Sintra Pharmaceuticals: Solving Out-Of-Stock Issues

SINTRA Pharmaceuticals: solving out-of-stock issues

Introduction

This study is an attempt to address the issue of out-of-stock which can be understood from the terms or conditions that the items is to be used for customer order is not in stock when required. It has to do with unexpected demand, replenishment disruptions or ineffective inventory management cause shortfalls in inventory. Stock-outs not only lead to losing profit or opportunity cost but also reduce the customer service level. If a precise item which consumers looking for is not available and loyalty of consumers is high, they have intention of finding substitute of the same brand or delaying their purchasing. However, in pharmaceutical industry, how the consumers react with out of stock is that they substitute a different brand–worst for pharmaceutical companies or they find another store to buy it–worst for retailers due to not be able to delay in purchasing drugs. There are various techniques that can be adopted to solving stock-out issues for instance, capacity management, demand forecasting, reducing buffer in supply chain etc. This paper presents how the change in inventory management and supply chain management could help to reduce associated costs and improve consumer’s satisfaction.

In this report a detailed literature is given about the importance of inventory management on the basis of various theories that directly relate to the current critical out-of-stock situation of SINTRA Pharmaceuticals - one of the world’s leading pharmaceutical companies. The report provides knowledge about how effective and sustainable solution in inventory and supply management can help SINTRA identify and tackle each possible out-of-stock situation that currently existed or that may exist in the future. It also provides theories that recommend and consider implementation for companies in order to maintain the customer’s loyalty and standstill in the permanent state of volatility for pharmaceutical industry.

Main body

                Context

Here we have tried to understand the whole picture of the market variations and supply chain issues in SINTRA Pharmaceuticals by analysing market positioning, competitors’ action and customers’ needs. Through thorough analysis and research we will have a better understanding of the relevant performance objectives and would be in a position to set operations strategy (Slack, Brandon-Jones, & Johnston, 2017).

The first arm is to analyse pharmaceutical industry, of which SINTRA is a leading one, holding a significant 3.5% market share of the global $1 trillion pharma market (Formentini, n.d.). Due to high profitability and extraordinary growth, pharmaceutical industry has rapid pace of change. With the boom in biotechnological research, patient centric health care, increased regulatory pressures, unpredictable demand and new sourcing opportunities in emerging markets, there is a lot of pressures on pharma companies.

The second is to give the general view of competitors’ action. In additional to market’s challenges, SINTRA is facing patent expiration, which results in a possible dip in the market share. A pharmaceutical company is granted a patent for drugs invention or for drugs producing process during 20 years from date of application which enables the company to have a temporary ownership of invention and the company is able to recover the cost of research and development through high profit margins. (Valverde, 2014). However, after the patent protection expires, they have to disseminate generic version of drug and their several competitors jump into market, which poses a challenge and SINTRA is facing the same challenge, with 4% of their global revenue at risk due to patents expiration.

The third is to define customer purchasing behaviour which reflects their needs. With the development of biotechnology and market participation of competitors, consumers increasingly have better availabilities of price and access to near-identical substitute goods, which makes it difficult to gain customer loyalty, which is an essential part of a successful pharma business strategy. 

Last but not least, lack of operational focus and governance in SINTRA are the main culprits behind the high out-of-stock levels. Their local market’s out-of-stock issue, which has serious lost revenue and customer dissatisfaction consequences, has unexpectedly soared to 15% and increased pressure on SINTRA. The recent analysis has identified a mix of issues at both local and central level.

In summary, the challenges that SINTRA is currently facing are lowering its operational cost in order to cope with the shrinking market share and maintaining the high profitability, solving the need to fulfil safety stock and building the flexibility to solve stock-out problem, in order to obtain the satisfaction of distribution or retailers and the loyalty of consumers.

Theoretical background

One of the most important key elements of Operations and Supply Chain Management is that of ‘Inventory Management’. The purpose of this theory is to explain the role of an inventory management in order to control physical inventories to lower the overall cost of safety stock while maintaining high customer service level. (Slack, Brandon-Jones, & Johnston, 2017).

Inventory

Inventory refers as goods or products which company holds for sale to consumers in the near future. Inventory plays an important part as a buffer against unexpected fluctuations in supply and demand. Physical inventory is also an insurance for the uncertainty in product quality issue during manufacturing or in the process of supply goods into the store. However, increasing inventory comes with several costs such as working capital costs, storage and obsolescence costs etc. In contrast, reducing them too far can lead to order of customers not being fulfilled (Slack, Brandon-Jones, & Johnston, 2017). On the other hand, if under forecasting in demand leads to inventory running out of stock, there will be lost revenue or an opportunity costs of failing to supply consumers. Loyal consumers will suffer process inefficiencies while others will choose the substitute products elsewhere.

Inventory Data Accuracy/Forecast

Inventory management is a term we use to keep track the goods or products as they move through process with the right quantity, at the right time, in the right place and with a right cost. (Simchi-Levi, Kaminsky, Simchi-Levi, & Shankar, 2008). Inventory data is necessary to make precise decisions about ordering, scheduling, and shipping; therefore, the accuracy of a forecast is important. In other to have balancing the supply and demand sides in order to lower safety stock, it is essential to get as more accurate forecast as possible (Slack, Brandon-Jones, & Johnston, 2017). In contrast, in case of unpredictable demand following with inaccurate forecast, the capability to chase the demand or reduce lead time or build agile supply chain is necessary.