Contents
1.
INTRODUCTION......................................................................................................................... 3
1.1
INVENTORY ........................................................................................................................ 3
1.2
INVENTORY MANAGEMENT ......................................................................................... 6
1.2.1
1.3
INVENTORY AND FINANCIAL PERFORMANCE OF A FIRM .............................. 14
1.3.1
2.
INVENTORY MANAGEMENT METHODS ............................................................ 7
INVENTORY TURNOVER RATIO ........................................................................ 14
PHARMACEUTICAL SECTOR IN INDIA ............................................................................ 17
2.1
PHARMACEUTICAL COMPANIES IN INDIA ............................................................ 18
2.1.1
CIPLA LIMITED ....................................................................................................... 18
2.1.2
LUPIN .......................................................................................................................... 20
2.1.3
SUN PHARMACEUTICALS .................................................................................... 22
2.1.4
BIOCON ...................................................................................................................... 24
2.1.5
DIVIS LABORATORIES .......................................................................................... 26
3.
NEED OF THE STUDY ............................................................................................................. 28
4.
LITERATURE REVIEW .......................................................................................................... 29
5.
RESEARCH METHODOLOGY .............................................................................................. 32
6.
8.
5.1.1
RESEARCH DESIGN ................................................................................................ 32
5.1.2
RESEARCH DATA: ................................................................................................... 33
5.1.3
TOOL USED: .............................................................................................................. 34
DATA ANALYSIS AND INTERPRETATION ....................................................................... 35
6.1
CIPLA LIMITED ............................................................................................................... 35
6.2
LUPIN .................................................................................................................................. 37
6.3
SUN PHARMACEUTICALS ............................................................................................ 39
6.4
DR. REDDY'S LABORATORIES .................................................................................... 41
6.5
DIVIS LABORATORIES .................................................................................................. 43
BIBLIOGRAPHY ....................................................................................................................... 46
1
Figure 1- Just in Time Objectives .............................................................................................. 8
Figure 2 - Overview of MRP Inputs and Outputs ...................................................................... 9
Figure 3 - Economic Order Quantity ....................................................................................... 12
Figure 4 - Reorder Level .......................................................................................................... 13
Figure 5 - Standalone Balance Sheet ....................................................................................... 15
Figure 6 - Standalone Profit and Loss Statement..................................................................... 16
Figure 7 - CIPLA Limited........................................................................................................ 18
Figure 8 - LUPIN ..................................................................................................................... 20
Figure 9 - SUN PHARMA ....................................................................................................... 22
Figure 10 - BIOCON ............................................................................................................... 24
Figure 11 - DIVIS Labs ........................................................................................................... 26
Figure 12 - ITR and Profit Comparison (CIPLA) .................................................................... 35
Figure 13 - Scatter Plot (CIPLA) ............................................................................................. 36
Figure 14 - ITR and Profit Comparison (LUPIN) ................................................................... 37
Figure 15 - Scatter Plot (LUPIN) ............................................................................................. 38
Figure 16 - ITR and Profit Comparison (SUN PHARMACEUTICALS) ............................... 39
Figure 17 - Scatter Plot (SUN PHARMACEUTICALS) ........................................................ 40
Figure 18 - ITR and Profit Comparison (Dr Reddy's Laboratories) ....................................... 41
Figure 19 - Scatter Plot (DR. REDDY's LABORATORIES) ................................................. 42
Figure 20 - ITR and Profit Comparison (DIVIS Laboratories) ............................................... 43
Figure 21 - Scatter Plot (DIVIS LAB) ..................................................................................... 44
2
1. INTRODUCTION
1.1 INVENTORY
The materials to be utilized in the manufacturing of goods, the materials on the production shop
floor, and the commodities available for sale are all referred to as inventory, also known as
stock. Raw materials, Work in Progress, and Finished Goods are the three basic forms of
inventories in a business.
➢ Raw materials are the unprocessed resources that are used to make the final product.
The following are some examples of raw materials: Automobiles are made out of
aluminum and steel.
➢ Work-in-progress (WIP) inventory refers to semi-finished goods that are in the
process of being completed and converted into finished goods. WIP Inventory is
something like a car body on the production floor waiting to be put together with the
engine.
➢ Finished goods are products that have completed all of the manufacturing processes
and are ready for sale. A finished good is a fully built car that is ready to be sent.
Inventory is one of a company's most valuable assets since inventory turnover indicates
revenue creation and, as a result, earnings for the company and its shareholders. Inventory is
classed as a current asset on a company's balance sheet.
Inventory serves as a buffer between production and order fulfilment. Inventory is a
financial investment made by a company in expectation of future sales. As a result, the
company must keep inventory at an appropriate level, as too much inventory can result in
higher storage costs, spoilage costs, the threat of obsolescence, and a loss of opportunity to use
those funds elsewhere, while too little inventory can result in stockouts and missed sales
opportunities.
Inventory has a number of costs associated with it, including:
a. Ordering Costs
b. Inventory Holding Costs
c. Shortage Costs
d. Spoilage Costs
3
e. Inventory Carrying Costs
•
Ordering Costs
This includes:
▪
Transportation costs
▪
Cost of sourcing and expediting orders
▪
Receiving costs
▪
Overhead costs of preparing purchase orders
▪
Cost of electronic data interchange
Typically, these expenditures are included in overhead costs and then distributed to the amount
of units produced in each month.
•
Inventory Holding Costs
This is the amount of cost a business incurs for the storage area where they hold the
inventory.
•
▪
Inventory services costs
▪
Inventory risk costs
▪
Opportunity cost - money invested in inventory
▪
Storage space costs
▪
Inventory financing costs
Shortage Costs
Shortage costs or stock-out costs, occurs when businesses become out of stock for various
reasons such as below:
▪
Emergency shipments costs
▪
Disrupted production costs
▪
Customer loyalty and reputation
4
•
Spoilage Costs
Perishable inventory is stock that can decay or deteriorate if not sold quickly enough, hence
inventory control is critical to avoid spoilage. The food and beverage, pharmaceutical,
healthcare, and cosmetic industries are all affected by expiration.
