The Answer to Rising Pharmaceutical Supply Chain Costs

Using Technology and Visibility to Combat Soaring Pharma Supply Chain Costs

As competition with generic products rises and existing patents expire, it is becoming increasingly evident that soaring logistics costs will be the factor that can seriously hurt  pharmaceutical in the long term.

Although the supply chain structure in the pharmaceutical industry has not changed in decades, the pharmaceutical industry itself has changed dramatically during that time.  According to PricewaterhouseCoopers, most pharmaceutical supply chains lack flexibility and cost efficiency. Berlinger, a logistics company whose specialties include pharma and healthcare products, says that the pharma supply chain has “become increasingly long, tortuous and diverse.”

In light of those widespread inefficiencies, it’s time for the pharmaceutical supply chain to catch up with the industry it’s serving. Among the components of the pharma supply chain that demand attention are inventory management, temperature control, regulatory compliance, and cost reduction. And what binds the improvement of these components? Technology, including tools that offer end-to-end visibility into the supply chain.

Here are three areas where technology designed to increase visibility into the pharma supply chain can benefit manufacturers, distributors, retailers, logistics providers, and others involved in the sector:

Keeping an Eye on Inventory

Inventory, which can be on hand for as long as ten months in the pharmaceutical industry, and obso­lescence represent almost fifty percent of the total supply chain cost for a typical pharma company, according to McKinsey, while transportation and warehousing represent forty percent. Technology that enhances visibility into supply and demand is one way to achieve inventory reduction, giving way to the “just-in-time” trend we have already seen revolutionize other industries, like retail.

“High inventories not only testify to inflexibility, they also mask problems and eliminate incentives to push for higher levels of agility,” McKinsey & Co. says. “In that sense, the high inventories today are the stock­ outs of tomorrow!”

By improving the flexibility of the pharmaceutical supply chain, including “just-in-time” delivery, one can reduce inventory levels.

Adding to urgency, pharmaceutical profits are on a downward trend, in part led by the continuous increase in patent expirations that give rise to the generic drug market. “Given that 80 percent of the pharmaceuticals market is now populated by generics, logistical capabilities that reduce costs are more important than ever,” consulting company Accenture says.

The bottom line is that visibility and technology can lead to right-sized manufacturing processes, reducing waste and cost, and enabling pharmaceutical companies to be more competitive.

Hot Topic: The Cold Chain

Cold chain logistics make up a $10 billion piece of the $1 trillion pie that is the global pharma industry, Berlinger says. Roughly 80 percent of drugs require temperature-controlled transportation and that trend is on the rise. Today’s ever-expanding cold chain requires close consideration of factors such as shipping modes, climate zones, storage capabilities and healthcare settings.

Contributing to that rise is the explosion of biologic and personalized medicine. “The growth of temperature-controlled products is continuing at more than double the rate of non-temperature-controlled products,” according to Pharmaceutical Commerce’s annual Biopharma Cold Chain Sourcebook.

With so many moving parts in the cold chain, end-to-end, technology-powered visibility and exception management is a must. That includes, in no small part, end-to-end product tracking and tracing.

Absent that visibility, manufacturers, distributors, logistics providers and others in the pharma business risk the loss of temperature-sensitive products and, therefore, the loss of billions of dollars. The following statistics from logistics provider CargoSense underscore that point:

  • 30 percent of discarded pharmaceuticals can be attributed solely to logistics issues.
  • 25 percent of vaccines reach their destination degraded due to incorrect shipping.
  • 20 percent of temperature-sensitive products are damaged during transport due to a broken cold chain.

How can visibility help improve turn those numbers around? It can improve carrier accountability for losses due to performance, identify when orders need adjustments due to lost product, and heighten the ability to execute on “just-in-time” shipments when a product is degraded while in transit.

Complying With ‘More Intense’ Regulations

Regulatory compliance is a huge headache for the pharmaceutical industry, as regulatory agencies in the U.S. and around the world have stepped up their scrutiny.

McKinsey says the “broader and more intense” oversight of the pharma supply chain includes stricter regulation of storage and temperature control. Furthermore, companies in the pharma supply chain must adhere to stringent “track and trace” regulations.

Heavy regulation of the pharma industry demands efficiency, as one major slip-up can lead to legal troubles, regulatory fines and other consequences. Therefore, bulking up end-to-end supply chain visibility is not only a wise investment but also imperative in risk mitigation.

“Management’s ability to achieve a nearly risk-free environment is primarily enabled by visibility technology that introduces intelligence into every step of the healthcare supply chain,” according to The Current State of Pharmaceutical Logistics report, produced by transportation and logistics provider DSV.

What’s the Future of Visibility in the Pharmaceutical Industry?

Given the escalating importance of inventory control, cold chain logistics, and regulatory compliance; end-to-end solutions that offer visibility into transportation and other links in the pharmaceutical supply chain will be a must-have.

Visibility becomes increasingly vital as more pharmaceutical products require temperature control. If technology-enabled visibility is not built into the supply chain today, then pharmaceutical manufacturers, distributors, shippers and others risk losing millions, if not billions, of dollars in inventory due to technological obsolescence.

As profit margins in the pharma industry shrink because “blockbuster” drugs are tapering off in favor of generics, keeping tabs on costs — and not just those associated with temperature-controlled inventory — will become an even greater concern.

Enhancing visibility and operational efficiency in the pharmaceutical supply chain will be a much-needed prescription for success.

Convey helps businesses improve visibility so that they can exceed customer expectations while also improving operational efficiency. Click here or here to learn more about how visibility can make the pharmaceutical supply chain more efficient.