Ashish Goel and Ramesh Chougule look at six areas where pharma should consider reinventing its supply chain processes and systems to best exploit emerging market opportunities.
Pharmaceutical growth rates in emerging markets have long caught the eye of the industry. Recently IMS Health predicted these markets will see growth rates far outstrip developed regions over the next four years. While developed nations will see revenue increase by a total of $60-70 billion from 2011 to 2016, annual spending on medicines in these ‘pharmerging’ markets will increase from a base of $194 billion last year to $345-375 billion by 2016.
Even then, in 2016 spending per individual in these regions, at $91 per person per year on average, will still lag far behind that in developed markets, offering potential for growth well into the next decade. The report also made an interesting prediction that despite rising income levels and the roll-out of government healthcare programmes, generic drugs will account for larger proportion of sales than branded medicines. Price and margin pressure is going to be a constant challenge.
While there is a clear opportunity, drug companies expanding in these markets will find competition from new local suppliers who have a head start in understanding the market, local connections and, importantly, a local cost base and supply chain. The potential for long-term growth justifies making investments in entering these markets, but this needs to be done in a way that delivers the returns in both revenue and profitability. Below we outline some important lessons and insights — across six key areas — that can be useful in navigating this new frontier.
1. The Last Mile: Transport
The major challenge for drug companies over the next few years will be to effectively exploit the growth potential of smaller cities and rural markets — places that are harder to access than major cities and conurbations. The transportation challenges in some Asian and African countries act to limit reach into these lucrative markets.
In many countries wholesalers do not provide a ‘last mile’ service and network penetration is poor. The frequency of supply from wholesalers to retail stores in rural regions, such as India and Africa, is at present far from sufficient.
To address this, many retailers in a specific area bundle their orders together for a week or month to make the shipment happen from the regional wholesaler. In such situations, availability of the product is the key driver behind sales and brand value. Poor transportation can negatively impact product awareness and sales efforts.
The availability of transportation and clear supply information is perhaps the biggest challenge for pharmaceutical companies in these countries so partnering with a reliable distribution partner with a track record in the industry is an important first priority.
2. Local Process, Global Governance
For any business, a good IT infrastructure and efficient process infrastructure is essential to managing operations. Under-developed IT infrastructures are hampering pharmaceutical companies in emerging markets by putting enormous pressure on processes.
Supply planning is driven by three factors: the reliability of transportation and distribution networks; the predictability and reliability of manufacturing capacities; and the availability of information. Limitations in any of these factors disrupt the inventories and demand fulfillment capabilities of drug companies and can have a negative impact on cost and revenues in these regions.
Moreover, as the market is highly price-sensitive, keeping the right inventory levels and meeting demand is a localized endeavour. In regions where local requirements are wide and varied, drug companies will struggle to apply globalized processes.
Pharmaceutical companies are finding they cannot take a one-size-fits-all approach to their operations, and instead must tailor their processes to local circumstances. However the governance of such different processes risks adding to overhead costs and or reduces the ability of companies to quickly supply quantities of high-demand drugs.
Drug companies need to invest time in developing business process that allow for the local adaptation but can be integrated into global systems so that the benefits of global scale can be maintained.
3. New Technology Infrastructures
Many businesses are looking for IT strategies that can meet the requirements of emerging markets. Such companies want lightweight, scalable and adaptable IT infrastructures in the form of applications, network and hardware.
With network costs decreasing significantly and mobile network reach expanding at a fast pace, pharmaceutical companies are focused on getting the application framework right for this business.
Paper-based drug information pamphlets are being replaced by mobile and tablet-based applications. Sales force automation solutions are being rolled out widely and medical representative and doctor interaction is changing. There is a trend towards a two-way dialogue and away from the one-way communication of the past, creating a need for a new set of ways to record the healthcare experience.
4. Connecting with Suppliers
With pharmaceutical contract manufacturing growing in double digits in emerging markets, ‘make vs. buy’ decisions have become the most important tactical and strategic considerations. When outsourcing supply, availability of the right information, at the right time, makes a significant difference to the final cost of goods. Defined process frameworks and IT applications that provide this visibility are key for getting these decisions right.
Moreover as companies try to narrow down the number of contract manufacturers, performance metrics of each supplier become crucial in making these supply decisions. The availability of inventory information, distribution cost and capacity information plays a vital role. Underpinning these decisions is a technology infrastructure that provides decision makers with the information they need to make such critical decisions.
5. People are Quality
Drug quality is more important than any other product. Any established business wishing to manufacture in emerging markets needs to put in place educational programmes to ensure that production quality is maintained. It is incumbent on the manufacturer to ensure these standards are met regardless of where they set up business. While trade associations and regulatory authorities play important roles in the enforcement of quality standards, pharmaceutical companies need to invest heavily in education and evaluation.
In addition to the logistical challenges, businesses in emerging markets are faced with the scourge of counterfeit medications. Worse than threatening business, these threaten lives.
Drug companies are already investing in various authentication technologies across the supply chain, but there is still some work to be done in terms of regulation. While some regulatory authorities compel ‘Track and Trace’ technologies to be implemented, many emerging countries have yet to mandate this.
However, any regulatory move in this area may be limited due to the current lack of a robust IT compliance infrastructure. In the absence of such an infrastructure, centralized authorities are not up to the task of enforcing compliance of regulations and will instead require monitoring from local authorities. Pharmaceutical companies need to invest substantial effort into collaborating with local authorities to bring the right regulatory governance environment in place.
Growth in emerging markets is arguably the most important driver for the whole industry over the next decade. However, these markets pose significant challenges in terms of physical infrastructure, education and knowledge of quality systems as well as process and IT infrastructure.
Smart pharmaceutical companies are treating emerging markets differently in addressing the market needs and laying out the process and IT strategies to enable growth in these markets. Getting the strategy right for performing day-to-day operations and at the same time, scaling it up for future needs, is an art that needs to be finely honed for success.
About the Authors
Ashish Goel is AVP, Senior Executive Life Sciences – Europe and Ramesh Chougule is Practice Manager – SAP Life Sciences at Infosys’ Life Sciences division.