Best practice in pharma supply chain management
Pharma needs to utilise the latest technology to maintain agility, and hence competitiveness, across the supply chain, says Patrick Lemoine.
The pharmaceutical industry has been one of the best-performing industries of the past decades with pharma companies excelling in many disciplines (research and development, manufacturing, sales and marketing) while maintaining the highest safety and quality standards. As a result, both sales and profits have risen more than in most other industries.
Yet, in recent years, the industry has been facing significant challenges:
- The competitive intensity has significantly increased with the fast rise of generics.
- Overall, the product portfolio has grown more complex, with more niche products for new markets.
- For over-the-counter (OTC) products, large drugstore chains are imposing the same high standards (e.g. on-shelf availability, promotions) as they do to consumer product companies.
- Healthcare providers and government reforms continue to put strong downward pressure on prices.
- Quality regulations, the rise of counterfeited drugs and the serialisation mandate are forcing pharma companies to make their supply chains more robust to ensure full traceability.
All of this is putting new demands on the supply chain to help address these challenges and bring products to market cost-effectively and at the required service level.
In addition, pharma companies are increasingly relying on a global network of R&D partners, suppliers, logistics providers and contract manufacturing organisations (CMOs) to develop, test, produce, ship and distribute their products. Using specialised outsourcing partners for key supply chain activities provides companies with significant cost and flexibility benefits. Few large pharma companies are not outsourcing to some degree.
However, this new outsourced model brings additional complexity. How do you run a supply chain tightly that is increasingly virtual? How do you run an outsourced supply chain when the in-house enterprise resource planning (ERP) system(s) only see(s) what is inside the four walls of the company? How do you manage workflows that involve exchanging information with outside parties across the multiple tiers of your supply chain?
Redefining supply chain management
Following other industries, like high-tech and consumer goods, pharma companies need to focus on the following five initiatives:
Connect and collaborate using a business network. A digital business network is the foundation of a multi-enterprise supply chain, connecting all outside supply chain partners electronically via the cloud. Unlike the old model of creating point-to-point connections, this is a true, multi-tier network – connecting everyone, like the Internet does, and allowing all partners to work in sync. This enables both end-to-end visibility and the collaboration needed to support business interactions among the different actors. Such a network is like an ERP system, but for the entire supply chain. Without such a platform, it is almost impossible to get the level of real-time visibility and coordination among all supply chain partners that is needed.
Understand true demand. Demand forecasts are only an educated guess of what future demand will be. For their OTC business, the most innovative pharma companies are following consumer products companies: capturing vast amounts of demand-related information which is then fed into sophisticated demand sensing solutions to better predict true demand. This means going all the way to point-of-sale (POS) data or even using signals like weather forecasts or flu trends via social media. This improved demand picture is then propagated to all supply chain partners, ensuring that the pharma company, suppliers and CMOs are all aligned. Demand sensing brings significantly higher on-shelf availability and lower inventories.
Control the quality at the CMOs. Pharma companies need to ensure end-to-end traceability. As external parties, such as CMOs, are increasingly involved, pharma must have visibility into partners’ manufacturing operations to track product quality across the multi-tier, multi-enterprise supply chain. This means connecting to their CMO’s manufacturing execution systems (MES) to capture relevant data at all stages of production. This provides very granular factory transaction visibility to track material flows, lot genealogy, processing steps and associated parameters, such as yields or test results – critical information to ensure traceability. This is a requirement for any serialisation initiative.
Quickly re-plan across the network. Another requirement is to detect and respond quickly to changes in the demand and supply picture. With business networks, companies can see the end-to-end supply chain, not only in-house operations. However, traditional planning systems lack the fast problem resolution and decision-support capabilities required to manage trade-offs and suggest alternative scenarios offered by state-of-the-art planning applications. These tools allow rapid evaluation of new information – be it a supply disruption or an unexpected demand change – and easily compare alternative plans to select the best option. The new plan is then shared with all supply chain partners via the business network.
Better manage distribution. Pharma companies are increasingly relying on external partners for transportation, warehousing and other value-added services. Ensuring product availability means tightly managing distribution partners. This includes getting complete downstream inventory visibility and sophisticated inventory strategies. Proactive management means allocating to the different channels to optimally and profitably deliver the right products to the right customers and make reliable delivery commitments. This is key when competing for shelf space at drugstore chains and pharmacies.
Supply chain operating network
New strategies use the experience of consumer product companies but take into account the specifics of the pharma industry. A cloud-based network to enable end-to-end visibility and collaboration among supply chain partners, combined with dedicated decision-support applications that leverage the data in this network is the best set-up. The benefits are substantial:
- Up-to-date, end-to-end supply chain visibility – ‘one version of the truth’ shared across all partners
- Full quality control of CMOs – as required for traceability and serialisation
- Higher on-shelf availability, generally with lower inventories
- Through smarter channel allocations, better margins and ultimately higher market share
The early adopters are already capturing these benefits, putting themselves ahead of their peers.
About the author:
As VP Product Marketing, Patrick Lemoine is in charge of E2open’s product positioning and company messaging. He has more than 20 years of supply chain experience, as well as a deep knowledge of the high-tech and automotive industries.
He started his career as a consultant with McKinsey and Co and spent the last 15 years in the enterprise software space with companies such as i2, LogicTools, and SAP.
He holds an MBA from Stanford University.