Increased shrinkage and fraud affecting stock control in the pharmaceuticals industry

on March 4 | in Pharmaceuticals | by | with No Comments

Among the many management functions performed in the pharmaceutical trade, few have more of a direct impact than inventory control. Purchasing policies gain a greater amount of attention and it certainly deserves heightened emphasis. However, sound purchasing policies and inventory control are closely intertwined; the one function cannot be effective without the strength of the other. Purchasing requires knowing the right quality and quantity to buy, when to order, at what pricing, and from which suppliers and sources. Inventory is simply the culmination of this buying. Some kind of inventory control system is essential to carry out the purchasing function effectively.

The underperformance of this inventory function is a critical concern within the industry. This is based on the simple truth that the industry’s inventory represents the single, largest investment to the business. Therefore, no other component of the trade has the potential to devastate the trade as much as poorly controlled inventory. It is essential that all tools available, including the better use of technology, should be used to strengthen an organization’s ability to track stocks and secure the supply chain.

Inventory can be severely affected by several concerns. Increased shrinkage and pharmaceutical fraud are among the top influences to inventory. Inventory shrinkage is the combination of employee theft, consumer shoplifting, vendor fraud and administrative error. In financial terms, inventory shrinkage is the loss of commodities between the point of manufacture or purchase from supplier and the point of sale. The term relates to the difference in the amount of margin or profit a business can obtain. Shrinkage has an inverse relationship with profitability; if the amount of shrinkage is large, then this means that profits/margins will be diminished.

Fraud within the industry does not solely involve actions that involve false claims to insurers or programs. Fraud can also occur during the production process. Corrupt employees can intentionally commit administrative errors, such as mislabeling the amounts of inventory processed, or claiming that products have been damaged in the production or manufacturing stage. Products can then be taken and sold for personal gain with little evidence of misdoing until the issue has reached noteworthy corporate levels.

Acts of shrinkage and fraud have a detrimental effect on consumer pricing. In order for companies to cover the difference in lost goods while maintaining profit margins, they typically must raise the cost of finished products. Consumers are hurt in the form of higher prices. However, the company may also suffer due to the loss of customers who will not spend increased amounts to purchase the newly-priced good. Higher prices also escalate the likelihood of more consumer-based shoplifting

In an average pharmaceutical chain, the cost of goods sold account for approximately sixty-eight percent of total expenditures. For every one percent change in a corporation’s costs of goods, profits may increase or decrease by more than twenty percent. Therefore, the sheer amount of dollars involved make seemingly small shortcomings in purchasing and inventory control matters of great significance to both cash flow and overall profitability.

Technology can be instrumental in curtailing shrinkage and fraudulent actions. Investments in upgraded technologies can enable quicker and more detailed information on inventory concerns.  Analysts can use electronic data to reconstruct or detect fraud. The steps in the process include data collection, data preparation, data analysis, and reporting. Using computer-based analytic methods the detection of fraud, errors, anomalies, inefficiencies, and biases can be determined and swiftly acted upon. Technology can also strengthen the efficiency of physical security procedures, such as the use of cameras in manufacturing plants, warehouses, and store locations.

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