•
Inventory Carrying Costs
The amount of interest a company loses on unsold stock sitting in warehouses is referred
to as inventory carrying costs. This is a facet of inventory cost that is less well-known. To
determine the magnitude of this cost's influence on your P&L statement, you'll need to do some
math.
5
1.2 INVENTORY MANAGEMENT
The process of ordering, storing, eating, and selling a company's inventory is known as
inventory management. This includes the management of raw materials, work-in-progress, and
final products, as well as inventory warehousing and processing. Inventory management
streamlines inventories to prevent both excess and shortages.
For all types of organisations, inventory management is critical. When to restock
inventory, how much to buy at what price, and when to sell and at what price are all difficult
decisions to make. Smaller businesses can frequently maintain track of stock manually and use
a spreadsheet to determine reorder points and quantities. Larger companies, on the other hand,
must employ enterprise resource planning (ERP) software. Software as a service (SaaS)
systems that are highly customised are used by the world's largest organisations.
Depending on the industry, different inventory management strategies are used. An oil depot
can hold enormous amounts of product for long periods of time while waiting for demand to
build up. While storing oil is costly and dangerous—a fire in the UK in 2005 resulted in
millions of pounds in damage and fines—there is no fear of the stock spoiling or going out of
style. Stocking inventory for a long period of time is not an option for firms dealing in
perishable goods or products with particularly time-sensitive demand, such as yearly calendars
or fast-fashion items, and misjudging the timing or quantity of purchases can be costly.
Benefits of Inventory Management:
Inventory management has two key advantages: it guarantees that incoming or open orders are
fulfilled, and it increases earnings. It also:
▪
Reduces cost:
Inventory management also saves money since it allows a company to see how
much and where it has something in stock, allowing it to make better use of what it has.
This also allows the firm to hold less stock at each location (store, warehouse) because
it can fulfil orders from anywhere - all of this lowers inventory costs and reduces the
amount of product that goes unsold before it becomes obsolete.
6
▪
Improves Cash Flow:
Proper inventory management allows you to spend money on inventory that sells,
allowing cash to flow freely throughout the company.
▪
Satisfies Customers:
Providing clients with the things they desire without having to wait is one aspect of
building loyal customers.
Balancing the hazards of inventory excess and shortages is especially difficult for organisations
with complicated supply chains and manufacturing processes. Firms have developed many
inventory management strategies, including just-in-time (JIT) and materials requirement
planning, to achieve these balances (MRP).
1.2.1
INVENTORY MANAGEMENT METHODS
Based on the business type or the product, a company may use different inventory management
methods. Some of these methods include Just-in-Time (JIT) manufacturing, Materials
Requirement Planning (MRP), Economic Order Quantity (EOQ).
a. Just-in-Time Management (JIT)
This model originated in Japan in the 1960s and 1970s. Toyota Motors (TM)
contributed the most to the development of this technique. Toyota manufacturing plants
popularized the concept in the early 1970s meeting consumer demands with minimum
delivery time. The main goal of JIT is to maintain zero inventories across the
organization and its supply chain completely utilizing the capabilities of the firm and
maximize ROI.
The work ethic developed shortly after World War II wherein the Japanese
worked towards attainment of the optimal cost – quality relationships in their
manufacturing process in order to counter the constraint they were facing due to acute
shortage of materials.
7
Zero
Inventory
Just in
Time
(JIT)
Zero
Failures
Zero Lead
Time
Zero
Delay
Figure 1- Just in Time Objectives
The concept of JIT is extended to the whole system of production:
▪
To produce and deliver finished goods just in time to be sold,
▪
To sub-assemblies just in time to be assembled in to finished goods,
▪
To fabricate parts just in time to go in to sub-assemblies,
▪
To purchase materials just in time to be transformed into fabricated
parts.
Thus, JIT stands for producing necessary units, in necessary quantities, at the necessary
time.
The just-in-time (JIT) inventory system is a strategy that lines up raw-material
orders from suppliers directly with production schedules. This inventory technique
aims to increase efficiency and reduce waste by receiving materials only when they are
needed for the production process thereby reducing inventory costs. This approach
minimizes storage, insurance costs, cost of liquidating or discarding excess inventory.
One of the requirement for this method is an accurate forecast demand.
For the success of this technique, companies must have a steady production
schedule and reliable suppliers.
8
b. Materials requirement planning (MRP)
Material requirements planning (MRP) is a manufacturing process management system that
includes production planning, scheduling, and inventory control. Even if most MRP systems
are software-based, MRP can also be done manually. Material requirements planning systems
are used by businesses to predict raw material amounts and schedule deliveries.
Figure 2 - Overview of MRP Inputs and Outputs
The primary objectives of an MRP system are as follows:
•
Ascertain that raw materials and finished goods are available for manufacture and
delivery to clients.
•
Maintain the lowest feasible stock levels of materials and products in the store.
•
Plan out your manufacturing, transport, and purchasing activities.
9
The MRP includes the following basic steps:
•
MRP starts with a finished goods production plan, which is translated into a list of needs
for the subassemblies, component components, and raw materials required to
manufacture the final product on time.
•
Demand estimation and the supplies required to meet it. Identifying client demand and
the requirements to meet it is the first stage in the MRP process. MRP breaks down
demand into particular raw materials and components using the bill of materials, which
is basically a list of raw materials, assemblies, and components required to make an end
product.
•
Demand should be compared to inventory, and resources should be allocated
accordingly. This phase entails comparing demand to what you already have on hand.
The MRP then allocates resources appropriately. In other words, the MRP assigns
inventory to the precise regions where it is required.
•
Scheduling the production. The following step is to simply calculate the amount of time
and manpower required to finish the manufacturing process. There is also a time limit.
•
Keep an eye on the situation. The process's final stage is merely to keep an eye on it for
any problems. In order to satisfy build deadlines, the MRP may immediately warn
management to any delays and even suggest contingency solutions.
