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By Benson Michael
In Nigeria’s ₦3 trillion pharmaceutical market, stock-outs and expired medicines are costing companies billions of naira every year.
Experts estimate that nearly a quarter of industry revenue is lost annually to wasted inventory. In this interview, a leading supply chain strategist explains how to use an age-old mathematical model. The “newsvendor model” can help Nigerian pharma firms prevent losses, ensure steady supply, and boost profits.
For readers new to this, what exactly is the newsvendor model?
Think of a newspaper seller on the street. If he buys too few copies, he runs out and misses sales. If he buys too many, leftover papers become waste. The newsvendor model helps him find the sweet spot, how much to stock when demand is uncertain.
Pharmaceutical firms face the same dilemma. Order too little, and lifesaving medicines run out. Order too much, and you’re left with expired stock. The model helps companies make data-driven decisions on how much to order, balancing the cost of overstocking and understocking.“Over 70% of Nigeria’s medicines are imported, so forecasting errors are very expensive.”
How does this model apply to Nigeria’s pharmaceutical industry?
Nigeria imports the majority of its medicines, so distributors must order months ahead without clear demand visibility. If they overestimate, products expire; if they underestimate, hospitals face shortages.
Recently, regulators destroyed over ₦3.8 billion worth of expired drugs, money literally burned because of poor planning. The newsvendor model tackles this by quantifying both risks: the cost of shortage (lost sales and patient harm) and the cost of surplus (expiry and disposal). By finding the optimal middle ground, companies can minimize waste and maximize availability.
Can this model really reduce losses drastically?
Absolutely. If used properly, it can cut expiries by double digits and significantly reduce stock-outs. Nigerian pharmacies often report running out of essential drugs, sometimes over 50% of them regularly face shortages. The model changes that by helping firms plan stock levels to meet demand with high reliability, say 90% of the time.
At the same time, it curbs over-ordering, the major cause of drug expiries. When inventory aligns more closely with actual demand, you don’t tie up capital in products that will never sell. The result is less waste, more liquidity, and happier customers.
How does forecasting fit into this model, and how does it impact profitability?
To use the newsvendor model, companies must analyze past sales, disease trends, and consumption data. This process naturally improves demand forecasting, you move from guesswork to evidence-based planning.
Every stock-out avoided is a sale gained, and every expiry prevented is money saved. Nigerian pharma firms operate on tight margins, so even a small improvement in inventory accuracy can boost profits by several percentage points. Some digital pharmacy platforms already using predictive models have achieved 96% product availability and nearly eliminated waste.
Beyond profits, what’s the national impact if this model is widely adopted?
The benefits are enormous. Smarter inventory management means more consistent access to medicines, fewer shortages in hospitals, and less environmental waste from expired drugs. It would also save foreign exchange, every expired pill represents wasted import dollars.
When patients can always find their medications, treatment adherence improves, and public trust grows. Combined with the government’s digital supply-chain initiatives, widespread adoption of this model could move Nigeria closer to universal health coverage, where essential medicines are available, affordable, and sustainable.
Final thoughts?
The model might sound academic, but its logic is simple: use data to find balance. For Nigeria, it’s a practical, low-cost way to solve one of the biggest problems in healthcare logistics. When we stop overstocking and understocking, everyone wins, companies, patients, and the health system.
About the Expert: The interviewee is a supply chain strategist and advisor with over a decade of experience in logistics and pharmaceutical operations. He works with manufacturers and distributors to implement data-driven forecasting and procurement systems across Africa.
