94pages: Pharmaceutical companies and their inventory control systems. A critical assessment in Cameroon, case study Douala.

CHAPTER ONE

Background To The Study

understanding Pharmaceutical companies

Pharmaceutical companies are businesses that research, develop, manufacture, and market drugs and medications. These companies play a crucial role in the healthcare industry by providing treatments for a wide range of medical conditions and diseases. Inventory management refers to keeping or maintaining the firm’s stocks at a level that a firm will only incur the least cost consistent with other management’s set objectives or targets (Kwadwo, 2016).

Inventory management is about ensuring that all input materials of production available to the firm are maintained at a level where production is not interrupted as well as ensuring that operational cost is kept at a minimal level without affecting operation efficiency (Eneje, Nweze, & Udeh, 2012). Inventory management entails planning, organizing, controlling and directing. All these coordinated efforts are meant to ensure achievement of efficiency in all operations of the firm. Inventory management, as explained by (Lavely 1996.), as the active control program that permits to govern its running of the various departments in a firm.

This includes the production, research and development (R&D), purchasing, marketing, human resource, accounting and finance. The main aim of inventory management is to ensure that organizations hold inventories at the lowest cost possible, while at the same time achieving the objective of ensuring that the company has adequate and uninterrupted supplies to enhance continuity of operations (Mpwanya,2005).

A study carried out by (Bhausaheb & Routroy,2010) shows that companies are keen in managing their inventory to reduce costs, improve the quality of service, enhance product availability and ultimately ensure customer satisfaction. Results of a study carried out by (Rosenfield & Simchi-levi, 2010) shows that inventory management has a huge financial implication on both the customer satisfaction and financial performance of an enterprise. 

Generally, when you are unaware of what you have, you cannot easily identify what you need. An effective inventory management can help the organization easily identify the gap between the available, and the unavailable needs, inventory management is the most significant asset of every organization. This then implies that, any inventory problems can cause a direct failure on the results of the organization. 

Pharmaceutical companies or drug company, is a commercial business licensed to research, develop, market and/or distribute drugs, most commonly in the context of healthcare. This means any company whose primary business is the research, development, marketing and distribution of pharmaceutical or biopharmaceutical products, limited to the top 20 in global sales. And is involved in the manufacture, production and or supply of pharmaceutical drugs, creams or other health products which must be prescribed by a medical practitioner. Pharmaceutical companies are entities that develop, manufactures, markets, distributes, imports, offers for sale or sellsPharmaceutical companies prodcuts . 

Problem Statement

Inventories are vital to the successful functioning of manufacturing and retailing organizations. They may consist of raw materials, work-in-progress, spare parts/consumables, and finished goods. It is not necessary that an organization has all these inventory classes. But, whatever may be the inventory items, they need efficient management as, generally, a substantial share of its funds is invested in them. Different departments within the same organization adopt different attitude towards inventory. This is mainly because the particular functions performed by a department influence the department’s motivation.

For example, the sales department might desire a large stock in reserve to meet virtually every demand that comes. The production department similarly would ask for stocks of materials so that the production system runs uninterrupted. On the other hand, the finance department would always argue for a minimum investment in stocks so that the funds could be used elsewhere for other better purposes, (Vohra,2008). Inventory represents an important decision variable at all stages of product manufacturing, distribution and sales, in addition to being a major portion of total current assets of many organizations. Inventory often represents as much as 40% of total capital of industrial organizations (Moore, Lee and Taylor, 2003).

It may represent 33% of company assets and as much as 90% of working capital, (Sawaya and Giauque 2011). Since inventory constitutes a major segment of total investment, it is crucial that good inventory management be practiced to ensure organizational growth and profitability. According to (Temeng et al., 2010),

historically, however, organizations have ignored the potential savings from proper inventory management, treating inventory as a necessary evil and not as an asset requiring management. As a result, many inventory systems are based on arbitrary rules. Unfortunately, many organizations invest less in inventory and are not able to meet customer demands because of poor distribution of investment among inventory items (Temenget al, 2010).

Problems of inventory management and control for Pharmaceutical companies have been around for a very long time. The need to give out goods when they are readily available and then store it for times of shortage is perhaps the fundamental stock holding problem, which was tackled long ago by man. In an agricultural organization like CDC, inventory is conducted to ensure that the required machines are in place, which ones need adjustments and replacements, which goods are ready to be given out, which will be ready with time, etc.

Based on the above analogy, the researcher was then motivated to carry out a study on assessing the inventory control system of pharmaceutical companies in Cameroon.

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