Thinking Differently about Safety Stock

By Jen Foulkes

Inventory comes in many shapes and sizes, quite literally, but for life sciences one thing is certain: effectively managing inventory is a make-or-break moment for delivering patient-centric care. I have seen this value potential play out while working with dozens of emerging companies to build efficient inventory management strategies. Many senior leaders underestimate how safety stock can function as an asset rather than a liability. There is strategic benefit to holding inventory as a buffer against inherent risks in manufacturing, transportation, and storage.

Why is this Important?

In the pharmaceutical industry, a late order is a missed sale at best. For many critical care and specialty products, stockouts or fulfillment delays impact the health and safety of the patients. A late delivery could disqualify a patient from a clinical trial entirely. The bottom line is that doctors and patients will not wait for a “back-ordered” drug; they will simply prescribe another drug or an alternate treatment method.

These realities are particularly important for emerging companies with truly innovative treatments. Batch failures are common; yield rates can be low; stability data often does not yet support a long shelf-life. Demand is unpredictable and there is often a need to forecast commercial demand while simultaneously supporting several clinical trials using the same product. Adding to this is variability of supply and single-sourcing in many cases, as well as the increasing value and cost of many innovative treatments, way beyond that of most traditional pharmaceuticals. These factors raise the stakes for managing safety stock for our clients in particular.

How Most Leaders Manage Safety Stock Today

So, how do most leaders actually manage safety stock? The response I frequently get from our clients is, “Just don’t run out.” This is often approached as a blanket 12-months of safety stock on-hand. For example, one client who lacked an experienced supply chain planner and supplied multiple clinical trials decided to overcompensate for any inventory risk by carrying more than two years of unlabeled inventory. Without a strategic approach to this safety stock, several batches expired before they were processed through the rest of the supply chain and distributed to any patients.

Isn’t “just don’t run out” the whole point of safety stock? Not running out of inventory is the goal, of course. However, there are alternative strategies available given the supply and demand variability and increasing value of that inventory. These options can more effectively position safety stock as a buffer against uncertainty.

For example, another client who was transitioning from Phase III to commercial launch followed a more calculated game plan. They analyzed manufacturing and quality lead times, as well as shelf-life requirements of the distributor. Managers then used these metrics to inform stocking numbers throughout the supply chain while also considering stability data of the various product stages. By understanding the supply pipeline and inventory preparation, this client met demand increases while minimizing the risk of obsolescence should demand decrease.

3-Step Structured Approach to Thinking Differently about Safety Stock

1. Differentiate the types of inventory in your supply chain. Some inventory is simply necessary to operate your supply chain as it is structured. This is often termed Cycle Stock, Batch Stock, or Pipeline/Transport Stock. Other inventory may be required to prepare for upcoming events (ex: commercial approval/launch or a manufacturing shutdown). In either of these cases, consider that inventory separately. Design safety stock with the main goal of protecting against risks and variability.
2. Identify and prioritize high-risk and high-variability subprocesses. For example, if your drug substance process has a 50% failure rate, supply managers should consider increasing API deliveries or positioning safety stock at this point. To further compensate for the uncertainty, you can keep a batch of drug substance as a buffer.
3. Consider alternative stocking strategies. If many products share the same SKU, delay of bright stock labeling (a.k.a. postponement) can be an effective strategy. By keeping inventory as unlabeled bottles/vials and then packaging as needed, managers can avoid the cost and management resources for storing multiple SKUs in final form. Additionally, for products with shorter shelf lives, smaller batches and more frequent manufacturing will reduce the chance of expiry obsolescence. This, in turn, will likely keep overall costs down.

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