Description
Logistics accounts for 45-55% share of the value chain of a drug. Tied in with associated complexities around sourcing and manufacturing, supply chain management (effective or otherwise) clearly has a strong bearing on the total cost of a drug. Players in the pharmaceutical space are, therefore, undertaking a range of strategic initiatives to reduce cost across all phases of the pharmaceutical supply chain.
25 CUBISMS AUGUST?2012? VOLUME?2
COVER STORY: PROCUREMENT & SUPPLY CHAIN
Pharmaceutical Supply
Chain Risk Management
CURRENT AND FUTURE
STRATEGIES IN
PHARMACEUTICAL
SUPPLY CHAIN
Logistics accounts for 45–55% share of
the value chain of a drug. Tied in with
associated complexities around sourcing and
manufacturing, supply chain management
(effective or otherwise) clearly has a strong
bearing on the total cost of a drug. Players
in the pharmaceutical space are, therefore,
undertaking a range of strategic initiatives
to reduce cost across all phases of the
pharmaceutical supply chain:
Raw Material Sourcing ‘Outside
Home Country’
Historically, the US pharmaceutical industry
has relied on locally manufactured and
sourced ingredients. According to a PwC
survey (2011), 75% of life sciences supply
chain executives indicated they were sourcing
material from Western markets. This trend,
though, is set to reverse over the next three
years as 60% plan to decrease sourcing
from Western Europe and 45% plan to
source a lower quantity from North America.
Conversely, 8 out of 10 executives plan to
increase the percentage of material sourced
from Asia Paci?c, and 38% plan to source more
from Eastern Europe.
Outsourcing
Pharmaceutical companies have traditionally
preferred conducting R&D and drug
manufacturing in-house. However, over
the last decade, companies increasingly
outsourced these functions to Contract
Manufacturing Organisations (CMOs) and
Contract Research Organisations (CROs).
Contract manufacturing of bulk and dosage
form drugs worldwide reached $49 billion in
2010, an increase from $26.2 billion in 2004.
Global pharmaceutical CMO and CRO revenues
reached $196 billion in 2010, up from $100
billion in 2004.
Going forward, outsourcing of drug
manufacturing and R&D is expected to grow
at a rapid pace. Contract manufacturing of
bulk and dosage form drugs worldwide is
expected to grow to $53 billion in 2011, up from
$49 billion in 2010. Further, the ?gure is touted
to touch $86 billion by 2016 at a CAGR of 10%.
Revenue of CROs and CMOs is expected to grow
to $218 billion in 2011, up from $196 billion
in 2010. The ?gure is projected to reach $361
billion by 2016, increasing at a CAGR of 11%.
Catering To Diverse End-Users and
International Markets/Customers
Globalisation is propelling pharmaceutical
companies to develop strategies for serving
a diverse base of end users, including
wholesalers, governments, hospitals and
retail pharmacies, as well as new geographies,
each of which have unique requirements and
expectations. Further, companies are globally
sourcing raw material and supplying ?nished
goods to end users across geographies. This
is shifting pharmaceutical companies’ focus
to managing a global, dispersed and diverse
supply chains from running a local, managed
supply chains.
The rapid growth of sourcing and manu-
facturing in low-cost countries has further
stretched supply chains, increasing the
chances of disruption and making tight control
more challenging. In addition, globalisation
has created extended opportunities for
pharmaceutical companies to sell their
products and services in new markets and
regions, calling for the management of a
global supply chain.
Joint Ventures and Partnerships
Further integrating and adding complexity
26 THESMARTCUBE.COM
to existing supply chains, pharmaceutical
companies are entering into joint ventures
and partnerships with organisations across
industry domains such as telecom and
technology. This trend is expected to continue
going forward. (Fig. 1)
Integrating Supply Chains
To cope with emerging challenges such
as patent protection (P?zer’s Lipitor, Astra
Zeneca’s Crestor and Seroquel, Sano? Aventis’
Plavi and Merck’s Singulair are losing their
patents in the near future) and technology
transformation, pharmaceutical companies
and healthcare players need to collaborate
and realign their strategies for developing a
value chain that caters to both the segments,
such as looking for new end-markets, moving
towards fuller service offerings in the
healthcare sector, or reducing dependence on
key revenue-earning drugs. For example, J&J’s
offers a fully diversi?ed portfolio including
generics, diagnostics and devices, consumer
health, prescription and OTC drugs. Similarly,
other pharmaceutical companies are expected
to integrate their supply chain. (Fig. 2)
In the light of such expected strategies, the
pharmaceutical supply chain is likely to
undergo a number of changes. In adapting
to these changing industry dynamics,
pharmaceutical companies are expected to
enter into more outsourcing partnerships,
collaborations and joint ventures. This will
require pharmaceutical players to strive for
greater visibility, supervision and control over
the entire supply chain.
EMERGING SUPPLY CHAIN
RISKS: WHY MUST THIS ISSUE
BE ADDRESSED?
Counterfeiting
“Approximately 10% of the worldwide drug supply
is counterfeit” —World Bank
Counterfeiting is one of the most serious threats
faced by the life sciences and healthcare
sectors worldwide. A Pharmaceutical Security
Institute (2010) survey estimated that drug
counterfeiting has increased worldwide by
more than 9% over the previous year. The
survey identi?ed 808 types of counterfeit
pharmaceutical products in 2009, increasing
by over 36% from 2008 (detected in 118
countries in 2008). Recently, P?zer reported a
case where it was necessary to recall 200,000
bottles of their cholesterol drug Lipitor from
outside the US (total market value of about US$
55 million) as these contained fake pills.