MRP is a data extensive process. The following types of data are usually considered by Material
Requirements Planning (MRP):
•
The name of the ultimate product being created: This is also known as independent
demand or BOM Level "0."
•
Information on what to expect and when to expect it: What is the minimum quantity
required to meet demand? When will it be required?
•
The storage materials' shelf life.
•
Inventory status records: These are records of net materials that are already in stock (on
hand) and materials that are on order from suppliers.
•
Material bills of lading: Each product's materials, components, and sub-assemblies are
listed in detail.
10
•
Planning data: This refers to all of the constraints and instructions for producing
products including routing, labour and machine standards, quality and testing standards,
lot sizing methodologies, and other inputs.
Material Requirements Planning's Benefits and Drawbacks (MRP)
The MRP process has a number of benefits:
•
Minimized inventory levels and associated expenses
•
Assurance that supplies and components would be accessible when needed
•
Improved inventory management
•
Shortened customer lead times
•
Boosted manufacturing efficiency
•
Boosted labour productivity
•
Boosted overall customer happiness
The MRP approach does, however, have several drawbacks:
•
MRP systems can be complex and expensive to establish
•
Lack of flexibility when it comes to production schedules
•
Heavy dependency on input data correctness (garbage in, garbage out)
11
c. Economic Order Quantity (EOQ)
To maintain inventory levels at optimum level, it is necessary to determine an optimal level
of the inventory to avoid excess or shortages. Economic Order Quantity model is one such tool
which can be used to calculate the optimal quantity of units to be procured which will minimize
the total holding costs and ordering costs. The credit for the development of this model belongs
to Ford W. Harris in the year 1913.
In Economic Order Quantity each order has a fixed cost known as the Ordering cost
irrespective of the number of units ordered. It consists of costs incurred for communicating
with the supplier, the salary of the purchase department, transportation cost, stationary cost etc.
The more the number of orders placed and lesser units procured greater is the Ordering Cost.
Also, there is a cost associated with the storage of the units which comprises of storage cost,
insurance, warehouse rent, overheads of warehouse/store etc. and is commonly known as
Holding cost. The more the units procured in a single order the greater will be the Holding
Cost. These two costs together form the total cost of procurement which the Economic Order
Quantity model aims to minimize by determining the intersection of the ordering cost curve
and holding cost line.
Figure 3 - Economic Order Quantity
12
•
Reorder Level
Reorder point is the level at which stocks have to be re-ordered to prevent stock-out.
Figure 4 - Reorder Level
Reorder point is determined by the number of units consumed during the lead time and the
safety stock which is held to match any fluctuations in demand. It assumes that the lead time
is always constant. In a business ordering at the right time is important because if ordered
earlier then there is a chance of extra stock being accommodated and if it is ordered late then
there will an interruption in the process due to stock-out.
Reorder Level is calculated as Average daily consumption * Lead time in days.
Here the lead time is the time taken for the vendor to complete the order. Also, the consumption
is assumed to be constant.
If the firm maintains a safety stock, then
▪
Reorder level = (Average daily consumption * Lead time in days) + Safety Stock.
13
Safety stock is the stock maintained by any firm to meet any fluctuations in demand.
1.3 INVENTORY AND FINANCIAL PERFORMANCE OF A FIRM
Inventory creates money for the company when it is sold. Inventory, on the other hand,
consumes cash before it can be sold (despite being represented as an asset on the balance sheet).
Having too much inventory, as a result, costs money and reduces cash flow. One indicator of
good inventory management is inventory turnover. Inventory turnover is a financial measure
that indicates how often stock is sold over time. A business does not want to stock up on
inventory that it cannot sell. Low inventory turnover can result in deadstock, or unsold
inventory.
1.3.1
INVENTORY TURNOVER RATIO
Inventory turnover is a financial statistic that shows how often a company's inventory is sold
and replaced in a particular period. Average inventory is used to help eliminate seasonality
effects.
The rate at which a company's inventory is sold is referred to as inventory turnover. Low
turnover suggests slow sales and, maybe, surplus inventory (also known as overstocking). It
could be due to a lack of marketing or a problem with the products being offered for sale. A
high ratio, on the other hand, suggests either large sales or insufficient inventories. Although
the former is preferred, the latter may result in a commercial loss. A company's ability to sell
inventory quickly is a major indicator of its success. When selling perishable and other timesensitive commodities, inventory turnover is especially important for maximising efficiency.
Just a few examples include milk, eggs, fruit, fast fashion, and autos. Inventory turnover
analyses how quickly a company's inventory is sold over the course of a year and is commonly
used to assess overall operational success.
Inventory turnover can be calculated in two ways. In the first way, divide the company's yearly
sales by the average inventory balance, and in the second method, divide the annual cost of
goods sold (COGS) by the average inventory balance. In any case, the average inventory
balance is calculated by dividing the total of the year's beginning and ending inventory by two.
14
Depending on the industry, what defines a "good" inventory turnover will differ. Companies
that carry relatively inexpensive products will often have higher inventory turnovers, whereas
industries that stock more expensive items—where purchasers need longer to make a
purchasing decision—would have lower inventory turnovers.
A company selling low-cost goods, for example, may sell 30 times its inventory in a year, while
a company selling large industrial machines may only sell 3 times its inventory. Inventory
turnover ratios must be compared to the industry and competitors of the company to determine
whether they are positive or negative.
In a company's balance sheet, inventory is classed as a current asset. The Balance Sheet of a
company's financials contains these information. This is the inventory information that will be
used to determine the Inventory Turnover Ratio.
Figure 5 - Standalone Balance Sheet
15
The money earned by a company's principal business operations on a daily basis is known as
revenue from operations or operating revenue. The Profit and Loss statement of a company's
financials contains this information. This is the revenue information that will be used to
determine the Inventory Turnover Ratio.
Figure 6 - Standalone Profit and Loss Statement
The Inventory Turnover Ratio is computed by dividing the company's revenue from operations
by its average inventory during the same time period. The average inventory is computed by
multiplying the closing and opening inventories by two.
