Q: How big should be my lot size if I am producing drugs with max shelf life of 24 months? (means by 15th month onwards, people will stop buying because it is ‘about to expire’)
A: Target a production lot size no more than 3 months of demand! SAP best practices for pharma.
Q: What will be my expiration risk if I am mandated to produce a lot size to cover 6 months of demand? (because my pre-launch trial batches force me to)
A: Anything can happen depending on demand curves, forecast errors, lead times, deployment timing of stocks. However there is some McKinsey research here to estimate the same.
Expiry Risk = (Lot Size−Consumption in Shelf Life)^2 / Shelf life
Means Overproduction increases expiry risk quadratically for short shelf-life products.
If you make potato chips with real sour cream, the shelf life is 3 months. Legally mandated in some markets. On an average 5 to 7% of stock in supply chain expires. No one buys. But large volumes of sales, and fast depletion of stocks justify large production lot sizes.
In beverages and baked products, the expiration rates are to the tune of 15 to 25%.
Q: How should I ‘Consider’ this shelf life animal in my planning, deployment and fulfillment? They have all kind of words – best before date, maximum shelf life, total shelf life, minimum shelf life, remaining shelf life, customer expected shelf life, Expiration date, warehouse shelf life, legal minimum shelf life, Regulation shelf life.
A: You need to talk to an expert. I typically charge two samosas and one chai for doing this. Including design and implementation.