Outsourcing Risks: Product Diversion and
Negligence in Regulatory Compliance
Healthcare and pharmaceutical companies
27 CUBISMS AUGUST?2012? VOLUME?2
Pharmaceutical Supply Chain Risk Management [continued]
Pharmaceutical Supply Chain Integrated Supply Chain — 2020
Medical Device Supply Chain
Healthcare Services Supply Chain
Pharmaceutical
Company
Device
Manufacturers
End-user
(patients)
End-user
(patients)
Patient
Hospital and
pharmacies
Hospital and
pharmacies
Warehouse/
Wholesaler
Warehouse/
Wholesaler
Primary Care (Doctor/Hospital) Primary Health Care
Secondary Care (Hospital or Community Care)
Pharmaceutical
Company
Warehouse/
Wholesaler
Hospitals
Integrated
Service
Provider
Patients Device
Manufacturers
Warehouse/
Wholesaler
Ventured into health-care business by partnering
with Apple to create health-related iPhone
applications for monitoring blood glucose levels
and check weight
Novartis launched an initiative enabling health
workers to send reports on supply and demand of
medications, especially anti-malarial drugs,
through mobile phones
Ventured into health-care services by licensing
with Proteus to develop a sensing technology for
organ transplantation
Increased responsiveness with
regard to testing blood glucose levels
Accuracy in forecasting supply and
demand parameters and improved
supply chain operation
Accurate monitoring of heart beat
rate and blood pressure levels of
patients and improved facilitation
of data management
Novartis
Proteus
J&J
Apple
Novartis
Vodafone
IBM
Organisations Supply Chain Initiatives Implications in Supply Chain
FIG. 2: EVOLVING PHARMA SUPPLY CHAIN
Mental Health
Research Institute
Astra Zeneca
Collaboration in R&D to identify early
stages in Alzheimer’s disease
Detection of diseases in early stages
results in an overall reduction in
related costs and simpli?cation of
the supply chain
New R&D approaches to enter the
rare disease markets
Partnership to develop and commercialise
the treatment of Gaucher disease
P?zer
Protalix
Organisations Supply Chain Initiatives Implications in Supply Chain
FIG. 1: KEY SUPPLY CHAIN INITIATIVES
28 THESMARTCUBE.COM
Pharmaceutical Supply Chain Risk Management [continued]
come under strict regulations and guidelines
of their respective regulatory authorities.
Across the entire supply chain (ranging
from R&D phase to drug commercialisation),
companies need to maintain strict quality
adherence mechanisms, diversion from which
could result in heavy losses and regulatory
sanctions. While globalisation and outsourcing
of manufacturing and R&D to CROs and
CMOs have been on the rise, visibility and
supervision over supply chain are concern
areas. Outsourcing entails various risks such
as dependence on outsourcing partners and
negligence in ensuring regulatory compliance.
Based on a PwC survey (2011), most life
sciences supply chain executives believed
that risks associated with outsourcing are
second only to counterfeiting in terms of their
magnitude and impact.
Delay In Distribution and Extreme
Inventory Levels
Pharmaceutical players need to maintain
optimum inventory levels and ef?cient
distribution networks to meet patient demand
on time and prevent excessive inventory
(as perishable pharmaceutical drugs go to
waste if not kept under strictly controlled
environments). Forrester Research estimates
that a one-day delivery delay of $1 billion
worth of drugs costs a manufacturer $2.74
million in lost sales. Further, as per a survey
by IBM (Global Chief Supply Chain Of?cer
Study – 2009) conducted across 25 countries
and 29 different industries, the life sciences
industry had a median inventory turnover of
3.4X, which is signi?cantly less compared
with an average median of 5.5X for other
industries combined.
Risks Associated with Inaccurate Assessment
of Complex Consumer Demand
As pharmaceutical companies increasingly
cater to diverse end-users and new international
markets, their supply chains need greater
customer insight and planning for assessing
the what, when, and how much of supply.
Inaccurate assessment of these parameters
could lead to excessive inventory levels of
perishable drugs, which imply potential huge
losses for a company if they go to waste.
Integration and Partnership Risks
Increasing strategic diversi?cation of
pharmaceutical companies into the healthcare
sector is expected to result in greater
collaboration and partnerships within the
industry. Any lapse in effective coordination
may result in risks such as regulatory
compliance-related risks and delays in
distribution timelines.
Counterfeiting risks, regulatory compliance-
related risks and delay in distribution
timelines are the most critical risks associated
with the pharmaceutical supply chain. These
need to be addressed by coming up with
accurate supply chain con?guration and
adaptability.
PROPOSED SOLUTIONS
Pharmaceutical players need to map out the
entire supply chain to identify and prioritise
risks at various stages/phases. The impact
of the high-priority risks can be reduced
by adopting appropriate risk mitigation
strategies, as detailed in this section.
Outsourcing Risk Mitigation: Greater
Collaboration
Greater collaboration and harmonisation
among brand owners, suppliers, packaging
and contract manufacturers, shippers,
distributors and industry regulators help in
achieving greater transparency, cost-control,
sharing of information, and development of
common standards and indicators, which in
turn is likely to result in safer and higher-
quality products. Industry groups such as
the Pharmaceutical Supply Chain Initiative,
the Experimental Physics and Industrial
Control System and the Rx-360 Consortium
have a critical role to play in fostering these
collaborations.
