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Pharmaceutical Manufacturing and Packing Sourcer

In the Right Direction

Johan Beukema at Buck Consultants International assesses the short-term options for logistics improvement that pharmaceutical companies may consider taking in the coming year

The pharmaceutical landscape in Europe is changing rapidly. Key drivers behind this include government policies towards healthcare cost reduction, ending product patents and the related shift towards generic medicines, ongoing consolidation in the industry, and tightening regulations from a QA perspective – for example, those concerning temperature control in the full supply chain. From a logistics perspective, compared with other industries such as the electronics, automotive and fast-moving consumer goods (FMCG) sectors, the healthcare industries, including pharmaceuticals, are lagging behind in their development. Recent conferences and seminars (for example Logipharma Geneva and Pharmaceutical Distribution Europe) confirmed this picture.

However, it can also be concluded that pharmaceutical supply chains are on the move. Many companies are now working on improving their logistics structures and practices within the full value chain. This article addresses a number of current logistics challenges and potential solution directions for pharmaceutical companies.

CURRENT CHALLENGES IN PHARMACEUTICAL LOGISTICS

Amongst others, the logistics challenges for pharmaceutical manufacturers can be seen in Table 1. The strategic challenges described are ongoing and will show effects only in the longer term. The remainder of this article focuses on the tactical and operational challenges that pharmaceutical companies can start working on at short notice.

Table 1: Logistics challenges for pharmaceutical manufacturers

Strategic challenges 

Direct-to-pharmacy
 - New business models requiring new logistics solutions and adding complexity 

Green supply chains
 - Increased focus on the sustainability of the logistics model of pharmaceutical companies: balancing cost and environment 

Supply chain customisation (hybrid structures)
 - Tailoring supply chains to the exact needs of specific product/market segments, leading to hybrid solutions within one company 

Route to market model selection
 - Changing role of wholesalers
 - Optimal route selection for emerging markets 

Tactical and operational challenges

Cost reduction throughout the chain
 - How does a company reduce costs without affecting service to the customer, product quality and so on?

Effective outsourcing
 - Logistics service providers quickly develop pharmaceutical logistics capabilities, but how does one use them effectively?

Standardisation
 - How does a firm provide more standardised and controlled operations throughout the chain and across borders?

Temperature control compliance
 - The cold chain is mostly under control, but what about ambient temperature requirements?

How then can a company reduce costs while maintaining customer service and product quality at the required level? Logistics costs have never been, and are still not, the main strategic driver for pharmaceutical companies. However, cost reduction needs to take place in the whole value chain, and as a result logistics managers too have a clear target for reducing the costs in their functional areas. This is not always easy, given strict requirements towards customer service and product quality, which are of course key in this industry. Still, we see many companies in the healthcare sector becoming increasingly successful in reducing logistics costs through tactical and operational measures, rather than changing their complete supply chain strategy. Improvement directions that these companies take up include the following:

Scan of all Logistics Contracts
As logistics was never a key focus area, many pharma companies have a widespread portfolio of logistics partners across countries, business units, transport modes, product lines, and so on. Mapping these contracts and reviewing the terms, price agreements, and related factors can be done in a relatively short timeframe, and always leads to a number of quick wins, such as leveraging negotiation scale when working with the same provider in different countries, reconsidering a ‘historical’ contract because new providers have come up in the market, and changing the usual service level (for example from express to standard if appropriate).

(Re-)tendering of Logistics Operations
In line with the above, many companies have put focused requests for proposal on the market for parts of their logistics services. In times of economic crisis this can really pay off in terms of rate reductions (of course taking into account that squeezing the logistics service providers (LSPs) too much might result in a negative development).

Warehouse and Operations Optimisation
Initiating short term projects to review the layout and productivity of warehouse operations to identify short term improvement potential (for example, technology versus manual activity, alternative routing and different storage equipment).

EFFECTIVE USE OF LOGISTICS SERVICE PROVIDERS

Of course, the decision of whether or not to outsource supply chain operations, and to what extent is a strategic one that is keeping many pharma supply chain VPs busy at the moment. However, outsourcing is not just a strategic issue, as one can take action to improve the effectiveness of the outsourcing relationship both tactically and operationally. Pharmaceutical companies can take the following actions, resulting in short-term improvements in their outsourced operations:

Active KPI monitoring
Continuous improvement procedures, for example focused on GDP and GMP compliance, tracking and tracing, productivities, and so on
Benchmarking

FURTHER STANDARDISATION IN THE LOGISTICS OPERATION

A strong barrier to standardisation within pharmaceutical companies can be found in the uniqueness of countries being served. Each country served has its own unique regulatory environment, for example specified pack sizes and languages on the packs. Additionally, in typical pharmaceutical companies the country affiliates are very strong stakeholders that ‘defend’ their national structures, resulting in barriers to cross-border standardisation.

To a certain extent the above is a given and companies need to work with that. However, there are still actions that any company can take to at least make the first steps towards stronger standardisation on the operational level, such as:

  • Common KPI definitions and monitoring: for example a centrally controlled KPI dashboard, used for internal benchmarking and improvement of opportunity identification
  • Common operating procedures: standard ways of working across countries, compliant with internal and external QA requirements
  • Best practice sharing: bringing corporate as well as domestic best practices together, for example in yearly corporate logistics improvement days

FULL SCOPE TEMPERATURE-CONTROLLED CHAINS

In the last 10 years the subject of cool chain distribution was ‘hot’ in pharmaceutical logistics. Now that many manufacturers as well as logistics service providers have the feeling that the cool chain is under control, a new challenge has come up. Regulatory bodies are putting more emphasis on ambient temperature control (in general 15-25°C) and the overall impression in the pharmaceutical industry is that no one has a solution yet to guarantee perfect ambient control throughout the full chain. This is where, in the coming period, a lot of attention will be paid to key factors such as packaging materials, ambient temperature monitoring and excursion impact analyses, and LSP capabilities that comply with the required standards.

Manufacturers, as well as LSPs, should work together to build an ambient supply chain that fulfils the requirements of all players in the industry. In this respect it is not so much about competition, but rather about guaranteeing patient safety – a perfect reason for working more closely together.

CONCLUSION

Although many companies have started to focus more on supply chain and logistics optimisation in the last few years, there is certainly still a lot of room for improvement in pharmaceutical supply chains. Partially this requires strategic choices to be made by top management, creating room for ‘step changes’. However, apart from these strategic initiatives, logistics managers can already start working on practical improvements today. This will result in short term gains such as cost reductions of up to 10 per cent, as well as increased QA compliance and overall distribution service levels. But more importantly, this will also pave the way for more strategic long-term changes in the future.


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Johan Beukema is Partner, Healthcare at Buck Consultants International. He is based in The Netherlands and has over 12 years of experience working for leading pharmaceutical and medical technology companies, supporting them to improve their logistics practices from a supply chain strategy and network perspective, as well as on a more operational level, including logistics outsourcing and implementation management.

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