16
2. PHARMACEUTICAL SECTOR IN INDIA
In the global medicines industry, India holds a significant place. The Indian pharmaceutical
sector is the third largest in terms of volume and the 14th largest in terms of value in the world.
Pharmaceuticals had a total annual turnover of Rs. 2,89,998 crores in 2019-2020. In the fiscal
year 2019-20, total pharmaceutical exports and imports were Rs. 1,46,260 crore and Rs. 42,943
crores, respectively. Generic medications, over-the-counter medicines, API/bulk drugs,
vaccines, contract research and manufacturing, biosimilars, and biologics are the major
segments of the pharmaceutical industry.
Outside of the United States, India has the second-highest number of FDA-approved plants.
India is the world's largest supplier of DPT, BCG, and Measles vaccines. India produces 60%
of the world's vaccines, meeting 40–70% of WHO demand for DPT and BCG vaccines, and
90% of WHO need for measles vaccine. India is the world's top supplier of generic
pharmaceuticals. One of the greatest success stories in medicine is India's provision of
affordable HIV therapy. India is one of the world's largest suppliers of low-cost vaccinations.
Indian pharmaceuticals are preferred internationally due to their low cost and good quality,
earning the country the title of "Pharmacy of the World." The pharmaceutical industry currently
accounts for 1.72 percent of the country's GDP.
The pharmaceutical industry in India is a significant part of the country's international
commerce, providing appealing channels and prospects for investment. India provides millions
of people throughout the world with accessible and low-cost generic medications and operates
a large number of Good Manufacturing Practices (GMP)-compliant factories, according to the
US Food and Drug Administration (USFDA) and the World Health Organization (WHO). India
has risen to the top of the list of countries producing pharmaceuticals in the globe.
India is the world's third largest market for APIs, with an 8% share of the worldwide API
industry, 500+ different APIs created in India, and it supplies 57 percent of APIs to the WHO's
prequalified list. The domestic pharmaceutical industry includes a network of 3,000 drug
companies and ~10,500 manufacturing units.
17
2.1 PHARMACEUTICAL COMPANIES IN INDIA
Following are the few of the listed Pharmaceutical Companies in India which are considered
for this study.
2.1.1
CIPLA LIMITED
Figure 7 - CIPLA Limited
Cipla Limited, located in Mumbai, India, is an Indian multinational pharmaceutical
corporation. Cipla primarily produces drugs for the treatment of respiratory, cardiovascular,
arthritis, diabetes, weight loss, and depression, as well as other medical disorders.
As of 2022, its market capitalization was ₹ 78,018.92 crores.
On 1st Sep,2016 Umang Vohra was elected as the Chief Executive Officer.
•
HISTORY
Khwaja Abdul Hamied started 'The Chemical, Industrial & Pharmaceutical Laboratories' in
Mumbai in the year 1935. In 1984 on July 20, the company's name was changed to 'Cipla
Limited.' The company's bulk medication manufacturing facilities were licensed by the US
FDA in 1985. The company supplies generic AIDS and other pharmaceuticals to people in the
18
developing world, led by the founder's son Yusuf Hamied, a Cambridge-educated chemist. In
the year 1995 Cipla produced Deferiprone, the world's first oral iron chelator. Cipla began
offering HIV treatment drugs (antiretrovirals) for a fraction of the cost (less than $350 per
patient per year) in 2001. Cipla purchased Cipla-Medpro in South Africa in 2013, retained it
as a subsidiary, and renamed it Cipla Medpro South Africa Limited. Cipla-Medpro had been a
distribution partner for Cipla and was South Africa's third largest pharmaceutical company at
the time of the acquisition. Enaleni Pharmaceuticals Ltd was the name of the company when it
was created in 2002. Enaleni purchased all of the shares in Cipla-Medpro, a joint venture
between Cipla and Medpro Pharmaceuticals, a South African generics company, in 2005, and
renamed it Cipla-Medpro in 2008.
•
OPERATIONS
Cipla has a presence in over 80 countries and has 34 manufacturing sites in 8 locations across
India. For the fiscal year 2013–14, exports accounted for 48 percent of revenue, or Rs 4,948
crore (equivalent to Rs 71 billion or US$940 million in 2020). Cipla spent 517 crores (5.4
percent of revenue) on R&D in FY 2013–14. The development of innovative formulations,
drug delivery methods, and APIs were the key focal areas for R&D. (active pharmaceutical
ingredients). Cipla also works with other companies on consulting, commissioning,
engineering, project appraisal, quality control, know-how transfer, support, and plant supply.
As of March 31, 2013, the company employed 22,036 people, including 2,455 women (7.30
percent) and 23 people with disabilities (0.1 percent). Employee perk expenses cost the
corporation Rs 1,285 crore in FY 2013–14 (equal to US$17 billion or US$230 million in 2020).
•
PRODUCTS
Cipla sells active pharmaceutical ingredients, as well as pharmaceutical and personal care
products, such as escitalopram oxalate (antidepressant), lamivudine, and fluticasone
propionate, to other manufacturers. They are the largest producer of antiretroviral medications
in the world.
After reaching a voluntary licensing agreement with parent company Gilead Sciences and
DCGI approval for "restricted emergency use" in COVID-19 treatment of critical confirmed
patients, the company announced the introduction of Gilead Sciences' remdesivir under the
brand name CIPREMI in India in July 2020.
19
2.1.2
LUPIN
Figure 8 - LUPIN
Lupin Limited, situated in Mumbai, Maharashtra, India, is an Indian multinational
pharmaceutical corporation. It is one of the world's most profitable generic pharmaceutical
companies. Pediatrics, cardiovascular, anti-infectives, diabetology, asthma, and antituberculosis are among the company's primary emphasis areas.
•
HISTORY:
Lupin was developed in 1968 by Desh Bandhu Gupta, a chemical professor at BITS-Pilani in
Rajasthan. In the 1960s, Gupta travelled to Mumbai to continue his business venture, for which
he borrowed Rs 5000 from his wife. After securing money from the Central Bank of India, the
company was able to begin production of folic acid and iron tablets for the Government of
India's mother and child health program. Lupin then began manufacturing anti-TB drugs, which
at one point accounted for 36% of the company's sales, making it the world's largest TB drug
manufacturer.