Implication: Identify and pursue opportunities
to join, partner and/or create cross-organization
collaboration.
Outsourcing Risk Mitigation: Better
Integration
The overall medical industry has become
extremely complex in terms of the number and
type of players involved, and the nature of the
relationships amongst them. Integration of
divisions from OTC, pharmaceutical, animal
health, bio-tech and medical device will enable
easier market entry and better leveraging of
facilities and partners; further, it will eliminate
duplicate supply chain execution efforts and
costs. For example, pharmaceutical drug
research outsourcing as well medical device
research outsourcing could be done using
the same supply chain partners, instead of
employing individual supply chains.
Implication: Identify integration
opportunities within the life sciences
sector to eliminate duplicate supply chain
efforts and costs.
“The trade-of between partner collaboration
and risk management is one of our largest
challenges.” — Supply Chain Executive, medical
solution provider, Europe
29 CUBISMS AUGUST?2012? VOLUME?2
Pharmaceutical Supply Chain Risk Management [continued]
Counterfeiting Risk Mitigation:
Technological Enhancements
“Global supply chains face fundamental
discontinuity around the world—we still do not
have a global standard for RFID and customer
sophistication, and adoption of advanced
technologies still vary widely.” —President of Supply
Chain, healthcare services provider, North America
Pharmaceutical players need to address
the threat of counterfeiting by establishing
ef?cient mechanisms that address this
problem. Pharmaceutical companies should
investigate and develop intelligent products.
For example, Barcodes and RFID tags are
some of the tools that provide real-time
visibility to prevent diversion and theft, and
enable authentication to stem the ?ow of
counterfeit drugs.
Implication: Identify and invest in
countermeasures, such as traceability and
authentication technologies, to minimize the
impact of counterfeit drugs.
Counterfeiting Risk Mitigation: Packaging
Solutions
Pharmaceutical companies should develop
innovative packaging solutions to uncover
fake (counterfeit) products easily as well as
in a short time-frame. Using holograms (Dot
Matrix, E beam technology, etc.), application
of serialised codes, bar codes and other
security codes on primary packaging, as well
as subsequent packaging levels, are effective
methods in tackling the threat.
Implication: Develop secure packaging
solutions to mitigate counterfeiting risks
that arise due to non-secure packaging of
pharmaceutical drugs.
‘Outside Home Country’ Sourcing Risk
Mitigation: Balancing the Trade-Off Between
Low-Cost and Low-Risk
Large pharmaceutical companies have
initiated well-de?ned programs in India
and China to source raw materials. As these
markets have matured, companies are now
sourcing from new low-cost sources located
in Eastern Europe and other Asian countries.
Outsourcing, combined with low-cost country
sourcing, signi?cantly increases supply
chain risks, such as product quality diversion.
Therefore, it is imperative for these companies
to evaluate their sourcing strategies in the
light of cost-versus-risk proposition for
different low-cost destinations, and implement
better controls, policies and processes to
mitigate the risks associated with low-cost
country sourcing. For instance, in 2008, the US
Food and Drug Administration recalled Heparin
due to contamination in the lots produced in
China—the drug was oversulfated as Chinese
Heparin manufacturers were unethically
cutting the medication with chondroitin
sulfate to cut down on manufacturing costs.
Another strategy that can be adopted to reduce
these risks is highlighted in the next section.
Implication: Identify the risks associated
with low-cost country sourcing and put into
place better controls, policies and processes to
mitigate these risks.
Supplier Risk Management: Strategic-
Sourcing and Supplier Relationship
Management
An organisation’s procurement department
has the ability to signi?cantly reduce the
risk associated with ‘outside home country’
sourcing, by conducting collaborative
strategic-sourcing initiatives and entering
into supplier relationships that ensure
safeguarding against myriad potential risks,
such as quality risks, related to suppliers.
Strategic-sourcing helps in reducing the total
number of suppliers, thereby, reducing the
CASE STUDY: BILCARE RESEARCH
Context
Bilcare Research, through its research and technology division, Bilcare Technologies,
developed a solution aimed at safeguarding the drug supply against the risk of counterfeiting.
Solution
Each package or product ?owing through its supply chain had a tamper-evident, non-
clonable tag, which was made using nanotechnology. The tag’s “?ngerprint” safeguarded
the drug from being duplicated because of the random manner in which it was generated.
To con?rm authenticity, the end-users, such as retail pharmacies, hospitals and
patients themselves, could simply swipe the packet across a scanner. On one hand, the
nanotechnology tags safeguard the drugs against cloning risks, and on the other, it is
cheaper than solutions involving electronic components. In addition, these tags were
leveraged throughout the supply chain to provide track-and-trace capabilities, and helped
save the US $1 billion lost each year to theft and diversion.
30 THESMARTCUBE.COM
Pharmaceutical Supply Chain Risk Management [continued]
overall risk exposure to suppliers. Similarly,
the Supplier Relationships Management (SRM)
initiatives ensure consistent product quality
and greater ?exibility in the supply chain,
which is essential in the highly regulated
pharmaceutical industry.
