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Where to Start Investing to Optimize Pharma Distribution?

Where to Start Investing to Optimize Pharma Distribution?

February 7, 2020 - Premsai Sainathan

Read Time 6 Mins.

The exponentially growing complexity of the pharmaceutical supply chain has forced us to rethink the way we manage it and puts light on the complex process that it has become over the recent years, calling for a structural revamping and fundamental transformation to put things into perspective. The big question is where to begin investing to transform it: supply chain consultants, 3PLs, digitization, or visibility?

Some years ago, the pharmaceutical industry was all about a few things — a limited number of products, high margins, and stable demand and supply. But in order to meet the varying demands and not mess up the already entangled process, the supply chain models now need to be based on three major points — agility, service, and cost effectiveness.

For most pharma companies, pharma distribution optimization is just a numbers game, apart from product security. Pharma products — we're talking about over the counter generic stuff — are easily interchangeable for customers — whether they're institutions or individuals.

It's therefore important to make sure product availability isn't an issue — making pharma distribution models and plans akin to FMCG SOPs — it's a bulk commodity.

The trouble here is, when you approach the problem through that perspective, you run into issues like overstocking to ensure availability and compensate for variances leading to higher working capital expenditure, and inventory management complications with product recalls due to non-compliance of FIFO, loss, or damage.

As the experts strive to provide the high-quality services pharmaceutical shippers expect, the biggest challenges in doing this are — insufficient expertise, inadequate infrastructure, ill-equipped facilities, and increased regulations.

In such times, the two big questions that need to be answered are:

Is your pharma supply chain evolving?

And if not, where do you begin?

There’s no dearth of options to choose from. But the best way to decide is to weigh your decision in terms of what each approach can and cannot do and how it affects your business. Let’s delve into the available prescriptions to optimize pharma distribution:

pharma-supply-chain-consultants

Prescription A — Pharma Supply Chain Consultants

A pharma supply chain consultant basically helps pharma companies sort and manage their supply chain, using their strong domain experience.

What they can do:

  • They can suggest the best course of action — using past data analysis and learning from the anomalies that occurred in the past.
  • They can make better decisions using their supply chain experience and expertise — which your business lacks.
  • They can eliminate the gap — between the data you have and the analysis of that data, to learn from it and take better actions in future.

What they cannot do:

  • They cannot get reliable data — since the data they have is past data provided to them by the pharma company itself. It is usually complicated, uncategorized, old data.
  • It cannot guarantee results — since there is scope for error in assumptions about the supply chain’s current state.

How that affects "business outcome":

  • Experimentation affects the ability to improve efficiency — which makes it very difficult to optimize fast.
  • There's a significant lead time between initialization and final implementation — during which inefficiency persists.
  • Any new reforms or changes take time to fine-tune and troubleshoot — during which inefficiency could increase.

pharma-distribution-3pls

Prescription B - Pharma Distribution 3PLs

Pharma distribution 3PLs are logistics companies that specialize in moving pharma and life science products. They understand pharma-related compliances well and have engineered their supply chain operations to better suit this vertical. Some companies also have a pharma logistics division that specializes in this kind of movement.

What they can do:

  • They do what you lack operational capability in — that is, handling your pharma distribution operations for your business – whether it is moving your shipments or managing your warehouses, complying with your company’s SLAs and pharma regulations.

What they cannot do:

  • They cannot guarantee performance improvement because their focus is on moving things from point A to point B versus strategically focusing on optimizing your supply chain efficiencies.
  • They cannot provide complete transparency and accountability.
  • They cannot always prevent unexpected incidents from happening as they have a larger transportation focus across all their clients, not just you!

How that affects "business outcome":

  • You can continue to invest in your 3PLs to scale your business volumes, however investing in them to undertake projects to drive up your supply chain efficiencies could yield minimal ROI due to their lack of focus just on your supply chain.
  • Even if they are proactive in working with you in improving efficiencies, you are completely reliant on that one transport partner, limiting your ability to optimize in areas where they are not strong.

digitization-initiatives

Prescription C — Digitization Initiatives

Digitization is a larger supply chain transformation that many pharma companies are working towards. The primary objective is visibility on demand into every business process from production to sale.

