Issues in Pharmaceutical Supply Chain Management

The Pharmaceutical Industry

• Life Cycle of a Pharmaceutical product– Research or discovery phase– Testing for safety and efficacy– Registration with Food & Drug Association and Medical Control

Council– Commercial manufacturing/Development

• Components in manufacturing and distribution chain– Primary manufacturing (production of active ingredients)– Secondary manufacturing (final product in SKU form)– Market warehouses/distribution centers– Wholesalers– Retailers/hospitals.

Pharmaceutical Supply Chain

Manufacturer

Packer

Carrying and Forwarding Agent

Stockist

Chemist / Retailer

Patient

Primary Selling

Secondary Selling

Tertiary Selling

IntroductionPharmaceutical Supply Chain

Business process of the companies

Demand Management

Inventory Management & distribution requirements planning

Secondary production planning and scheduling

Primary manufacturing campaign planning

In each geographical region, forward forecasts (e.g. 3–24 months) are developed, based on historical data, market intelligence, etc.

The demands determined are aggregated and imposed on the appropriate warehouse/distribution center. The impact on finished goods inventory is assessedand if necessary, orders are placed on upstream secondary manufacturing sites.

The orders placed on the secondary sites are planned (typically using MRP-II type tools) and then scheduled in detail.

The demands placed by secondary manufacturing are satisfied by careful management of inventory and production planning

• Customer facing end -> PULL (driven by orders)• Primary Manufacturing process -> PUSH (driven by long term and medium term forecasts)• Bullwhip effect is felt at primary manufacturing site• Large stocks of AI (Active ingredient) must be held to ensure good service levels• Difficult to exploit short term opportunities e.g. shortage of supply of a competitor’s product,

tenders for national supplies• Large scale and geographical span of supply chain• Different nodes are not really aware of upstream nodes’ resource constraints• Orders are filled in order of receipts rather than on an economic basis

Typical performance of this industry

Operational Issues in Pharma Supply Chain

• Stock level in whole chain 30-90% of annual demand in quantity• Stock turns (Annual sales/average stocks) are between 1 to 8• Supply chain cycle time 1000 to 8000 hours• Value added time is around 0.3 to 5 %• Material Efficiencies are 1-10 %

• Effectiveness of the post-CFA supply chain in making products available to the end consumer, which manifests in loss of sales over the retail counter

• Efficiency of the supply chain in terms of the cost of making products available to the end consumer, which manifests itself in excess inventory levels in the channel and a month-end “skew” in stockists’ inventories

Study by OPPI – EY (2012)

Lack of Visibility of post CFA supply chain

• key levers to address the root causes are –

i. Increase visibility of the channel

ii. Release working capital at the stockist

iii. Ensure generated efficiencies are passed down the channel up to retailers

Steps for improvement

Conclusion

The pharmaceutical supply chain was used to be seen as a tool to supply products to market in an effective way, where the emphasis was on security of supply.

Recent changes in the operating environment mean that companies are revisiting the components of their supply chains and identifying ways of extracting additional benefits from them.

Not only physical processes of conversion and distribution of materials, but the “value-chain” physical processes of conversion and distribution of materials is important perspective of managing the innovation and development processes through to capacity and production planning.

Logistics has emerged as an important element in the pharmaceutical industry as it becomes a greater percentage of total costs

Unlike other sectors, value-chain perspective of managing process innovation through capacity and production planning is equally important

Emerging technologies like RFID can mitigate many of these logistics issues

• Paper: “Pharmaceutical supply chains: key issues and strategies for optimisation”; Author: Nilay Shah; source: ScienceDirect.com

• Paper: “The Pharmaceutical Supply Chain: a Diagnosis of the State-of-the-Art”; MIT; Author: Mahender Singh

• Paper: “Pharmaceutical supply Chain Risk management”• OPPI-EY study “unlocking the potential of Pharma distribution

Channel” http://www.ey.com/Publication/vwLUAssets/Unlocking_the_potential_of_the_pharma_distribution_channel/$FILE/OPPI-EY_Pharma_Report_2012.pdf

References

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