Implication: Utilise strategic-sourcing
opportunities in raw material procurement and
enter into SRM programs with the suppliers to
ensure greater regulatory compliance.
Meeting Complex Customer Demands:
Flexible/Adaptable Supply Chains
Along with the prevalence of global
pharmaceutical supply chains, is the
increasing complexity and sophistication of
consumer demands. Risks associated with
these demands are typically region-speci?c
and need to be managed/mitigated at the
regional level. To facilitate this process of
risk mitigation across different regions, it
is imperative for regional supply chains to
be ?exible and quick in adapting to regional
conditions.
Implication: Ensure ?exibility and adaptability
of the supply chain to meet complex customer
demands in different regions across the globe.
The adaptability factor in a pharmaceutical
supply chain is critical to determine the
success of any risk mitigation solution/
strategy. Increased outsourcing trends and
sales to international markets have made
it imperative for pharmaceutical companies
to adopt country-speci?c or region-speci?c
supply chain risk mitigation solutions.
If careful assessment and planning is
done before entering into outsourcing
relationships, it can turn out to be an effective
risk mitigation strategy. In cases where
companies are sourcing from outside of the
home country, it is imperative to evaluate
their sourcing strategies in the light of cost-
versus-risk proposition for different low-cost
destinations.
CONCLUSION
Outsourcing and globalisation are two key
factors that have had a tremendous impact on
supply chain risk levels in the pharmaceutical
industry. However, the industry has shown
CASE STUDY: LEADING US-BASED DIVERSIFIED
PHARMACEUTICAL AND LIFE SCIENCES COMPANY
Challenge
» Developing a comprehensive Supplier Relationship Management (SRM) program, to be implemented across direct material
supplier base
» Understanding key gaps, challenges and opportunities in current SRM practices
» Aligning stakeholders in support of a formal SRM program and developing a customised SRM model incorporating processes,
tools and templates
Solution
For addressing these issues, the company, with the help of a consulting company, developed an SRM programme. Under the
programme, the consulting company reviewed supplier feedback, stakeholder requirements and existing resources to help de?ne
the strati?cation process and to strategically refocus resources. The approach also included designing governance processes and
supplier development program, assessing training requirements and developing a communication plan to support implementation.
Results
» The SRM program was implemented across key raw material suppliers
» Under this new process, the client was able to improve risk management results with a key strategic contract manufacturer; the
client successfully identi?ed and resolved a potential quality issue
» The number of raw material suppliers was reduced 30%
“One of our biggest challenges is developing the
ability to work together with supply chain partners,
sharing access to our organisations. All have their
own agendas.” —Vice President of Supply Chain,
pharmaceutical company, Europe
31 CUBISMS AUGUST?2012? VOLUME?2
Pharmaceutical Supply Chain Risk Management [continued]
that it can manage the risks associated with
the process of globalisation (in production as
well as sales), by altering the supply chain
and by adopting different manufacturing
routes and distribution channels, determined
by the geography and the drug involved.
Pharmaceutical companies will have to
identify and implement new strategies and
processes, supported by new technologies,
to aggressively reduce and manage the new
challenges it may face. With a proactive
approach, the industry can reap the bene?ts of
globalisation and, at the same time, ef?ciently
manage its supply chain risks. (Fig. 3)
Going forward, supply chains will play a
major role in their ability to adapt, consolidate
or refocus their core business segments.
Pharmaceutical companies will need to put
in place the right supply chain con?guration
and adaptability, by using internal, external
and country-speci?c resources to create best
practice-based supply chains, and to overcome
supply chain obstacles in a constantly
changing global environment. ?
Marshall Mathias, Client Engagement Team
Artwork: ©Veer.com/Image Zoo Illustration
GLOBAL SUPPLY CHAIN MANAGEMENT
CASE STUDY: PFIZER
Challenge
Over the past decade, P?zer experienced high growth through both market development and
acquisitions. The company expanded rapidly and the production network grew to include
over 100 facilities worldwide. The widespread network added supply chain and operations
complexity. Each new acquisition brought different products, processes and technologies
that needed to be integrated in order to deliver value.
Solution
P?zer Global Manufacturing (PGM) launched a focused strategy aimed at reducing both
cost and complexity. The plan included simplifying the manufacturing network and
standardising processes and technologies globally. Instead of requiring all products and
materials to be produced internally, P?zer outsourced drug manufacturing to contract
manufacturers. This initiative helped the organisation to reduce costs 25% and standardise
the manufacturing phase of its supply chain.
Appropriate
Identi?cation
Analysis and
Mitigation
Tracking to Control
Prioritisation The company should map out its
supply chain to identify where the
greatest risks lie, and assess their
impact and likelihood, and its
preparedness. The assessment
allows companies to assess risk
exposure over the entire supply
chain.
Based on the company’s risk appetite and the
prioritised identi?cation of risks, the company
should develop a solution/mechanism to
address high-priority risks. For example, the
failure of a packaging supplier might disrupt
production for several weeks or months;
however, if the company develops a mechanism
to store six months of ?nished goods in its
warehouses, the disruption is less likely to affect
customer supply.
The company should also put in place a
control mechanism to ensure smooth
functioning of adopted mechanisms and
mitigate supply chain risks.
Based on the identi?ed risks, and their
likelihood and impact, the company should
prioritise different risks in the order in which
they need to be addressed.
