nVentic Releases 2023 Big Pharma Inventory Benchmarking Report, Highlighting Persistent Challenges in Supply Chain Management

nVentic, the renowned inventory optimization specialist, unveiled its highly anticipated 2023 Big Pharma Inventory Benchmarking Report today. This comprehensive analysis delves into the published corporate reports of 28 major pharmaceutical manufacturers, including industry giants Merck, AstraZeneca, and Pfizer. The annual report provides valuable insights into the inventory practices of Big Pharma manufacturers.

The focal point of the nVentic report is the benchmarking of Days Inventory Outstanding (DIO), a critical ratio that measures the proportion of inventory a company holds relative to its cost of sales. Additionally, the report estimates the amount of inventory that goes unused and is ultimately scrapped each year.

Inventory shortages have been a prevalent concern, particularly towards the end of 2022 when widespread reports highlighted shortages of essential medicines, including antibiotics, due to seasonal illnesses. This prompted stockpiling, further exacerbating the situation.

Surprisingly, the balance sheets of pharmaceutical manufacturers showed limited evidence of these shortages. Aggregate inventories for the 28 companies grew by 10% year on year, reaching a combined total of $150 billion. Sales, on the other hand, only experienced a 7% growth to $994 billion, and cost of sales rose by a mere 4% to $311 billion.

Matthew Bardell, Managing Director at nVentic, expressed his observations, stating, “While some waste is inevitable in most supply chains, and medicine manufacturers need to ensure high availability, this figure still represents a significant waste of capacity and resources. In 2022, 20 out of the 28 companies witnessed an increase in DIO, with the mean DIO rising by 5% to 202 and the median reaching 197. Hence, the increase in shortages cannot be solely attributed to a lack of inventory. Inventories seem to expand nearly every year, and yet, it appears that this growth does not effectively shield pharma manufacturers from experiencing shortages.”

Persistent concerns remain regarding the challenges in the pharmaceutical supply chain. To address these issues, many firms opted to increase their inventories, with the most significant surge of 28% observed in raw materials. However, as the impact of rising raw material costs takes time to permeate, this upward trend in Days Inventory Outstanding may only be temporary.

A substantial number of manufacturers still rely on large batch production based on forecasts, featuring extended lead times and minimal spare capacity. Consequently, responding swiftly to sudden changes in demand becomes exceptionally challenging. This leads to systematic overproduction, resulting in an estimated average of approximately 4% of inventory being written off each year, while occasionally encountering shortages of specific medicines.

Bardell emphasized the importance of inventory optimization, often overlooked but offering significant opportunities for improvement. He stated, “Inventory optimization is frequently an untapped opportunity due to its inherent complexity. However, by investing in this expertise, companies can achieve better outcomes. From unlocking working capital while maintaining service levels to generating substantial cost savings, inventory optimization should no longer be disregarded.”

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