ways to improve their forecast accuracy to reduce their inventory levels further and still meet the required service levels through inventory management solutions. They use regression models to model the demand forecast by studying the historical demand trend. These measures help ensure that the flow of pharmaceutical drug raw materials remains stable even during challenging times and highly turbulent environments.
- Minimized potential loss in revenue caused by poor planning
- Reduced excess inventory costs of raw materials by 27%
- Improved internal communication and planning among various departments
- Increased material exchange within the company
- Enhanced interaction with material suppliers for greater flexibility
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