FIG. 3: RISK MANAGEMENT PROCESS
doc_803466682.pdf
Logistics accounts for 45-55% share of the value chain of a drug. Tied in with associated complexities around sourcing and manufacturing, supply chain management (effective or otherwise) clearly has a strong bearing on the total cost of a drug. Players in the pharmaceutical space are, therefore, undertaking a range of strategic initiatives to reduce cost across all phases of the pharmaceutical supply chain.
25 CUBISMS AUGUST?2012? VOLUME?2
COVER STORY: PROCUREMENT & SUPPLY CHAIN
Pharmaceutical Supply
Chain Risk Management
CURRENT AND FUTURE
STRATEGIES IN
PHARMACEUTICAL
SUPPLY CHAIN
Logistics accounts for 45–55% share of
the value chain of a drug. Tied in with
associated complexities around sourcing and
manufacturing, supply chain management
(effective or otherwise) clearly has a strong
bearing on the total cost of a drug. Players
in the pharmaceutical space are, therefore,
undertaking a range of strategic initiatives
to reduce cost across all phases of the
pharmaceutical supply chain:
Raw Material Sourcing ‘Outside
Home Country’
Historically, the US pharmaceutical industry
has relied on locally manufactured and
sourced ingredients. According to a PwC
survey (2011), 75% of life sciences supply
chain executives indicated they were sourcing
material from Western markets. This trend,
though, is set to reverse over the next three
years as 60% plan to decrease sourcing
from Western Europe and 45% plan to
source a lower quantity from North America.
Conversely, 8 out of 10 executives plan to
increase the percentage of material sourced
from Asia Paci?c, and 38% plan to source more
from Eastern Europe.
Outsourcing
Pharmaceutical companies have traditionally
preferred conducting R&D and drug
manufacturing in-house. However, over
the last decade, companies increasingly
outsourced these functions to Contract
Manufacturing Organisations (CMOs) and
Contract Research Organisations (CROs).
Contract manufacturing of bulk and dosage
form drugs worldwide reached $49 billion in
2010, an increase from $26.2 billion in 2004.
Global pharmaceutical CMO and CRO revenues
reached $196 billion in 2010, up from $100
billion in 2004.
Going forward, outsourcing of drug
manufacturing and R&D is expected to grow
at a rapid pace. Contract manufacturing of
bulk and dosage form drugs worldwide is
expected to grow to $53 billion in 2011, up from
$49 billion in 2010. Further, the ?gure is touted
to touch $86 billion by 2016 at a CAGR of 10%.
Revenue of CROs and CMOs is expected to grow
to $218 billion in 2011, up from $196 billion
in 2010. The ?gure is projected to reach $361
billion by 2016, increasing at a CAGR of 11%.
Catering To Diverse End-Users and
International Markets/Customers
Globalisation is propelling pharmaceutical
companies to develop strategies for serving
a diverse base of end users, including
wholesalers, governments, hospitals and
retail pharmacies, as well as new geographies,
each of which have unique requirements and
expectations. Further, companies are globally
sourcing raw material and supplying ?nished
goods to end users across geographies. This
is shifting pharmaceutical companies’ focus
to managing a global, dispersed and diverse
supply chains from running a local, managed
supply chains.
The rapid growth of sourcing and manu-
facturing in low-cost countries has further
stretched supply chains, increasing the
chances of disruption and making tight control
more challenging. In addition, globalisation
has created extended opportunities for
pharmaceutical companies to sell their
products and services in new markets and
regions, calling for the management of a
global supply chain.
Joint Ventures and Partnerships
Further integrating and adding complexity
26 THESMARTCUBE.COM
to existing supply chains, pharmaceutical
companies are entering into joint ventures
and partnerships with organisations across
industry domains such as telecom and
technology. This trend is expected to continue
going forward. (Fig. 1)
Integrating Supply Chains
To cope with emerging challenges such
as patent protection (P?zer’s Lipitor, Astra
Zeneca’s Crestor and Seroquel, Sano? Aventis’
Plavi and Merck’s Singulair are losing their
patents in the near future) and technology
transformation, pharmaceutical companies
and healthcare players need to collaborate
and realign their strategies for developing a
value chain that caters to both the segments,
such as looking for new end-markets, moving
towards fuller service offerings in the
healthcare sector, or reducing dependence on
key revenue-earning drugs. For example, J&J’s
offers a fully diversi?ed portfolio including
generics, diagnostics and devices, consumer
health, prescription and OTC drugs. Similarly,
other pharmaceutical companies are expected
to integrate their supply chain. (Fig. 2)
In the light of such expected strategies, the
pharmaceutical supply chain is likely to
undergo a number of changes. In adapting
to these changing industry dynamics,
pharmaceutical companies are expected to
enter into more outsourcing partnerships,
collaborations and joint ventures. This will
require pharmaceutical players to strive for
greater visibility, supervision and control over
the entire supply chain.
EMERGING SUPPLY CHAIN
RISKS: WHY MUST THIS ISSUE
BE ADDRESSED?
Counterfeiting
“Approximately 10% of the worldwide drug supply
is counterfeit” —World Bank
Counterfeiting is one of the most serious threats
faced by the life sciences and healthcare
sectors worldwide. A Pharmaceutical Security
Institute (2010) survey estimated that drug
counterfeiting has increased worldwide by
more than 9% over the previous year. The
survey identi?ed 808 types of counterfeit
pharmaceutical products in 2009, increasing
by over 36% from 2008 (detected in 118
countries in 2008). Recently, P?zer reported a
case where it was necessary to recall 200,000
bottles of their cholesterol drug Lipitor from
outside the US (total market value of about US$
55 million) as these contained fake pills.
