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It’s fair to say that, until now, most companies in the pharmaceutical and medical fields have had other things on their mind than maximising the efficiency of their supply chains. But what was once regarded as a minor cost component is coming under increasing scrutiny as manufacturers – under competitive pressures and analysis from national health authorities – seek to maintain profit margins.

The whole look and feel of the pharma supply chain could be about to change dramatically as technology makes an increasing impact. Rüdiger Dorn, Microsoft”s worldwide managing director for the pharmaceutical industry and Tony Walsh, European business development manager, Domino Printing Sciences Plc are about to jointly launch a new solution for the sector, based on new system architecture and featuring digital matrix or two-dimensional barcodes, that would allow a better control of the supply chain.

Until very recently, keeping the necessary ”islands” of information properly synchronised would have been very difficult, but internet technology is now mature enough to allow it to happen.

Greater control
One aim of the project, the standards for which have been thrashed out with the EFPIA consortium of major pharma companies, is to prevent counterfeiting but equally important are the greater degree of control over the supply chain that it will allow. What”s more, they say, it can be phased in gradually, without requiring manufacturers and retailers to throw out all their old systems. The new matrix tags can function alongside conventional bar codes or, equally, RFID tags. Cost of the system should be in line with existing bar-code systems – but there could be major savings by avoiding labelling or repacking. There would be no need for manufacturers to re-equip their production lines and the hardware requirements for retailers would be fairly small.

EFPIA is now agreeing standards for the data matrix. ”We have now got to the point where everyone has agreed on a format, which has been a big inhibitor in the past,” says Rüdiger Dorn. It would, he says, pave the way for pharma to develop a responsive, demand-driven supply chain that we already have in place in other industries” says Rudi Dorn.

Tony Walsh explains: ”The two-dimensional barcodes are very robust, because there”s a lot more “redundancy” than with a linear bar-code. Their other big advantage is that they”re much smaller – we can get 3-400 bytes of data into a very small area, ideal for pharmaceuticals.”

Rudi Dorn adds that, unlike most conventional bar codes, the matrix codes will allow individual packs to be traced through the supply chain, as each would carry a unique serialised code. With recalls, for instance, it would be possible to identify the affected items precisely; sales of an individual item could be tied to patient records.

In fact, there has been a lot of interest from the food and FMCG retail industries as here too, there is an increasing desire to keep track of consignments down to near individual item level.

A hybrid world
The matrix barcodes wouldn”t do everything that an RFID tag could – no read-write, obviously – but there is no reason why the two couldn”t live side by side, feeding information into the same databases. ”I think we may be moving towards a hybrid world,” says Dorn – perhaps RFID for higher-value or more sensitive drugs and matrix codes for the rest. System designers should have learned the lessons of the past three decades and should avoid incompatible systems.

Attempts by the drugs industry to introduce RFID have so far been disappointing, adds IBS Pharma vice-president Andre Grigjanis. One problem, as Pfizer found, was that other partners were unwilling to adopt the technology, he says. Technical problems are another hurdle – no one can be sure that an accidentally strong dose of radio waves won”t have a detrimental effect on liquid medicines. But it is early days yet for RFID and many of the teething problems can be ironed out in time.

There should be no fundamental reason why the standards being agreed in Europe should not work with the similar US Pedigree system, although the two have been designed to do slightly different jobs. Pedigree is designed to show a continuous custody chain. In Europe, the main interest will be at the points of manufacture and distribution, with the system taking care of any reimbursement by the state health authority – currently a horrendously complex and wasteful business, says Rudi Dorn. But there is no fundamental reason why a batch of US-made drugs could not be monitored from where it is made to the point of sale in Europe.

Pilots of the European system should start in 2008, with full implementation in around five years” time. France, for example, plans to matrix code all its pharma packs between 2009 and 2011. There are also pilot schemes to matrix code low cost generic drugs used by Barts hospital in London.