Desh Bandhu Gupta founded the Lupin Human Welfare & Research Foundation, the
company's CSR arm, in 1988. (LHWRF). This effort was dedicated to long-term rural
development with the goal of assisting low-income families.
20
•
OPERATIONS:
Lupin plants are located in Aurangabad, Ankleshwar, Mandideep, Pune, Tarapur, Goa, Jammu,
Vadodara, Indore, Nagpur, Visakhapatnam, Sikkim, Mexico, Brazil, USA.
•
PRODUCTS:
o Anti-Tuberculosis
Lupin is the world's leading manufacturer of cephalosporins, cardiovascular pharmaceuticals,
and anti-tuberculosis medications. GDF is a major provider of anti-TB drugs to the Stop TB
Partnership, obtaining them in more than 50 nations. Rgwduen is also a global leader in antiTB APIs and is linked with the Revised National Tuberculosis Control Program of the Indian
government. It provides supplies to organizations such as the Pan American Health
Organization (PAHO), Médecins Sans Frontières (MSF), and the Damien Foundation, as well
as government agencies such as the Stop TB Partnership. Ethambutol, rifampicin, and
pyrazinamide are three of the company's most popular tuberculosis drugs.
o Biotechnology research
The Lupin Biotechnology Research Group, situated in Ghotawade & Wakad, near Pune,
focuses on biosimilar development. It has a pipeline of ten biosimilar pharmaceuticals in
development as of May 2013, and two of its oncology therapies are close to receiving marketing
authorization for the Indian market. Lupin has the capability to design and manufacture
recombinant protein therapeutics from high yielding and proprietary microbial and mammalian
cell culture platforms. Product development skills include clone development, process
optimization, analytical method development, bioassay, formulation, stability studies, nonclinical and clinical investigations, all of which are underpinned by a thorough awareness of
regulatory and IP issues. The biotech development projects at the company are compliant with
and adhere to ICH, EMEA, and Indian regulatory norms. Biosimilar versions of Etanercept,
Filgrastim, Peg-filgrastim, and Ranibizumab have been created by the company.
o Diagnostics
In December 2021, Lupin offering a long range of diagnostic tests ventured into the diagnostics
sector providing molecular diagnostics, cytogenetics, flow cytometry, microbiology, and
serology, among others.
21
2.1.3
SUN PHARMACEUTICALS
Figure 9 - SUN PHARMA
Sun Pharmaceutical Industries Limited (d/b/a Sun Pharma) is a multinational pharmaceutical
firm based in Mumbai, Maharashtra, that develops and sells pharmaceutical formulations and
active pharmaceutical ingredients (APIs) in over 100 countries.
•
HISTORY:
Dilip Shanghvi launched Sun Pharmaceuticals in Vapi, Gujarat, in 1983 with five medications
to treat psychiatric disorders. In 1987, cardiology items were released, followed by
gastrointestinal products in 1989. It is now the market leader in cardiology, gastroenterology,
ortho, diabetology, dermatology, urology, and vitamins / minerals / nutrients in India, with 9
different classes of doctors prescribing it. Sun Pharma became the largest pharma firm in India,
the largest Indian pharma company in the United States, and the fourth largest specialty generic
company in the world after acquiring Ranbaxy in 2014. The United States is the company's
single largest market, accounting for roughly 30% of total sales; formulations or completed
dosage forms account for 93 percent of total turnover. Manufacturing takes place in 44
locations throughout the world, including India, the United States, Asia, Africa, Australia, and
Europe.
22
•
OPERATIONS:
Sun Pharma has plants and development centers at Haryana, Vadodara, Mumbai, Dadra &
Nagar Haveli, Bharuch, Himachal Pradesh, Madhya Pradesh, Punjab, Goa, Tamil Nadu,
Ahmednagar, Karnataka, Bhind.
•
PRODUCTS:
o Speciality Medications
Sun Pharma has developed a patent-protected range of specialty pharmaceuticals for global
markets. Dermatology, ophthalmology, and cancer are the main focus areas. Sun Pharma is one
of the most well-known branded firms in the United States, and it has a number of specialty
items on the market.
o Generic Medications
Generic Medications include tablets, capsules, injectables, inhalers, ointments, creams, and
liquids, among other dosage forms. Psychiatry, anti-infectives, neurology, cardiology,
orthopaedics,
diabetology,
gastroenterology,
ophthalmology,
nephrology,
urology,
dermatology, gynaecology, respiratory, cancer, dental, and nutritional are among the
therapeutic categories covered by the portfolio of approximately 2000 compounds.
o Over-the-Counter Medications
A variety of over-the-counter (OTC) / consumer healthcare products are available. Faringosept
(sore throat), Revital (vitamins), and Volini (topical analgesics) are some of the most wellknown OTC brands available in a variety of nations. Coldact & Flustat (cold & flu), Brustan,
Painamol & Paduden (analgesics), Aspenter, Aspacardin, Nudrate & Fortifikat (lifestyle
OTCs), Gestid (digestives), and Chericof (cosmetics) are some of the other category-defining
products (cough).
o Active Pharmaceutical Ingredients
There are over 300 APIs available, which are used in-house and sold to customers in over 60
countries. APIs are produced in 14 sites in India, Hungary, the United States, Israel, and
Australia. The product list includes generics and complex APIs that require isolated
manufacturing areas, such as anti-cancers, peptides, steroids, sex hormones, and controlled
substances, such as poppy-derived opiate raw materials sold as both Narcotic Raw Materials
(NRM) and APIs, which are primarily used in the manufacture of analgesics.
23
2.1.4
BIOCON
Figure 10 - BIOCON
Biocon Limited, situated in Bangalore, India, is an Indian biopharmaceutical business. Kiran
Mazumdar-Shaw established it in 1978. The company produces generic active pharmaceutical
ingredients (APIs) that are sold in more than 120 countries around the world, including
developed markets like the United States and Europe.