Outsourcing Risks: Product Diversion and
Negligence in Regulatory Compliance
Healthcare and pharmaceutical companies
27 CUBISMS AUGUST?2012? VOLUME?2
Pharmaceutical Supply Chain Risk Management [continued]
Pharmaceutical Supply Chain Integrated Supply Chain — 2020
Medical Device Supply Chain
Healthcare Services Supply Chain
Pharmaceutical
Company
Device
Manufacturers
End-user
(patients)
End-user
(patients)
Patient
Hospital and
pharmacies
Hospital and
pharmacies
Warehouse/
Wholesaler
Warehouse/
Wholesaler
Primary Care (Doctor/Hospital) Primary Health Care
Secondary Care (Hospital or Community Care)
Pharmaceutical
Company
Warehouse/
Wholesaler
Hospitals
Integrated
Service
Provider
Patients Device
Manufacturers
Warehouse/
Wholesaler
Ventured into health-care business by partnering
with Apple to create health-related iPhone
applications for monitoring blood glucose levels
and check weight
Novartis launched an initiative enabling health
workers to send reports on supply and demand of
medications, especially anti-malarial drugs,
through mobile phones
Ventured into health-care services by licensing
with Proteus to develop a sensing technology for
organ transplantation
Increased responsiveness with
regard to testing blood glucose levels
Accuracy in forecasting supply and
demand parameters and improved
supply chain operation
Accurate monitoring of heart beat
rate and blood pressure levels of
patients and improved facilitation
of data management
Novartis
Proteus
J&J
Apple
Novartis
Vodafone
IBM
Organisations Supply Chain Initiatives Implications in Supply Chain
FIG. 2: EVOLVING PHARMA SUPPLY CHAIN
Mental Health
Research Institute
Astra Zeneca
Collaboration in R&D to identify early
stages in Alzheimer’s disease
Detection of diseases in early stages
results in an overall reduction in
related costs and simpli?cation of
the supply chain
New R&D approaches to enter the
rare disease markets
Partnership to develop and commercialise
the treatment of Gaucher disease
P?zer
Protalix
Organisations Supply Chain Initiatives Implications in Supply Chain
FIG. 1: KEY SUPPLY CHAIN INITIATIVES
28 THESMARTCUBE.COM
Pharmaceutical Supply Chain Risk Management [continued]
come under strict regulations and guidelines
of their respective regulatory authorities.
Across the entire supply chain (ranging
from R&D phase to drug commercialisation),
companies need to maintain strict quality
adherence mechanisms, diversion from which
could result in heavy losses and regulatory
sanctions. While globalisation and outsourcing
of manufacturing and R&D to CROs and
CMOs have been on the rise, visibility and
supervision over supply chain are concern
areas. Outsourcing entails various risks such
as dependence on outsourcing partners and
negligence in ensuring regulatory compliance.
Based on a PwC survey (2011), most life
sciences supply chain executives believed
that risks associated with outsourcing are
second only to counterfeiting in terms of their
magnitude and impact.
Delay In Distribution and Extreme
Inventory Levels
Pharmaceutical players need to maintain
optimum inventory levels and ef?cient
distribution networks to meet patient demand
on time and prevent excessive inventory
(as perishable pharmaceutical drugs go to
waste if not kept under strictly controlled
environments). Forrester Research estimates
that a one-day delivery delay of $1 billion
worth of drugs costs a manufacturer $2.74
million in lost sales. Further, as per a survey
by IBM (Global Chief Supply Chain Of?cer
Study – 2009) conducted across 25 countries
and 29 different industries, the life sciences
industry had a median inventory turnover of
3.4X, which is signi?cantly less compared
with an average median of 5.5X for other
industries combined.
Risks Associated with Inaccurate Assessment
of Complex Consumer Demand
As pharmaceutical companies increasingly
cater to diverse end-users and new international
markets, their supply chains need greater
customer insight and planning for assessing
the what, when, and how much of supply.
Inaccurate assessment of these parameters
could lead to excessive inventory levels of
perishable drugs, which imply potential huge
losses for a company if they go to waste.
Integration and Partnership Risks
Increasing strategic diversi?cation of
pharmaceutical companies into the healthcare
sector is expected to result in greater
collaboration and partnerships within the
industry. Any lapse in effective coordination
may result in risks such as regulatory
compliance-related risks and delays in
distribution timelines.
Counterfeiting risks, regulatory compliance-
related risks and delay in distribution
timelines are the most critical risks associated
with the pharmaceutical supply chain. These
need to be addressed by coming up with
accurate supply chain con?guration and
adaptability.
PROPOSED SOLUTIONS
Pharmaceutical players need to map out the
entire supply chain to identify and prioritise
risks at various stages/phases. The impact
of the high-priority risks can be reduced
by adopting appropriate risk mitigation
strategies, as detailed in this section.
Outsourcing Risk Mitigation: Greater
Collaboration
Greater collaboration and harmonisation
among brand owners, suppliers, packaging
and contract manufacturers, shippers,
distributors and industry regulators help in
achieving greater transparency, cost-control,
sharing of information, and development of
common standards and indicators, which in
turn is likely to result in safer and higher-
quality products. Industry groups such as
the Pharmaceutical Supply Chain Initiative,
the Experimental Physics and Industrial
Control System and the Rx-360 Consortium
have a critical role to play in fostering these
collaborations.
