Finding Strategic Levers in the Supply Chain

June 1, 2013

Pharmaceutical Executive

Pharmaceutical Executive, Pharmaceutical Executive-06-01-2013, Volume 0, Issue 0

Customer-focused supply-chain capabilities are becoming a more important part of a company's competitive advantage.

Admit it. When most pharmaceutical executives think about the pharmaceutical supply chain, their eyes start to glaze over. Traditionally, the supply chain has been considered, at best, a back-room function that reports in to operations and is responsible for delivering a reliable supply of product to meet forecasted demand.

In fact, the supply chain is a deep and widely underutilized strategic resource for companies seeking to focus their organizations on the changing healthcare environment. New customers with different needs are emerging in every sector of the healthcare market—from tech-savvy consumers that expect instant informational gratification, to newly integrated healthcare delivery systems with access to vast stores of information about how and by whom pharmaceutical products are being used. And pharmaceutical supply-chain executives are seeking new ways to understand the central question of how they can deliver greater value to their organization by helping to improve the customer experience.

Traditionally, pharmaceutical supply-chain management has been defined as managing the network of suppliers, resources, and manufacturing capabilities that are needed to supply product demand or sales targets. This role is, by nature, somewhat static and reactive rather than proactive, and its ability to be responsive is further limited by the highly regulated nature of the pharmaceutical industry. In general, pharmaceutical supply-chain capabilities lag behind those of the technology and consumer packaged goods (CPG) sectors. In the technology sector, for example, Dell has built a global reputation for its ability to deliver custom-configured products of high quality and reliability, and has built a nimble and flexible supply chain that lets them consistently meet their customer needs and wants. Consider what it would take for a pharmaceutical company to deliver custom-configured products to its millions of customers worldwide. Yet this type of customer need is becoming increasingly possible as science continues to unveil the possibilities of personalized medicine and individualized therapies.

Although the challenges of personalized medicine are likely a few years out, there are ways in which the pharmaceutical supply chain can be more effectively engaged to address current customer unmet needs. Customers in emerging countries, for example, may have substantially different wants and preferences in terms of pharmaceutical product taste, texture, package size, unit dosing, or services. All of these aspects of the product can be addressed through the supply chain, and could have a large impact on local acceptance and usage.

Decisions about how to build or engage local manufacturing are another area where strategic supply-chain decision-making can come into play. Traditionally, many pharmaceutical companies have invested in regional manufacturing, building large facilities to meet demand during products' extended lifecycles. Today, however, companies are exploring partnerships with local manufacturers that have underutilized capacity, and are teaching these local resources the skills needed to manufacture and distribute more complex specialty products, such as biologics or other large molecules. Such arrangements may save capital, but perhaps more importantly, prevent the company from having to navigate complex local tax and investment regulations.

Twenty first century supply chain

Today's healthcare customer is more complex than ever before. The new healthcare ecosystem encompasses payers and healthcare organizations as well as their preferred service providers, physicians, and a large number and variety of other healthcare providers that interact with patients, either directly or indirectly, during the course of a healthcare transaction. Creating a customer-centric pharmaceutical supply chain requires that information about customer needs, wants, and even desires be communicated throughout the organization. Executives responsible for supply-chain management should have opportunities to engage one-on-one with their customers in the locations where products actually are stored or used. For example, a recent conversation with an infusion nurse uncovered that the packaging for an IV product was stiff and hard to handle, and that nurses were getting paper-cuts. The supply-chain team collaborated with marketing and key customers to change the packaging to recycled paperboard and to improve ease of opening for nurses—a simple, low-cost modification that made the product more customer-oriented and eco-friendly.

The key to successfully harnessing pharmaceutical supply-chain innovation is a re-imagining of how product and supply-chain attributes can become customer value levers (Figure 1). This 360-degree view of value drivers that can be impacted by the supply chain illustrates the various supply-chain touch-points that can make an enormous difference in addressing customer needs.

Figure 1: Customer value levers.

Consider the following scenarios:

» The manufacturer of an oral solution for treatment of infections in immuno-compromised patients received customer feedback that the product was extremely irritating for patients with oral mucositis, a frequent complication of some cancer therapies. This information led to reformulation of the product into two additional formulations that will address the needs of the full complement of patient types.

» Responding to requests from a large national managed care organization (MCO) for ways to increase member adherence with chronic-care medications, a manufacturer challenges its supply-chain management team to devise low-cost adherence packaging solutions for several of its best-selling chronic medications. The plan is to test packaging alternatives within the MCO's current population to determine which approach delivers the desired outcomes.

» A supply-chain manager visiting rural pharmacies in an emerging Latin American market learns that access to refrigeration is not commonplace, leading to a re-assessment of the formulation for a new pediatric product.

Focus on the Customer

The key to creating a customer-focused supply chain is providing supply-chain managers direct access to customers and integrating key customer information in operations. For example, the supply-chain team could "follow the product" from the time it leaves the company until it reaches and is administered to a patient. Experiencing every aspect of the product flow and customer experience provides significant insights to unmet customer needs. This learning experience should be a part of a multi-layer approach to learning about customers, including the extensive prelaunch research with prescribers and end-users that is done in partnership with commercial teams, or the wealth of customer qualitative or focus-group research that is done to support product configuration and distribution channels.

Once supply-chain management is engaged in and focused on identification and resolution of customer needs and desires, their focus will shift to the identification of supply-chain solutions: how to design, plan for, source, produce, and deliver and service the product that satisfies customer needs and desires (Figure 2). By shifting the focus from internal customers, including R&D or commercial operations, to the larger customer ecosystem, pharmaceutical supply-chain management can become a dynamic contributor to 21st century healthcare delivery.

Figure 2: The customer-focused approach to identifying supply chain solutions.

Strategic management of the supply chain is vital to winning with customers. Cost and quality are important, but they are not the only things customers care about: new services, flexibility in relationships, reliability of supply, and ability to creatively overcome obstacles in delivery of product are also core values. Pharmaceutical product portfolios and customers are becoming more complex. In order to stay ahead of this trend, customer-focused supply-chain capabilities will become a more important part of a company's competitive advantage.

Tom Reynolds is Director, Global Strategy, Janssen Supply Chain, and has comprehensive commercial, business development, and operations global experience across pharmaceutical, medical device, biotechnology, and consumer healthcare segments at leading Johnson & Johnson companies. He can be reached at TReynol3@its.jnj.com.

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