spacer
home > pmps > summer 2014 > deliver the goods
PUBLICATIONS
Pharmaceutical Manufacturing and Packing Sourcer

Deliver the Goods

Globalisation has broadened access to goods and services of all kinds. For healthcare, a growing global middle class is driving much of the demand. According to the Organisation for Economic Co-operation and Development (OECD) estimates, by 2020, this class will represent 3.2 billion people – with most of the growth occurring in Asia, which will represent more than 50% of middle class consumption (1). Across the BRIC markets (Brazil, Russia, India and China), it is estimated that expenditure on medicines will reach up to €365 billion a year by 2020, as economic expansion and access to healthcare drive up demand (2). Given these trends, it is not surprising that many healthcare companies see emerging markets as key to their future.

Healthcare: A Global Business

However, reaching these markets, and effectively and efficiently capitalising on the opportunities they have to offer, can present enormous challenges. Companies must understand the forces at play across different markets and be wary of the issues that may impact their supply. Sustaining growth and quantifiable business value requires a reliable logistics network and transportation solutions that help manage challenges, as well as turning them into opportunities. Companies that manage their freight effectively and recognise the dynamics affecting demand and capacity will have a significant competitive advantage.

Understanding the Dynamic

The two freight modes predominantly used by the healthcare industry for moving goods between continents are air and ocean. Within the pharmaceutical industry, over 93% of volume moves by sea. However, over half the financial value of healthcare goods moves by air (3). Air and ocean freight transportation each have their own unique advantages. The key to making the best modal choice is understanding what elements are shaping the air and ocean freight markets, and why they are growing and contracting.

Air Freight
Healthcare contributes significantly to the overall air freight market, and the industry has become materially important to air freight carriers, replacing other commodities traffic that has moved to surface freight. Air freight allows businesses to operate in a more flexible way – in terms of quick inventory movements and routing of time-sensitive products. The fast transit times and seamless connections to final destinations allow air shipments to be timed according to production schedules, helping to improve inventory flow. Requirements from emerging markets and growing consumer confidence are raising hopes for increased air freight demand, but there are some limiting factors that are holding back growth.

First and foremost is cost – air freight is typically much more expensive than road and sea transportation. One reason for this is rising fuel prices, which tend to have the biggest overall cost impact – although most players view price volatility as a consequence of doing business. Tougher global transport regulations also make this mode more expensive. In 2013, the EU imposed stricter transport regulations for pharmaceuticals, and other agencies are following suit. However, a parallel effect of stricter regulatory regimes is that manufacturers are seeking to move products as quickly as possible to comply with standards – which could increase demand for air freight services.

A number of leading indicators are useful in forecasting overall air freight demand – but it is not enough to understand the current need; the question is whether there is enough capacity to meet it. Air freight carriers have removed dedicated freighter capacity from the market, but passenger carriers are increasingly flying wide-body aircraft with substantial belly space. This growing space within passenger aircraft now represents about half of that in the air freight market. As a result, overall air freight capacity has increased, despite a reduction in transportation carrier space.

Ocean Freight
If the deployment of new planes is causing some changes in air freight, it is nothing compared to the evolutionary shift that is occurring at sea. Ships are getting signifi cantly larger with the introduction of the Triple-E Class – a massive 400-metre vessel that can carry more than 18,000 twenty-foot equivalent units (TEU), and has a deadweight tonnage of 165,000. To maximise efficiency, carriers are using these vessels to move volume between ‘mega ports’. But using these ships comes with a trade-off. They may represent cost savings for the vessel operators in terms of a decrease in slot cost, but they are limited in that there are only so many ports that can accommodate them.

The result is a trend towards transhipment – the shipment of goods to an intermediate destination, where goods are offloaded during the journey and re-loaded onto another vessel before reaching their final end-point. The knock-on effect is a significant difference in transit times and routings. Many suppliers using ocean freight may find the way they have to route shipments will change, as more of these vast vessels enter the market place and transhipment becomes the norm. This can add a lot of complexity and cost to a supply chain. Furthermore, transhipment also carries risks, as additional hand-offs increase the possibility of temperature excursions in products that are meant to be shipped according to specific conditions.

There are other cascading effects due to the deployment of new vessels. The first is slow steaming: speeds under 18 knots. When a vessel’s speed is cut, it can achieve a significant reduction in fuel use and substantial cost savings for the operators. The flip-side of slow steaming is the cost of additional sailing time. It does, however, increase port call accuracy, as shipments tend to arrive on the day they are committed, improving vessel on-time performance. Another tactic is voiding sailings. If carriers do not have enough cargo to make the route profitable, the scheduled sailing is cancelled until the vessel has a higher utilisation. This tactic is being used more frequently, and it can be a significant challenge for healthcare companies wanting to ship time-sensitive goods via ocean.