Deloitte supply chain group director, Kevin Doran, says that one factor making the pharma supply chain more complex are the increasing numbers of drugs – and medical devices – being supplied direct to patients in their own homes. ”This can be quite a complex area, with special requirements for drivers, who may be required to give patient advice and also run stock control systems.”

At the other end of the scale, though, generic low-cost drugs might have equally exacting, but very different, supply chain requirements geared to delivering drugs to retailers” shelves at lowest cost, and with maximum efficiency.

It”s not just pharmaceuticals that raise complex supply chain issues in hospitals or health services. In the UK, the National Health Service (NHS) Supply Chain is launching a new online catalogue that will allow NHS trusts to order goods electronically much more quickly and easily than through the existing ”green screen” network, explains NHS Supply Chain”s procurement director, Roger West.

He explains: ”It will allow us to move to an internet-based model, with pictures and other measures to show people what they are actually ordering.” While the new ”NHS Cat” will not include pharmaceuticals, in some ways the supply chain issues in the non-pharma sector are more complex, he says. ”At least with pharmaceuticals, you have a definitive coding structure.”

As it is, NHS Supply Chain is already responsible for 35,000 stock items, but NHS Cat could theoretically cover around half a million items. Clearly, nobody wants to have this amount of data dumped on them, but the system could easily be configured for different user groups – for example, ward sisters or people responsible for supplying and adjusting wheelchairs.

It will also be possible to access other manufacturers” sites via the new system.

Importantly, NHS Cat will also allow specifications to be updated much more rapidly than is currently possible. ”We may also be able to get cost and price efficiency by extending the scope of national agreements,” says West.

Back tracking
Longer term, NHS Cat could also be the platform for new technology like RFID, he adds. ”For example, with RFID we might be able to track who has received an artificial hip.”

Pharmaceutical firms, ever cautious, have been slow to adopt third party logistics and distribution but it is starting to happen, says Phil Brown, business unit director, international at NYK Logistics (UK). NYK now has two big new pan-European deals with two leading pharma firms for primary distribution in west, central and eastern Europe. One actually dates back to 1999, but the other was only signed nine months ago.

Cost pressures are beginning to make themselves felt in pharmaceutical budgets as Governments look for ways of trimming budgets. Transport is not the only cost involved in getting drugs delivered, ”but it is significant,” says Brown.

Pharmaceutical distribution is a highly specialised business, with quality, security, technological and reliability demands like no other. ”For example, we monitor the temperature of goods in transit by satellite, as some products are very sensitive to temperature changes,” he explains. Tracking and tracing must also be extremely precise, and hauliers used in the 4PL contract are audited very vigorously. Even cross-docking is rare – consignments generally are delivered by the vehicle that collects them from the factory.

Logistics operations in pharma tend to be stand-alone, though maybe attitudes are starting to change. ”There is the possibility of doing pharmaceutical groupage in the longer term,” says Brown. In continental Europe, of course, pharmaceutical wholesalers who make the final delivery to retail outlets, clinics or hospitals do take on some of that role.

Such is the emerging potential of pharma and healthcare, however, that express delivery and logistics giant UPS has set up a dedicated team to handle strategic issues in the sector, under newly appointed vice president of healthcare logistics, Bill Hook. ”The industry is at a turning point,” he says. ”There are so many changes taking place, with manufacture in new parts of the world and more regulation and compliance issues.” The pace of merger and acquisition in the industry is another factor and companies are now looking to make their supply chains ”less constrained by bricks and mortar.” Operators like UPS have proved that they can achieve and exceed the necessary standards and there is a much greater willingness to outsource than before.

Mario Johnson, commercial manager at the Alliance Boots group”s logistics arm, Alloga, has built up a portfolio among many of Europe”s leading pharma manufacturers. Willingness to oursource varies from country to country, he explains, but overall in Europe around 30 – 40 per cent of business is outsourced, varying from around 40 per cent in the UK to 90 per cent in Italy.

