To maintain financial security and maximize productivity, pharmaceutical companies must practice efficient working capital management. The function of company strategy in maximizing the effectiveness of working capital is crucial. In this article, we’ll examine the significance of corporate strategy in optimizing the use of working capital in the pharmaceutical industry. Pharmaceutical firms may boost their cash flow, lower their costs, and perform better financially if they match their strategic goals with their working capital management.
Written By: Gourav Dudeja (Linkedin)
Course– PhD Scholar – Amity Business School
Major Subject– Finance & Supply Chain Management
University: Amity University, Gurgaon
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Align business objectives for working capital with cash flow, inventory control, and receivables/payables cycles to maximize all of these.
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- Supply Chain Process Streamlining is a key component of corporate strategy that has a major bearing on the effectiveness of the company’s working capital. Pharmaceutical businesses can improve their cash flow, prevent stockouts, and lower the cost of inventory storage by establishing effective procurement and inventory management systems. To achieve this goal, businesses must employ practises including just-in-time (JIT) inventory management, improved demand forecasting model implementation, and strategic collaborations with suppliers.
- Negotiating and setting prices strategically can have a significant effect on a company’s ability to generate a positive return on its working capital. Pricing pharmaceuticals requires careful consideration of the market, the competitive landscape, and reimbursement policies by pharmaceutical companies. Businesses can boost their cash flow and maximise their working capital by switching to a value-based pricing strategy and offering flexible payment options to their consumers.
- In the pharmaceutical industry, the direction of research and development (R&D) portfolios is shaped by corporate strategy. If you want to maximise profits while minimising money lost during the development process, you need to allocate your resources wisely to research and development initiatives. Pharmaceutical businesses can maximise their return on R&D investment and decrease wasteful spending by prioritising projects based on strategic fit, market potential, and risk assessment.
- Working capital efficiency in the pharmaceutical industry can be affected by strategic decisions made regarding mergers and acquisitions (M&A). Synergies, economies of scale, and increased cash flow are all possible outcomes of successful merger and acquisition (M&A) efforts. Pharmaceutical firms can maximise their working capital by merging their operations, standardizing their procedures, and consolidating their supply base.
- Working capital efficiency is strongly impacted by effective risk management, which in turn is largely dependent on corporate strategy. Pharmaceutical firms can minimize potential financial losses and conserve working capital by detecting and minimizing risks related with supply chain disruptions, regulatory changes, and market variations. Improving working capital effectiveness relies heavily on thorough risk analysis, backup plans, and insurance coverage.
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To sum up, business strategy is crucial in the pharmaceutical industry for maximizing working capital effectiveness. Pharmaceutical companies can boost cash flow, reduce costs, and improve financial performance by streamlining supply chain processes, implementing strategic pricing and contract negotiations, managing research and development portfolios, making educated M&A decisions, and adopting effective risk management practices. Pharmaceutical businesses can gain an edge in a dynamic market by coordinating their strategic goals with their working capital management.
- Barua, S., & Verma, S. (2019). Strategic cost management practices in the pharmaceutical industry. Journal of Accounting & Organizational Change, 15(3), 409-431.
- Demirkan, S., & Demirkan, I. (2017). Strategic implications of working capital management: Evidence from pharmaceutical firms. International Journal of Economics, Commerce and Management, 5(4), 33-45.
- Diab, M. (2018). The role of supply chain management in improving working capital management: Evidence from pharmaceutical companies in Jordan. International Journal of Economics, Commerce and Management, 6(6), 191-207.
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Continually assess the business plan and make adjustments depending on market trends, legislative changes, and consumer expectations.
Why is business strategy important for increasing working capital efficiency in the pharmaceutical industry?
Business strategy provides a framework for aligning working capital goals, optimizing cash flow, and improving inventory management, payment processes, and customer credit management.
How does business strategy help in identifying and prioritizing working capital improvement opportunities?
A well-defined business strategy allows pharmaceutical companies to assess their current working capital position, identify areas for improvement, and prioritize initiatives to optimize cash flow, inventory, and receivables/payables cycles.
- Pharmaceutical businesses can identify and rank working capital improvement opportunities using a clearly defined business plan.
- Increased working capital efficiency is a result of strategic inventory management, improved payment procedures, and efficient consumer credit management.
- Working capital measures are regularly monitored and analyzed to help spot bottlenecks and guide efforts towards continual improvement.