Creating Value


The goals for healthcare companies to create value include containing supply chain expenditure and managing trade cycles effectively to access and penetrate new markets. To reach these targets, companies must think about a range of fundamental issues, such as shipment preparation before sailing or take-off; how to leverage economies of scale; what is the best transportation mode; and how to manage shipment information effectively. Logistics providers can play an integral part in identifying effective supply chain management strategies that create business value. Key elements logisticians should keep in mind when aiming to enter new markets are as follows:

Active Supplier Management
Suppliers must be managed effectively – not just in terms of service levels and costs, but by developing and enforcing precise guidelines for shipment preparation and routing. Shippers should work with a partner based on their expertise and network, proven ability to execute, and willingness to stand behind their service with actionable quality programmes.

Preparing Products Effectively
With more variability in capacity and pricing – both in air and ocean freight – one of the most impactful ways to reduce expenditure is to build the best possible international freight shipment loads. Avoiding under-utilisation helps to gain efficiencies and can provide companies with a significant competitive advantage.

Ensuring Trade Compliance
The biggest opportunity to avoid compliance issues is before sailing or take-off, which makes an effective shipment manifestation critically important. Working with a transportation company that has in-house regulatory knowledge and can lend support will minimise the risk of shipping delays stemming from customs compliance issues, and make customs interactions, government agency certification and smooth transportation a straight-forward process.

Routing Shipments Strategically
Historically, shippers have looked at their choices as bi-modal – either air or ocean freight. Air freight was faster; ocean freight was cheaper. Today, there is more choice as new solutions seamlessly combine multiple transportation modes. Companies should look at each stock-keeping unit and decide which routing strategy provides the most economic value – at the lowest opportunity cost – for sustainable business improvement.

Data Management
Better management of information can improve the effectiveness and efficiency of an international freight programme. Accurate forecasting, in particular, can help to avoid moving excess shipments to different locations, and substantially improve utilisation of assets across multiple business units and geographies. Furthermore, historical information should be leveraged to determine inefficiencies and potential scenarios that could recur, in order to define risk-mitigating strategies and instill clear procedures, such as loading and unloading operations, as well as emergency measures.

Getting Ahead

While transportation was once considered a means to an end, it is clear today that global supply chains can be a source of competitive advantage and strategic efficiency for companies who understand the fundamentals. Regardless of mode, shippers need to do their homework when in search of transportation partners.

Ultimately, companies with the best transportation solutions, who create the greatest economic value with the lowest corresponding opportunity costs, will thrive in an increasingly competitive business landscape.

References

1. OECD Development Centre, Working paper 285, p27. Visit: www.oecd.org/development/pgd/44457738.pdf
2. PricewaterhouseCoopers, Pharma2020 report, p18. Visit: www.pwc.com/en_GX/gx/pharma-life-sciences/ pharma2020/assets/pwc-pharma- success-strategies.pdf
3. Research report commissioned to Seabury by UPS


Read full article from PDF >>

Rate this article You must be a member of the site to make a vote.  
Average rating:
0
     

There are no comments in regards to this article.

spacer
Scott Szwast is Marketing Director at UPS, and a 23-year veteran in the global logistics industry. He directs a team responsible for marketing UPS’s portfolio of best-in-class healthcare logistics and transportation solutions, serving the unique needs of customers in the pharma, biotech, medical device and clinical care segments. Scott is focused on leveraging UPS’s networks, facilities, technology and expertise in regulatory compliance to enable healthcare customer growth through streamlined supply chain management.
spacer
Scott Szwast
spacer
spacer
Print this page
Send to a friend
Privacy statement
News and Press Releases

Sartorius Stedim Biotech Launches New Services for Mammalian Cell Bank Manufacturing

GOETTINGEN, Germany and GLASGOW, UK, August 08, 2019 / B3C newswire / -- Sartorius Stedim Biotech (SSB), a leading partner of the biopharmaceutical industry, today announced the launch of new services for mammalian cell bank manufacture under GMP conditions. These services are offered by its subsidiary, Sartorius Stedim BioOutsource, an experienced contract testing organization (CTO) based in Glasgow, UK, and in Cambridge, Massachusetts, USA.
More info >>

White Papers

7 Common Myths about QP Training Debunked: A Guide for Senior Managers

RSSL

The role of the Qualified Person (QP) in the pharmaceutical industry is mandated by law (Directive 2001/83/EC, Directive 2001/20/EC, UK SI 2012/1916, UK SI 2004/103). Every holder of a relevant Manufacturers Authorisation (human and veterinary) must have at least one QP; without one, no batch of medicinal product can be certified for release for sale.
More info >>

 
Industry Events

SMi Presents the 4th Annual: Highly Potent Active Pharmaceutical Ingredients (HPAPI)

11-13 May 2020, Copthorne Tara Hotel, London, UK

Announcement: Due to ongoing concerns over COVID-19 this conference is now available with remote access only
More info >>

 

 

©2000-2011 Samedan Ltd.
Add to favourites

Print this page

Send to a friend
Privacy statement