Implication: Identify and pursue opportunities
to join, partner and/or create cross-organization
collaboration.
Outsourcing Risk Mitigation: Better
Integration
The overall medical industry has become
extremely complex in terms of the number and
type of players involved, and the nature of the
relationships amongst them. Integration of
divisions from OTC, pharmaceutical, animal
health, bio-tech and medical device will enable
easier market entry and better leveraging of
facilities and partners; further, it will eliminate
duplicate supply chain execution efforts and
costs. For example, pharmaceutical drug
research outsourcing as well medical device
research outsourcing could be done using
the same supply chain partners, instead of
employing individual supply chains.
Implication: Identify integration
opportunities within the life sciences
sector to eliminate duplicate supply chain
efforts and costs.
“The trade-of between partner collaboration
and risk management is one of our largest
challenges.” — Supply Chain Executive, medical
solution provider, Europe
29 CUBISMS AUGUST?2012? VOLUME?2
Pharmaceutical Supply Chain Risk Management [continued]
Counterfeiting Risk Mitigation:
Technological Enhancements
“Global supply chains face fundamental
discontinuity around the world—we still do not
have a global standard for RFID and customer
sophistication, and adoption of advanced
technologies still vary widely.” —President of Supply
Chain, healthcare services provider, North America
Pharmaceutical players need to address
the threat of counterfeiting by establishing
ef?cient mechanisms that address this
problem. Pharmaceutical companies should
investigate and develop intelligent products.
For example, Barcodes and RFID tags are
some of the tools that provide real-time
visibility to prevent diversion and theft, and
enable authentication to stem the ?ow of
counterfeit drugs.
Implication: Identify and invest in
countermeasures, such as traceability and
authentication technologies, to minimize the
impact of counterfeit drugs.
Counterfeiting Risk Mitigation: Packaging
Solutions
Pharmaceutical companies should develop
innovative packaging solutions to uncover
fake (counterfeit) products easily as well as
in a short time-frame. Using holograms (Dot
Matrix, E beam technology, etc.), application
of serialised codes, bar codes and other
security codes on primary packaging, as well
as subsequent packaging levels, are effective
methods in tackling the threat.
Implication: Develop secure packaging
solutions to mitigate counterfeiting risks
that arise due to non-secure packaging of
pharmaceutical drugs.
‘Outside Home Country’ Sourcing Risk
Mitigation: Balancing the Trade-Off Between
Low-Cost and Low-Risk
Large pharmaceutical companies have
initiated well-de?ned programs in India
and China to source raw materials. As these
markets have matured, companies are now
sourcing from new low-cost sources located
in Eastern Europe and other Asian countries.
Outsourcing, combined with low-cost country
sourcing, signi?cantly increases supply
chain risks, such as product quality diversion.
Therefore, it is imperative for these companies
to evaluate their sourcing strategies in the
light of cost-versus-risk proposition for
different low-cost destinations, and implement
better controls, policies and processes to
mitigate the risks associated with low-cost
country sourcing. For instance, in 2008, the US
Food and Drug Administration recalled Heparin
due to contamination in the lots produced in
China—the drug was oversulfated as Chinese
Heparin manufacturers were unethically
cutting the medication with chondroitin
sulfate to cut down on manufacturing costs.
Another strategy that can be adopted to reduce
these risks is highlighted in the next section.
Implication: Identify the risks associated
with low-cost country sourcing and put into
place better controls, policies and processes to
mitigate these risks.
Supplier Risk Management: Strategic-
Sourcing and Supplier Relationship
Management
An organisation’s procurement department
has the ability to signi?cantly reduce the
risk associated with ‘outside home country’
sourcing, by conducting collaborative
strategic-sourcing initiatives and entering
into supplier relationships that ensure
safeguarding against myriad potential risks,
such as quality risks, related to suppliers.
Strategic-sourcing helps in reducing the total
number of suppliers, thereby, reducing the
CASE STUDY: BILCARE RESEARCH
Context
Bilcare Research, through its research and technology division, Bilcare Technologies,
developed a solution aimed at safeguarding the drug supply against the risk of counterfeiting.
Solution
Each package or product ?owing through its supply chain had a tamper-evident, non-
clonable tag, which was made using nanotechnology. The tag’s “?ngerprint” safeguarded
the drug from being duplicated because of the random manner in which it was generated.
To con?rm authenticity, the end-users, such as retail pharmacies, hospitals and
patients themselves, could simply swipe the packet across a scanner. On one hand, the
nanotechnology tags safeguard the drugs against cloning risks, and on the other, it is
cheaper than solutions involving electronic components. In addition, these tags were
leveraged throughout the supply chain to provide track-and-trace capabilities, and helped
save the US $1 billion lost each year to theft and diversion.
30 THESMARTCUBE.COM
Pharmaceutical Supply Chain Risk Management [continued]
overall risk exposure to suppliers. Similarly,
the Supplier Relationships Management (SRM)
initiatives ensure consistent product quality
and greater ?exibility in the supply chain,
which is essential in the highly regulated
pharmaceutical industry.