•
HISTORY:
Biocon was established in 1978 with a capital of Rs. 10,000. Biocon was the first Indian
company to manufacture and export enzymes to the United States and Europe in 1979. It was
the first Indian business to be certified by the USFDA to manufacture lovastatin in 2001.
Biocon was the first business in the world to generate human insulin using the Pichia expression
system in 2003. Biocon moved to Malaysia in 2010 and opened a biopharmaceutical
manufacturing and research and development facility in Iskandar Malaysia, Johor. The next
year, Biocon released INSUPen, a reusable insulin administration device that was both
convenient and inexpensive. ALZUMAb, a biologic medication developed by Biocon, was
released in 2013 to treat psoriasis. Biocon released CANMAb, the world's first biosimilar
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medicine, to treat breast cancer in 2014. Biocon introduced the CIMIVIR-L hepatitis-C
medication in India in 2015.
•
OPERATIONS:
Biocon has five state-of-the-art facilities in Bangalore, Hyderabad, and Visakhapatnam, India,
that produce high-quality, reliable, and efficient goods. Strategic alliances with global CMOs,
in addition to our in-house manufacturing sites, are used to bring value to our partners. Our
state-of-the-art oral solid facility is equipped with comparable unit operations as the R&D
facility, such as wet/dry granulators, fluidised bed dryers, blenders, compressors, capsule and
blister packing machines, ensuring a smooth transition from R&D to cGMP.
•
PRODUCTS:
Biocon has 36 product names spread over four therapeutic divisions: diabetes, nephrology,
cancer, and cardiology.
25
2.1.5
DIVIS LABORATORIES
Figure 11 - DIVIS Labs
Divi's Laboratories Limited, headquartered in Hyderabad, Telangana, India, is an Indian
pharmaceuticals firm and a producer of active pharmaceutical ingredients (APIs) and
intermediates. Generic APIs, intermediates, and nutraceutical components are manufactured
and custom synthesized by the company. By market value, Divi's Laboratories is India's second
most valuable pharmaceutical company.
•
HISTORY:
Divi's Laboratories began as Divi's Research Centre in 1990. Initially, the company focused on
creating commercial techniques for the production of APIs and intermediates. In 1994, Divi's
Research Centre renamed itself Divi's Laboratories Limited to announce its intention to enter
the API and intermediates manufacturing business. After that, in 1995, the company opened its
first manufacturing facility in Choutuppal, Telangana. The company's second manufacturing
site opened at Chippada, near Visakhapatnam, in 2002. On February 17, 2003, the company
26
went public with an initial public offering (IPO). The business opened a research center in
Hyderabad in 2010.
•
OPERATIONS:
Six production facilities and three research and development centers are located throughout
India.:
Choutuppal Unit - Telangana.
DC SEZ Unit - Telangana
Export Oriented Unit - Andhra Pradesh
Divi's Pharma SEZ Unit - Andhra Pradesh
DSN SEZ Unit - Andhra Pradesh
DCV SEZ Unit - Andhra Pradesh
•
PRODUCTS:
DIVIS lab has three product categories namely Generic APIs, Custom Synthesis
Nutraceuticals.
27
3. NEED OF THE STUDY
The management of inventory of a firm can very well be the most defining factor in
differentiating it from the competitors in terms of converting the inventory to sales faster than
them.
Following are the objectives of this study:
•
To form a conclusion that the management of inventory is an important contributing
factor to a pharmaceutical firm’s financial performance.
•
To conclude that Inventory Turnover ratio is positively correlated to the Profit of the
firm.
•
To display reduction in Capital tied in Inventory by Companies year-on-year.
•
To compare Inventory Turnover ratios of companies between the Pharmaceutical
Companies selected for the study.
28
4. LITERATURE REVIEW
a. Effect of inventory management on financial performance: Evidence from the
Saudi manufacturing company: Case study
Author: Torky Althaqafi
During the recent Covid crisis, the world has experienced a serious financial crisis that has
impacted many multinational enterprises and economies that had scheduled their production
rates based on marketing estimates created just prior to the global disaster. Using a case study
technique, this research investigates the relationship between inventory control and financial
performance of a certain organisation. It also looks at the variables that slow down the
inventory control process. The findings revealed that a company's profitability has a substantial
association with inventory management, implying that good inventory management ensures
increased profitability, whereas poor inventory management equates to poor financial
performance.
b. Impacts of Inventory Management Practices on Organization Performance
Authors: Olaniyan, Ibunkunoluwa Hannah, Akinde, Blessing Onyi, Adegbola, Muritala
Makinde, Aladesoun, Caroline Bunmi, Ayoade, Abayomi Adewuyi
The effects of inventory management systems on the performance of selected retailers and
supermarkets in Osogbo, Osun State are the subject of this study. The goals of this study are to
determine the impact of inventory management practises on store and supermarket
organisational growth, examine the impact of inventory management practises on store and
supermarket organisational profitability, and determine the impact of inventory management
practises on store and supermarket sales turnover. The research was conducted using a crosssectional descriptive research design. The study takes place in Osogbo, Osun State. Primary
data was used in this experiment. The primary information was gathered via a well-structured
questionnaire. According to the findings, effective inventory management strategies have a
beneficial impact on organisational growth, profitability, and sales turnover. According to the
report, management of various organisations should guarantee that various inventory
management procedures in stores are reviewed on a regular basis in order to maintain
profitability and consistency. Additionally, the management of various companies, particularly
stores and supermarkets, should recognise the need of implementing inventory systems that
29
will enable commercial success and, as a result, organisational growth. According to the
findings of this study, businesses and supermarkets that have a good inventory management
system are more likely to thrive and satisfy their consumers and shareholders.
c. New insights into inventory dynamics and its financial implications: Evidence for
US and International Public Companies
Author: Serguei Roumiantsev
Traditional inventory models provide a wealth of information about how to best manage
particular product stockpiles. This research then goes on to answer the question of whether
these models' insights can be used to describe full company inventory dynamics. Is it possible
to assess the quality of a company's operations only based on publicly available information?