What it can do:

  • It can give you better process visibility — you only ever have to rely on your own system for data, which you know in and out.
  • It can give you reliable data and information — on which you can base decisions or reform.
  • It can give you more co-ordination and control — by eliminating information silos between processes or departments.

What it cannot do:

  • It cannot automatically collect data —  even with the most advanced ERPs, TMSs, and WMSs, someone needs to manually feed data to the machine or cloud. This leads to room for error and time lapse, making actionable visibility hard.
  • It cannot be done on demand — digitization initiatives typically take months or years to execute. There is a lot of dependency on consultants, your internal IT teams, implementing new tools, process re-engineering, as well as the inevitable troubleshooting and fine-tuning — things that trip up most digitization drives across enterprises.

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How that affects "business outcome":

  • The business outcome is very long-term and there is a large amount of dependency on stakeholders within and outside the organization when it comes to implementation. Amidst all of this, there's still a considerable amount of manual processes — which can mean significant lead-time as well as chances of error and inefficiency.

visibility-roambee

Prescription D - Visibility

The core purpose of initiating digitization of your pharma supply chain is getting better visibility in order to improve actionability as well as inform meaningful reforms over time in your supply chain. This would only make more sense if your do not have to rely on any third party to get the information on your supply chain, and can take timely actions on anomalies, preferably before they occur, using real, real-time, relevant data.

Having said that, digitization drives in pharmaceutical organizations have failed before, and can fail again if your organization isn’t prepared, well-trained, or ready for the big technological transition.

So, you don't necessarily need digitization to get the visibility you need — you can skip that step and go for a smarter resolution — a Visibility-as-a-Service provider. It’s like moving from cash to mobile payments and skipping the intermediate step: credit/debit cards.

What this solution provider will do for you is basically automate and manage your supply chain visibility for you, just as you would want to, but with the much-required expertise that you might lack. They will:

  • Use IoT Technologies (sensors) — to collect the real, real-time, relevant data.
  • Use Cloud Platforms (analytics & AI) — to manage the data and make sense of it for your supply chain and business needs.
  • Integrate with your existing systems and processes — so you don't have to derail or re-engineer any ongoing processes.
  • Improve your ability to manage operations — through timely alerts, preemptive warnings, a fair degree of automation to eliminate errors and delays that occur due to dependence on the human element in SCM.

The best thing about letting visibility experts handle it for you is that you can do away with the disadvantages of having to rely on a 3PL, along with the lead time to find a 3PL that's reliable beyond reproach, OR trying to get a system of your own up and running that might or might not work for you — while also eliminating the wastage of time, effort, and funds that go into implementing such a huge change.

With visibility in hand, you’ve already begun your digitization initiative, and in a way where you have automated visibility and keen insights into the areas you need to invest more in versus generic upgrades of your distribution process – a classic “agile” approach!

In Summary

Visibility is the starting point for everything else — improving process efficiencies, supply chain responsiveness/resilience, as well as guaranteeing OTIF.

You can try engineering a system yourself — and hope that you can accommodate and manage the extra work until the initiatives to change and improve things that you're spearheading yield dividends.

Chances are, however, that if you're trying to handle that at scale — you're going to have issues with:

Capex since it will almost always come with capital expenditure that comes along with the infrastructure setup, device management, and system maintenance.

Engineering & Implementation since doing that without technological expertise makes it next to impossible to implement your own digitized pharma supply chain management system.

Change Management since implementing new process means training, groundbreaking changes, and a lot of challenges that your business and/or people might or might not be ready for.

Clearly, the smarter way would be to skip a step, the teething issues, and the risks involved — you can do without the unexpected breakdowns that could give your competition the break they've been waiting for.

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