Manufacturers are also seeking to operate on a cross-border or multi-country basis, he adds. Local regulations might make it difficult to set up a pan-European distribution centre serving several countries but it is possible to achieve significant efficiencies by operating on a Europe-wide basis, even if physical inventory holding still has to be split. An increasing number of DCs are also multi-company.

There are a lot of factors that make supply chain in pharmaceutical different from other sectors, says Oliver Wight”s Stewart Kelly. As partner in the business improvement specialist”s EAME (Europe and Middle East) region, he has worked with a number of companies in the sector, notably Abbott Pharmaceutical, in implementing Oliver Wight”s ”Class A” business improvement process – in Abbott”s case, at 106 world-wide locations.

Pharmaceutical manufacturers are coming under pressure as never before to squeeze cost out of their supply chain and business processes, as governments around the world balk at the high costs of new drugs and treatments. But at the same time, getting a new drug to market is more difficult and expensive than ever. ”It”s a dichotomy,” says Kelly. ”How do you maintain standards while at the same time reduce costs? This is why pharma manufacturers are increasingly looking at supply chain best practice and a more effective integrated business model.”

Supply chain is emerging as a serious issue in the industry, he continues. ”While in the past, pharma had the reputation of enjoying fantastic margins, and the cost of supply was very small relative to this, companies now realise that they do need to control costs and get rid of non-value-adding activities.”

Not only do pharma manufacturers carry a lot of inventory – Kelly quotes industry figures that suggest that there is around 175 days” worth of inventory in the supply chain – but there is typically also a large infrastructure in terms of warehousing, distribution centres and the like.

Nevertheless, some companies are exploring ideas like postponement, whereby the final packaging is not added until the end of the supply chain. ”Ideas like this are though still relatively new. Pharma firms are concerned about meeting regulatory requirements.”

Another idea being looked at is complete outsourcing of the manufacturing process – just like computers, where brand owners have long been ”virtual” manufacturers. Again, there are regulatory issues – the brand owner would still be legally responsible – but one way of approaching it might be for manufacturers to outsource to each other – though there might be competition issues, Kelly adds.

At the moment, the industry is geared to turning out large batches of drugs of a ”Consolidation is happening everywhere. Even in Germany, where legislation has until now prevented pharmacies from forming chains of more than four outlets, change is expected”particular type of drug, putting them into the supply chain and then hoping that they will sell in sufficient quantity. Again, a more agile approach, geared to accurate forecasting, might help to get some of the fat out of the supply chain.

Forecasting is also a relatively new science for the industry; the way the demand side of the equation is structured in many countries with multiple wholesalers can make it very hard for the manufacturer to get a picture of true demand.

Robert Leibman, life sciences principal at consultancy PRTM, says that his work with many leading pharma manufacturers has thrown up several issues. Colleagues in the food and FMCG sector will recognise the problem of SKU proliferation. ”The larger companies might have thousands of SKUs,” he says.

But unlike other industries, reducing them may not be a simple commercial decision. National regulations demand different package sizes and there are issues like language to consider. Companies that sell into a powerful wholesaling network may also lack the ”downstream” commercial information and market data that their counterparts in other industries take for granted.

One area that manufacturers should pay more attention to, he believes, is ensuring that they can get new drugs to market in sufficient quantities.

Andre Grigjanis, vice-president of IBS Pharma, also sees a lot of cost pressures in pharmaceutical, though it could also have the effect of squeezing out smaller manufacturers. The trend is particularly pronounced in the UK, and the end result might not always be to the benefit of patients, if it leads to a loss of local supplies.

But like it or not, consolidation is happening all over the world. Even in Germany, where legislation has until now prevented pharmacies from forming chains of more than four outlets, change is expected and there are signs of wholesalers cosying up to retail chains.

Another likely trend, in Europe especially but also other markets like the US and Japan are increased penetration of local markets by parallel traded pharmaceuticals.

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