The purpose of this study is to analyse those concerns in depth using empirical data from a
number of businesses and nations. In the second chapter, the authors use a quarterly data panel
to analyse absolute and relative inventories and discover empirical evidence that enterprises
with more uncertain demand, longer lead times, and better margins have larger inventory
levels. Our findings show that traditional inventory models can assist with both high-level
strategic and tactical decisions. After adjusting for industry- and firm-specific factors, it is
shown in Chapter 3 that greater earnings are linked to inventory management speed of
change/responsiveness. Chapter 4 concludes by empirically demonstrating inventory dynamics
for a large sample of publicly held enterprises from nine OECD nations. Our model explains
between 76% and 95% of the variation in absolute inventory, depending on the country, and
we show that raw materials inventory is the cash cycle component with the most negative
significant association with accounting performance.
d. Study of Inventory Management in Pharmaceuticals: A Review of COVID-19
Situation
Authors: Mir Mohammed Junaid Basha, Navya V.S, Sonali Wani, Vivekanand S Gogi
The inventory audit approach is used in this study to improve the inventory status of
medicines by employing selective inventory control strategies. Pharmaceuticals are critical
sectors of the medical industry, but due to the current circumstance, where there is a significant
reduction in capsule production due to the COVID-19 Pandemic, many pharmaceutical
companies have denied orders due to a lack of medicinal items during the lockdown. This
research incorporates systematic evaluation, statistical methodologies, fuzzy logic, ABC-VED,
30
EOQ, JIT, and other methods to classify diverse pharmaceutical inventory models. This also
outlines some of the case studies undertaken based on annual pharmaceutical expenditures
using the ABC classification. The main goal is to identify and address inventory management
issues by providing rapid and accurate analysis. All methods often employed in the inventory
management of drug handling are reviewed in this study, and the best ways are proposed,
which, when combined and performed in an automated setting, can help to keep inventory at
an optimal level.
e. The effect of inventory management on firm performance
Authors: Dimitrios P. Koumanakos
In today's extremely competitive market, lean management is gaining increasing traction. The
goal of this research is to see if efficient (lean) inventory management improves a company's
financial performance. The investigation used data from the ICAP database, which covers
financial data on all medium and large Greek businesses. The study took place between 2000
and 2002. Each year, all manufacturing companies having the legal form of societe's anonyms
operating in any of Greece's three representative industrial sectors: food, textiles, and chemicals
were chosen. Preliminary results, obtained by cross-section linear regressions, reveal that the
higher the level of inventories preserved (departing from lean operations) by a firm, the lower
its rate of returns. Findings are additionally tested by the use of pseudo-likelihood ratio test
which constitutes a more reliable tool, thus verifying the robustness of the linearity of the
relationship. Research limitations/implications – Given the great number of the possible
determinants of performance it is difficult to isolate the effect of inventories even by using
large samples and advanced methodologies. Since the results from other empirical studies on
the microeconomic determinants and consequences of inventories are somewhat contradictory,
this study sheds light to this issue by employing more sophisticated statistical tests applied to
a large and recent sample of Greek manufacturers across different industries.
31
5. RESEARCH METHODOLOGY
5.1.1
RESEARCH DESIGN
The main purpose of this research is to establish a correlation between the company’s inventory
and profit. For this a correlational research design type is used.
Correlational study seeks to determine the amount of a relationship between two or more
variables using statistical data. This design approach looks for and understands connections
between and among a variety of information. This type of research will find trends and patterns
in data, but it will not go so far as to prove causation in its analysis. Cause and effect aren't
used in this type of observational research. The data, relationships, and distributions of the
variables. Extraneous variables in correlational research have no effect on the variables being
studied.
Characteristics of correlational research
There are three key characteristics of correlational research. They are as follows:
•
Correlational research is a non-experimental method. It suggests that researchers don't
need to use scientific methodology to modify variables in order to agree or disagree
with a hypothesis. The researcher just measures and observes the relationship between
the variables, not changing or conditioning them in any way.
•
Correlational research is only interested in looking back at historical data and observing
past events. Researchers use it to measure and spot historical patterns between two
variables. A correlational analysis may reveal a favorable association between two
variables, but that relationship could shift in the future.
•
Dynamic: Correlational research patterns between two variables are never static and are
continually evolving. Due to a variety of causes, two variables with a negative
correlation in the past may have a positive correlation connection in the future.
32
5.1.2
RESEARCH DATA:
Main source of data for this study comes from the various companies annual financial
statements. The Balance sheet and the Profit & Loss statement of the companies over 10 years
(2012 to 2021) were referred. Additionally, certain websites with the data were also observed.
Balance Sheet:
A balance sheet (also known as a statement of financial position or a statement of
financial condition) is a summary of an individual's or organization's financial balances in
financial accounting. The assets, liabilities, and ownership equity of a company are listed as of
a given date, such as the end of the fiscal year. A balance sheet is frequently referred to as a
"snapshot of a company's financial situation."
Profit and Loss Statement:
A profit and loss (P&L) statement is a financial statement that summarizes revenue,
expenditures, and spending for a specific time period, usually a quarter or fiscal year. These
documents reveal a company's ability (or inability) to produce profit via growing revenue,
lowering costs, or both.
Inventories data from the company’s balance sheet were taken. This data is present
under the current asset section of the balance sheet. Further, data of Revenue from Operations
and Profit was taken from the Profit & Loss statement of the companies for the same time
period (2012-2021).
Inventories:
In a balance sheet, Inventories is classified under Current Asset section. Current assets
are those assets which are to be realized in 12 months. Inventories includes the sum of value
of Raw Materials, Work-In Progress and Finished Goods. The bifurcations of Inventories
between the three types are included in the notes provided in balance sheet.
Revenue from Operations:
Revenue from Operations, also known as income from operations, is calculated by
subtracting all operational expenses from a company's gross income, which is equal to total
revenue minus COGS. After deducting cost of goods sold (COGS) and other operating
expenses from sales revenues, a company's operational income is what's left. It does not,
however, account for taxes, interest or financing costs, or depreciation and amortization. This
33
information can be found in the P&L statement of the company's financial report under the
Revenue section.
