Logistics & Supply Chain

“Supply Chains are 3-dimensional Networks”

How collaborative systems can help reduce complexity in pharma logistics and enhance performance

30.04.2015 -

Because of a rapidly changing world of business and an increase of regulations, the pharmaceutical industry must find new ways to serve patients. CHEManager Distribution & Logistics asked Diane Palmquist, vice president of manufacturing industry solutions, and Boris Felgendreher, director of marketing EMEA, both with GT Nexus, how pharmaceutical companies can face these challenges best.

CHEManager Distribution & Logistics: From your perspective what are the main topics for pharmaceutical companies looking at logistics?

D. Palmquist: These are volatile times for pharmaceutical manufacturers. The industry is rapidly changing due to multiple pressures and conditions. Consider the growing list of challenges. Things like new regulations, expiring patents, increased outsourcing, challenges to deliver sustained profitability, tighter margins, risks of counterfeiting and theft.

As brands go off-patent, pharma companies increasingly rely on outsourced active pharmaceutical ingredients (API) and expansion into emerging markets to maintain and potentially grow revenue. That increased reliance on outside manufacturers, however, represents a loss of control - a concept that seems to run counter to tightening regulation.

Drugs are sold worldwide and nearly every big player in the pharmaceutical market takes advantage of global sourcing and global production. What are the main consequences?

D. Palmquist: Outsourcing - and to some extent new acquisitions - shifts more production outside the walls of the company, and as a result, adds new risk. It leaves pharmaceutical companies surrendering a significant amount of control over the manufacturing process in return for lower costs. And it opens the door for diminished transparency throughout the manufacturing cycle.

Supply-chain safety has to be guaranteed - along the whole supply chain. How do you appraise the EU Directive on Falsified Medicines and, in the US, the Drug Quality and Security Act, to meet these needs? On the other hand, governments of the Mideast, Asia and South America go their own way to regulate the supply chain, and to tackle the problem of counterfeit pharmaceuticals. Don't you think this will complicate the process even more, seen from a worldwide perspective?

D. Palmquist: Increased regulations such as EU FMD are a necessary response to piracy, counterfeiting and the use of drugs as currency, which left unchecked represent some of the biggest risks to the integrity of a brand. The consumer wants to know that what they're buying is the real thing. While serialization is a necessary part of ensuring the product is pure, it's part of a much bigger picture in the fight against these risks.

Looking globally, some $15 billion of API will be exported out of India alone this year. While it may be serialized, it doesn't mean there's no possibility for drugs to leak in and out of the supply chain. Pharma is global. Regulations aren't. The same rules that apply in the EU don't directly affect countries in South America. Manufacturing and distribution go well beyond political boundaries, however, and manufacturers are responsible for playing by the rules in whatever geography they operate.

Under these circumstances and with these demands: Will it be possible for pharmaceutical global players to manage their supply chains appropriately?

B. Felgendreher: At the heart of these challenges around visibility, track-and-trace or serialization is connectivity and collaboration. Pharmaceutical companies today tend to rely on traditional hosted software, or ERP (enterprise resource planning) tools. These do an excellent job of connecting people, sharing data and delivering visibility within the four walls of the business. This approach is ideal for looking inside of a business. The challenge pharmaceutical companies face as outsourcing increases and supply chains become more complex is that production moves beyond the outstretched arms of ERP.

Suppliers, factories, logistics providers, customs agents and numerous other parties that touch every transaction are on the outside of business. Pharmaceutical companies have spent years trying to add on or extend their ERP systems to connect supply-chain partners. EDI and portals are single-point connections for trading partners. But this model is unsustainable as the numbers of trading partners grow, with multiple layers of suppliers in different regions, facing different regulations and requirements. Many pharmaceutical companies operate five, 10 or 20 different ERP instances - varying by region. This raises complexity and makes it harder to have true end-to-end supply-chain visibility. A company, in this instance, may find itself bidding or competing against itself in areas such as goods sourcing or freight procurement. The company also loses some of its buying leverage by operating and ordering in a splintered, fragmented environment.

Supply-chain visibility, traceability and connectivity are not bolt-on projects. No single solution addresses this challenge. Rather, it requires a new approach - a rewiring of the underpinnings of connections between a pharmaceutical company and its trading partners.

Why and how could a collaborative system be the answer to meet the needs of complexity?

B. Felgendreher: A supply chain is not linear, but rather a 3-dimensional network of networks. The pharmaceutical company sits at the middle with hundreds of surrounding nodes that are also interconnected. A point-to-point approach here is inadequate. Rather, what is needed is a new infrastructure that connects all of the nodes not one at a time, but simultaneously, as a single network. A single global network can integrate all of the ERP systems, trading partners, and most importantly, the data that moves between them. With this foundation, the idea of supply-chain visibility becomes a reality.

Pharmaceutical companies can see beyond their tier one suppliers into tiers two and three. Black holes that once existed between trading partners are eliminated through visibility into all transaction documents and interactions. Pharmaceutical companies can know where their goods are and where they've been. This makes track-and-trace and serialization capabilities achievable. But it also opens new doors to operating smarter and with more agility. With visibility and data tied into parties and processes throughout the network, pharmaceutical companies can know their true cost to serve a particular customer segment. They can assess new market opportunities with a clear view.

What will be the preconditions - also technical - to run such a system?

B. Felgendreher: Compared to, let's say, a large-scale ERP implementation project that takes multiple years and an expensive army of consultants to manage, connecting a pharmaceutical company and its supply-chain partners to a cloud-based network is less complex, less time-consuming and a lot less expensive. But most importantly, there is no need for large upfront investments in any kind of IT hardware or software.

In a cloud-based network, both hardware and software is run in the cloud. Every partner on the network is also on the same instance of software code. There are no licenses or upgrades to be managed. In short, the technology barrier is a lot lower compared with traditional enterprise software systems. That's part of the reason why we are seeing such a rapid adoption of cloud networks.

We learned supply-chain processes are much more transparent and easier to handle in a cloud-based system, but are they as safe as in isolated, local ERP systems?

B. Felgendreher: Safety is always a concern, not only in pharma, but in other verticals as well. When it comes to processes and data across the extended ecosystem of any company, the question of safety and security takes on an especially challenging dimension. Today an estimated 80% of supply-chain data is generated outside the four walls and therefore outside the reach of the individual organization. More and more companies consider that an intolerable security risk.

If sensitive data is scattered across the ecosystem of partners, companies can't properly control the access to this data. The more secure approach in this scenario is to move all the data away from the insecure periphery of the network and into the center where all the state-of-the-art security measures can be applied to safeguard the data. Today's world-class cloud supply-chain networks are considered safer than isolated ERP systems.

Is a collaborative system indeed a win-win situation for all the partners of the supply chain?

D. Palmquist: The pharmaceutical industry faces numerous headwinds: Serialization, patent expiration, product safety, assurance of supply, and counterfeiting - to name a few. The foundation to addressing each of these challenges is tighter collaboration with partners, bringing greater visibility into the supply chain. Working in low-cost markets is a big part of business in the coming years. In the past, it was just about getting goods delivered. Margins were so high on on-patent drugs that they could afford to skip over the granular details around cost to serve markets and segments. But growth opportunities are limited today, and pharmaceutical companies have to keep a tight handle on costs, margins and customer demands.