When it comes to inventory management, product rotation should be a top priority for your small niche pharmaceutical company. A solid strategy can help you to maximize your budget and support year-over-year (YoY) fiscal growth. How you manage inventory ultimately will affect your bottom line.
A good inventory management strategy will:
- Ensure your products are rotated accordingly to prevent order returns and/or cancellations.
- Guarantee your products remain organized and avoid loss from expiration or obsolescence. Carrying only what’s necessary means efficient use of your total budget.
- Enable you to make better business decisions by outlining a delivery routine that suits your current pharma needs and focuses on lowering transportation costs.
Product rotation supports your business operations at a company-wide level. There are two types of inventory management strategies that are commonly used inside a warehouse—first-in, first-out (FIFO) and first-expire, first-out (FEFO). We’ll go over the ins and outs of both strategies to help you decide which strategy is your best fit.
FIFO Inventory Management Strategy
Product rotation adhering to the FIFO strategy, or first-in, first-out, means that you aim to sell the pharmaceutical products that arrive at your warehouse first. Older products will be placed near the front while newer inventory will be stocked further back. This strategy works best for products that do NOT carry an expiry date, have no limited shelf-life, or experience a shorter demand cycle.
The FIFO strategy allows your pharma company to avoid dead stock and reduce the overall impact of inflation by increasing your profit margin. Assuming that inflation is a constant, products purchased previously would cost less than those in future orders. Let’s say you place an order at $5 per unit, then later place another order at $10 per unit. Managing your inventory using the FIFO strategy would mean that the oldest products would be sold first and your higher-valued products would remain in stock. Additionally, you’ll be able to monitor your inventory and adjust depending on current demand.