13 October 2008
Pharmaceutical companies should work more closely with suppliers to improve their management of working capital.
According to a study by consultancy Ernst & Young (E&Y), there has been a growth in interest concerning ways to manage working capital - including accounts receivable, payable and inventory - among large pharma firms.
E&Y believes firms could release between $17 billion and $35 billion (£9.6 billion and £19.8 billion) in cash by managing liquidity better.
David Sage, author of the report, believes drug companies have not focused on the process in the past because they have enjoyed market domination and high margins. He said firms could improve their working capital by tightening up payment terms for suppliers and working with them to create shorter and more reliable lead times. "This is the dynamic of the demand chain, knowing how much to absorb and offset and how much is with your suppliers."