The New Hot Topics in Supply Chain Management
Pharmaceutical and life sciences companies are facing some of the most challenging and turbulent times they have ever seen. While the winds of change blow across the US health system, inevitably having an impact (as yet unknown) in Europe, insatiable cost pressures are prompting an unprecedented spate of significant mergers and acquisitions. Another key development in the sector is the increasing incidence of drugs coming off patent, giving manufacturers of generic drugs the opportunity to market medicines at lower prices under new brand names.
What does all this change mean for the supply chain? Looking at the merger and acquisition trend, when you buy another company, there comes with it the existing infrastructure for delivering drugs and other products. One way to save money is to introduce a unified supply chain, as opposed to operating a mixture of inherited systems which can hide inefficiencies. By introducing a more streamlined, integrated supply chain, life sciences companies can begin to schedule larger deliveries (reducing the number of trips), manage distribution from fewer warehouses (creating better visibility and control) and also use their sales forces to cross-sell, thus becoming more efficient. If handled properly, re-engineering of the supply chain can create economies of scale and reduce fixed costs significantly.
Some drug companies are used to selling small quantities of products, so have not fully appreciated the relative cost of handling and distribution. This historically low awareness of the cost of the supply chain is understandable, given the fact that distribution costs as percentage of sales have typically been under 1 per cent in the pharmaceutical sector. Compare this with 5–6 per cent in retail, which takes its logistics costs far more seriously. However, the situation is changing as the volumes and costs of drugs and related items increase as public pressure grows for cheaper medicines.
Cost of care
Clearly, as the financial pressure to cut costs continues to mount, as increasing numbers of big-ticket drugs come off patent, pharmaceutical businesses are going to have to search out more efficient ways of manufacturing and distributing products.
Cool chain integrity
Routes to market
The desire for more 'direct to patient' delivery is also being driven by a need to stop 'grey market' sales. One large manufacturer has recently seen a tripling of urgent service calls from pharmacies reporting unavailablility of stock in their wholesaler. On investigation, it was shown that the wholesaler had sold the allocated stock on the 'grey market' at a better price. This reflects poorly on the brand as service levels are reduced and the manufacturer incurs additional costs to process emergency despatches.
Other new developments in the area of routes to market include initiatives led by retailers such as Boots, which is launching an e-prescription service. Certainly, the concept of streamlining the drugs order and collection mechanism, especially for repeat prescriptions, has a great deal of merit. However issues such as supply chain integrity, safety and protection from counterfeit goods all require serious consideration from a logistics perspective.
Similarly, Lloyds Chemists are understood to be setting up mini GP operations to do simpler tests such as blood pressure and minor ailment checks, which will demand that a ready supply of creams, swabs, drugs and certain injectables will need to be provided and securely stocked.
Granted, other drugs such as painkillers are more open to abuse and there are plans among some manufacturers to combat this potential problem via the use of sophisticated packaging technology.
With downward pressure on costs, the ongoing trend towards consolidation in the market and the changes to the way drugs and peripheral products are distributed, it is obvious that major changes are taking place in the life sciences sector. While the supply chain has historically been considered a low-value operation compared to new product development and marketing, its value is quickly gaining more appreciation among more enlightened pharmaceutical and life sciences companies.
Supply Chain Strategy: Managing risk and opportunity in a changing global landscape