Inventory and financial performance in the pharmaceutical industry: what transpired over the last two decades?

Purpose: The objective of this study is to explore the structural attributes of the pharmaceutical industry before the onset of the COVID-19 pandemic by examining the relationship between inventory and firm performance and developing a taxonomy of pharmaceutical firms based on the earns-turns matrix. Design/methodology/approach: This study examines the inventory–firm performance linkage, considering both total inventory and its discrete inventory components in pharmaceutical firms. In addition, this research develops a new taxonomy of pharmaceutical firms based on the earns-turns matrix. A large panel dataset of firms in the US pharmaceutical industry was collected for the period 2000–2019. Findings: The results reveal that strategic groups identified based on this taxonomy show different levels of profitability and inventory turns in the earns-turns matrix. Most pharmaceutical firms moved from the low-right to the top-left section in the earns-turns matrix, indicating that these firms have generally pursued profitability rather than effective inventory management. Research limitations/implications: This study explores the structural attributes of the pharmaceutical industry using the earns-turns matrix. This two-dimensional analysis may not, however, capture the full complexity of inventory–firm performance dynamics. Practical implications: The mapping of strategic groups on the earns-turns matrix provides a useful tool for visual representations of the dynamics of strategic groups in terms of financial performance and inventory management performance. Practitioners can use the earns-turns matrix to benchmark their firm's position against their competitors. Originality/value: This study broadens the scope of operations management research by introducing the earns-turns matrix as an empirical validation tool for operational and strategic management theories. This study emphasizes the effectiveness of the earns-turns matrix in analyzing strategic groups of pharmaceutical firms.