Is Your Forecast for Global Demand Wrong or Lucky?



Pharma IQ
02/17/2011

For many pharmaceutical organisations, transportation remains a key challenge, as it can means the difference between reaching new markets and savings costs or paying over the odds and failing to expand sufficiently.

This issue was recently analysed by Kerry Zuber, writing for Kinaxis.com, who noted that there is "no question" that the industry needs to deal with the combination of supply chain and regulatory issues in order to meet obligations to the likes of consumers, shareholders and also supply chain partners.

However, the industry seems comfortable treating supply availability as a "prime factor", he claims, even though in the majority of other sectors there is double-digit turnover to be had through inventory turnover performance.

In the pharma industry, this is in the low single digits, and Zuber said that dressing this issue may be key to streamlining operations, cutting costs and ultimately boosting profits.

According to the expert, supply availability is just one key difference, as many biotech firms have been forced to invent equipment and manufacturing processes which can help to pass trials and are less focused on cost and efficiency.

"Unlike engineering changes in the high-tech industry that change the content of a product, changes in the pharma space usually target the cost and yield of the manufacturing process. To add to the complexity, these changes must satisfy the quality control requirements of regulatory agencies," the expert explained.

He pointed out that this approval process can often take months, while uncertainties in timing create a number of risk management issues, as well as the many regulatory issues applying to things such as packaging, labelling and shelf life requirements.

Combined with "extremely high margins on non-generic drugs", Zuber said it is unsurprising that the industry has not generally placed emphasis on minimising non-production issues relating to supply chain costs.

However, as the majority of supply chain management issues apply to all sectors it may be possible to take inspiration from these when identifying how to streamline operations, he noted.

"The chief question is 'how can you achieve an acceptable level of supply availability without the waste? It's understood that the definition of acceptable ranges from 100 per cent availability for some life-sustaining medications to more conservative fill rates for OTC generics," the expert explained.

"As there are plenty of examples of supply chain mastery in the high-tech and automotive industries to suggest the answer is an absolute yes.  The next question is 'how'?"

He pointed to high-tech and auto industries which have adopted lean principles to deal with the elimination of waste and the rapid change and said that, although pharmaceutical industries have used these to an extent, a key difference has been the high tech focus on the entire value chain rather than individual sub-processes.

Many leading high-tech organisations have turned to collaborative forecasting and planning with distributors and sub-contractors and Zuber said that this approach is one which pharmaceutical organisations should utilise.

Recently, pharma firms have recognised how adopting a high-tech approach to demand planning and supply chain management has helped to generate improvements in the area of end-to-end cost, as well as working capital turnover.

"As pharma companies make the transition to better forecasting methods and end-to-end supply chain management, a new era of cost competitiveness will ensue," he explained.

With industry leaders increasingly focusing on costs and how to drive them down to streamline operations in the pharmaceutical distribution chain, it is clear that transformations such as this will continue be seen in the months and years ahead.