The study of inventory management of raw materials for a pharmaceutical company

Abstract

TCG is a multinational pharmaceutical company. As part of its drive to adopt lean manufacturing methodology in the plant and to stay competitive in the industry, TCG plans to effectively maximize its capital assets and reduce the warehouse space from 3500 to 1500 pallet spaces. This thesis focuses on the raw materials procurement and ordering methods in TCG. We study the accuracy of the demand forecasts for the finished products. And we investigate methods to improve procurement and inventory control. We use a 2-factor classification method to rank the 38 types of raw materials in the warehouse in terms of their importance based on their past procurement costs and the amount of warehouse space they occupied. We propose a just-in-time approach for the 9 most important items by having timely orders that match closely to the production schedule. A continuous review model is used for the next 11 items of less importance and a periodic review model is used for the remaining 18 items, which are of the least importance. We discuss and justify the assumptions used in our analysis. We provide a few further recommendations on how to improve inventory control based on observations of the current practices. The overall result shows that it might be possible to reduce the amount of space occupied by raw materials from the current average of 1076 pallets by 72%.