Profit before tax:
Profit before tax is a metric that examines a company's earnings before it has to pay
corporate income tax. It is essentially all of a company's profits before any taxes are taken into
account. On the Profit and Loss statement, profit before taxes is calculated as operating profit
minus interest. The number used to calculate a company's tax obligation is profit before tax.
Inventory Turnover Ratio:
For this study Inventory turnover ratio is considered. It has been calculated by dividing
Revenue from Operations by average Inventory for the same period.
Revenue from Operations
Average
Inventory
All the financial statements were taken from the company’s official website.
Inventory Turnover Ratio =
•
CIPLA - https://www.cipla.com/investors/annual-reports
•
LUPIN - https://www.lupin.com/investors/reports-filings/
•
SUN PHARMACEUTICALS - https://sunpharma.com/investors-annual-reportspresentations/
•
DR REDDY - https://www.drreddys.com/investor
•
DIVIS LABS - https://www.divislabs.com/investor-relations/reports-andfilings/annual-reporting/
Also, data was taken from Moneycontrol website - https://www.moneycontrol.com/
5.1.3
TOOL USED:
Tool used to consolidate and analyze the data is Microsoft Excel 2019. Once consolidated the
Charts tool of the Excel was used for visualization of the data for graphical representation.
Also, the ‘CORREL’ function was used to calculate correlation.
34
6. DATA ANALYSIS AND INTERPRETATION
6.1 CIPLA LIMITED
Figure 12 - ITR and Profit Comparison (CIPLA)
The above graph shows the progress of the CIPLA’s Profit and the Inventory Turnover ratio
over a time period of 9 years. At all points, the graphs of both variables have the same incline
and decline pattern. This is highly evident of the fact that at CIPLA the ITR and Profit are
related.
The major fall in profit in 2017 is due to high employee costs (18% revenue went towards
employees which was one of the highest among similar companies) and also a one time
impairment charge of 32 million dollars towards litigation and regulatory developments for
certain assets of Invagen (child company of CIPLA).
35
Figure 13 - Scatter Plot (CIPLA)
The scatter diagram chart plotted between the Inventory Turnover ratio on X-axis and the Profit
on Y-axis is shown above. From the graph it is evident that the variables share a positive
correlation between them. It means that with the increase in Inventory Turnover Ratio at
CIPLA the profit tends to increase.
The line equation for this scatter plot is y = 2048.3x – 6104. Here the slope is 2048.3 and
intercept -6104. This equation shows how change in Inventory Turnover Ratio triggers a
change in the Profit.
The correlation coefficient between the two variables is 0.894 which points towards a high
positive correlation.
36
6.2 LUPIN
Figure 14 - ITR and Profit Comparison (LUPIN)
The above graph shows the progress of the LUPIN’s Profit and the Inventory Turnover ratio
over a time period of 9 years. At various points (2014, 2017, 2018,2019,2020) the graphs of
both variables have the same incline and decline pattern. This is a mildly evident of the fact
that at LUPIN the Inventory Turnover ratio and Profit are related.
The growth in Profit in 2014 was attributed to the fact of decreasing personnel cost,
manufacturing costs, material costs and strong performance in the US.
The fall in profit in 2018 and 2020 is due to the decrease in US revenues and certain onetime
expenses. In 2019-20 the US FDA also put several Lupin drug plants on notice for quality
problems further declining revenue.
37
Figure 15 - Scatter Plot (LUPIN)
The scatter diagram chart plotted between the Inventory Turnover ratio on X-axis and the Profit
on Y-axis is shown above. From the graph it is evident that the variables share a positive
correlation between them. It means that with the increase in Inventory Turnover Ratio at
LUPIN the profit tends to increase.
The correlation coefficient between the two variables comes out to be 0.810 which points
towards a high positive correlation.
38
6.3 SUN PHARMACEUTICALS
Figure 16 - ITR and Profit Comparison (SUN PHARMACEUTICALS)
The above graph shows the progress of the SUN PHARMA’s Profit and the Inventory Turnover
ratio over a time period of 9 years. At various points (2014, 2015, 2018,2019,2020,2021) the
graphs of both variables have the same incline and decline pattern. This is a mildly evident of
the fact that at SUN PHARMA the Inventory Turnover ratio and Profit are related.
39
Figure 17 - Scatter Plot (SUN PHARMACEUTICALS)
40
6.4 DR. REDDY'S LABORATORIES
Figure 18 - ITR and Profit Comparison (Dr Reddy's Laboratories)
41
Figure 19 - Scatter Plot (DR. REDDY's LABORATORIES)
42
6.5 DIVIS LABORATORIES
Figure 20 - ITR and Profit Comparison (DIVIS Laboratories)
43
Figure 21 - Scatter Plot (DIVIS LAB)
44
7. CONCLUSION
45
8. BIBLIOGRAPHY
[1] EFFECT OF INVENTORY MANAGEMENT ON FINANCIAL PERFORMANCE: EVIDENCE FROM
THE SAUDI MANUFACTURING COMPANY: CASE STUDY, 2020.
[2] "The Evolution Of Inventory Management: Connecting The Shop Floor With The Top
Floor," ProQuest, 2018.
[3] O. Q. Wu, "Production-Inventory Systems: Optimal Control and Empirical Analysis," 2006.
[4] W.
Kenton,
"Inventory,"
03
December
2021.
[Online].
Available:
https://www.investopedia.com/terms/i/inventory.asp.
[5] A.
Hayes,
"Inventory
Management,"
17
March
2022.
[Online].
Available:
https://www.investopedia.com/terms/i/inventory-management.asp.
https://www.uniassignment.com/essay-samples/finance/the-correlation-betweeninventory-management-and-profitability-finance-essay.php
https://www.ibef.org/industry/pharmaceutical-india - Reference for Pharmaceutical
sector in India
https://pharmaceuticals.gov.in/sites/default/files/english%20Annual%20Report%20202
0-21.pdf – Reference for Pharmaceutical sector in India
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