Implication: Utilise strategic-sourcing
opportunities in raw material procurement and
enter into SRM programs with the suppliers to
ensure greater regulatory compliance.
Meeting Complex Customer Demands:
Flexible/Adaptable Supply Chains
Along with the prevalence of global
pharmaceutical supply chains, is the
increasing complexity and sophistication of
consumer demands. Risks associated with
these demands are typically region-speci?c
and need to be managed/mitigated at the
regional level. To facilitate this process of
risk mitigation across different regions, it
is imperative for regional supply chains to
be ?exible and quick in adapting to regional
conditions.
Implication: Ensure ?exibility and adaptability
of the supply chain to meet complex customer
demands in different regions across the globe.
The adaptability factor in a pharmaceutical
supply chain is critical to determine the
success of any risk mitigation solution/
strategy. Increased outsourcing trends and
sales to international markets have made
it imperative for pharmaceutical companies
to adopt country-speci?c or region-speci?c
supply chain risk mitigation solutions.
If careful assessment and planning is
done before entering into outsourcing
relationships, it can turn out to be an effective
risk mitigation strategy. In cases where
companies are sourcing from outside of the
home country, it is imperative to evaluate
their sourcing strategies in the light of cost-
versus-risk proposition for different low-cost
destinations.
CONCLUSION
Outsourcing and globalisation are two key
factors that have had a tremendous impact on
supply chain risk levels in the pharmaceutical
industry. However, the industry has shown
CASE STUDY: LEADING US-BASED DIVERSIFIED
PHARMACEUTICAL AND LIFE SCIENCES COMPANY
Challenge
» Developing a comprehensive Supplier Relationship Management (SRM) program, to be implemented across direct material
supplier base
» Understanding key gaps, challenges and opportunities in current SRM practices
» Aligning stakeholders in support of a formal SRM program and developing a customised SRM model incorporating processes,
tools and templates
Solution
For addressing these issues, the company, with the help of a consulting company, developed an SRM programme. Under the
programme, the consulting company reviewed supplier feedback, stakeholder requirements and existing resources to help de?ne
the strati?cation process and to strategically refocus resources. The approach also included designing governance processes and
supplier development program, assessing training requirements and developing a communication plan to support implementation.
Results
» The SRM program was implemented across key raw material suppliers
» Under this new process, the client was able to improve risk management results with a key strategic contract manufacturer; the
client successfully identi?ed and resolved a potential quality issue
» The number of raw material suppliers was reduced 30%
“One of our biggest challenges is developing the
ability to work together with supply chain partners,
sharing access to our organisations. All have their
own agendas.” —Vice President of Supply Chain,
pharmaceutical company, Europe
31 CUBISMS AUGUST?2012? VOLUME?2
Pharmaceutical Supply Chain Risk Management [continued]
that it can manage the risks associated with
the process of globalisation (in production as
well as sales), by altering the supply chain
and by adopting different manufacturing
routes and distribution channels, determined
by the geography and the drug involved.
Pharmaceutical companies will have to
identify and implement new strategies and
processes, supported by new technologies,
to aggressively reduce and manage the new
challenges it may face. With a proactive
approach, the industry can reap the bene?ts of
globalisation and, at the same time, ef?ciently
manage its supply chain risks. (Fig. 3)
Going forward, supply chains will play a
major role in their ability to adapt, consolidate
or refocus their core business segments.
Pharmaceutical companies will need to put
in place the right supply chain con?guration
and adaptability, by using internal, external
and country-speci?c resources to create best
practice-based supply chains, and to overcome
supply chain obstacles in a constantly
changing global environment. ?
Marshall Mathias, Client Engagement Team
Artwork: ©Veer.com/Image Zoo Illustration
GLOBAL SUPPLY CHAIN MANAGEMENT
CASE STUDY: PFIZER
Challenge
Over the past decade, P?zer experienced high growth through both market development and
acquisitions. The company expanded rapidly and the production network grew to include
over 100 facilities worldwide. The widespread network added supply chain and operations
complexity. Each new acquisition brought different products, processes and technologies
that needed to be integrated in order to deliver value.
Solution
P?zer Global Manufacturing (PGM) launched a focused strategy aimed at reducing both
cost and complexity. The plan included simplifying the manufacturing network and
standardising processes and technologies globally. Instead of requiring all products and
materials to be produced internally, P?zer outsourced drug manufacturing to contract
manufacturers. This initiative helped the organisation to reduce costs 25% and standardise
the manufacturing phase of its supply chain.
Appropriate
Identi?cation
Analysis and
Mitigation
Tracking to Control
Prioritisation The company should map out its
supply chain to identify where the
greatest risks lie, and assess their
impact and likelihood, and its
preparedness. The assessment
allows companies to assess risk
exposure over the entire supply
chain.
Based on the company’s risk appetite and the
prioritised identi?cation of risks, the company
should develop a solution/mechanism to
address high-priority risks. For example, the
failure of a packaging supplier might disrupt
production for several weeks or months;
however, if the company develops a mechanism
to store six months of ?nished goods in its
warehouses, the disruption is less likely to affect
customer supply.
The company should also put in place a
control mechanism to ensure smooth
functioning of adopted mechanisms and
mitigate supply chain risks.
Based on the identi?ed risks, and their
likelihood and impact, the company should
prioritise different risks in the order in which
they need to be addressed.
FIG. 3: RISK MANAGEMENT PROCESS
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