PharmExec Blog

Pharma: Get Ready for the New Supply Chains

New pharma supply chains, where chill control and traceability challenges will be far more critical, will emerge over the next decade, So it’s time, argues Julian Mosquera, for the industry to upgrade its capabilities.

Julian Mosquera

Julian Mosquera

The pharmaceuticals industry is undergoing major disruption and every comparative benchmark indicates that the sector needs to make a step change in asset performance, with working capital targeted for direct improvement. All players are planning major reconfigurations of their supply and distribution operations, from end to end, in a bid to improve cost and service efficiency. This challenge is all the more prescient with a large number of blockbusters coming off patent over the next five years, opening the door to generic producers, who are actively “forging strategic alliances” to secure the rights to produce cheaper copies, according to researchers at Frost & Sullivan. While expenditure on new medicine has risen dramatically over the past decade, regulatory approval for new drugs has declined. Where big pharma could turn to blockbusters in the past, they are now looking to smarter portfolio management for competitive advantage.

Historical margins meant pharma paid little attention to their supply chains. However, over the last decade such complacency has become unacceptable to boards. Directors in the current environment are looking to their COOs and supply chain directors to build resilience into supply chain networks, to protect against market volatility and to drive real cost reduction.

The industry’s manufacturing footprint is increasingly challenged by significant overcapacity. Efficiency, agility and flexibility are priorities, with slow moving/low volume production calling for a different supply approach. Now, more than ever, companies should look to increase product speed through the supply chain, challenging inventory touch and holding points in every market in which they operate.
Managing the chill chain is producing real challenges for the sector. As part of a much wider traceability issue, the sector has been slow to adopt the necessary technology and levels of control that may be expected of such a high-value, sensitive product line. Reliance on third parties to introduce such capabilities has had limited success. It is time for the sector to upgrade its capabilities as the new pharma supply chains emerge over the next decade, where chill control and traceability challenges will be far more critical.

There is an opportunity for companies to better leverage scale through structural change, working towards best practices, and most notably by improving and integrating sales and operations planning — something that is commonplace in other industries such as FMCG. Competition is becoming fierce, putting emphasis onto accurate forecasting and supply chain visibility.

Supply chain cost management is now a priority. Having leveraged scale and rationalised productive capacity businesses are looking for further cost-savings. The global nature of distribution has given rise to over-complex and under-managed supply chains, which are now recognised as a source of major cost reductions. Without a clear framework for delivering these savings, businesses are at risk of compromising service and the integrity of supply.

In this context, it is alarming how few pharma businesses know with any accuracy their ‘Cost to Serve’. Which products, distribution channels, customers or regions need more attention, and which need less? How should stock holding policies be tuned to these different groups? Where can lead times or touch points be reduced? Cost to Serve allows companies to calculate the true cost of servicing any combination of customer, product or market and takes a truly end-to-end approach (materials sourcing, manufacturing, logistics, distribution and consumption). By establishing clear policies for customer-product groupings, alongside disciplined, systematic control, it is possible to realise dramatic and permanent cost reductions.

Julian Mosquera is a Director at LCP Consulting, a specialist in customer-driven supply chain management.

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One Comment

  1. Specials
    Posted January 31, 2012 at 1:29 am | Permalink

    sounds like this brings a lot of new opportunities to the pharma industry!

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