Against this background, life sciences companies and their supply chain partners are working closely to drive up the efficiency, flexibility and security of healthcare supply chains – to deliver medicines and care products exactly where and when they are needed, at optimal cost.
Healthcare might be the largest service business in the world, but for many years it has lagged behind other industrial sectors in terms of harmonisation and globalisation. A lot has changed over the past decade, as mergers and acquisitions have concentrated pharmaceutical manufacturing and promoted the development of regional distribution networks.
As the healthcare sector continues to consolidate, companies are increasingly reviewing their costs and manufacturing structures. It is here that experienced logistics partners can help them develop, manage and maintain more efficient and flexible supply chains.
Today’s ethical branded pharmaceutical manufacturers are under assault from all directions. Not only do they have fewer new highearning ‘blockbuster’ drugs in their R&D pipelines, but many such medicines are losing their historical patent protection – leading generic manufacturers to launch competitive products at vastly reduced prices. There is therefore pressure to get new drugs to market more quickly and at lower cost, without increasing risks to patient safety or drug efficacy through compromising quality.
These market forces are compounded by governments intent on curbing growing healthcare costs. And at the same time pharmaceutical companies are coming under pressure to provide products to developing countries at much lower prices than elsewhere.
Increased competition and consolidation
The removal of trade barriers, the growth of the web (as a source of healthcare information and as a direct sales channel), the rise of consumerism (leading to shorter product life-cycles) and the migration of manufacturing to low-cost sourcing countries (such as India and China), are all contributing to increased competition and consolidation.
One of the consequences of these developments is that pharmaceutical supply chains are generally becoming longer and more complex. As longer chains inevitably contain more stock, that means increased cost and risk for the companies involved. There is therefore a critical need for the sector to establish efficient global supply chains.
Life sciences and medical device companies are, however, becoming more flexible in their approach, and more comfortable with supply chain co-operation initiatives such as shared-user warehousing and campus solutions.
There is also growing evidence that they are adopting a more holistic view of freight management. Specifically, they are looking to buy airfreight on a global basis across all their subsidiary companies, and are demanding that their supply chain partners shape-up and become more responsive on pricing and service quality.
The leading logistics service providers have responded by putting in place global account management structures that facilitate the delivery of consistent services worldwide. They have invested heavily in visibility tools to provide end-to-end tracking, with the opportunity for intervention, for example, if medical supplies are required in an emergency. The top supply chain specialists are even locating customer service units on pharmaceutical manufacturing sites, where local freight teams act as on-site transportation experts.
The demand for more flexibility in the supply chain has also resulted in the provision of new contract logistics and added-value services in healthcare – for example, packaging, re-packaging and labelling. One important sub-sector is the application of traditional international airfreight, break-bulk and cross-dock services to support clinical trials – for example, by providing the time-sensitive delivery and collection of diagnostic kits from a single US manufacturing plant to and from thousands of test sites across the EU.
Another major trend is the growth of the direct-to-pharmacy distribution channel – reducing the reliance on wholesalers and intermediaries to distribute medical products to drug stores, hospitals and clinics. There is also the growing requirement for temperature-assured distribution, with major logistics companies investing in chilled and frozen distribution equipment and infrastructures.
The issue of parallel imports is an important one for the pharmaceutical industry. Also known as ‘grey imports’, these are genuine medicines, etc, circulated in one market, which are then legally imported into a second market (which can be the country of manufacture) by an intermediary that does not have the authorisation of the original intellectual property owner. Parallel trade exists where there are significant price differentials between countries – something found in the EU, for example, where prices are generally set by national governments rather than by market forces. Such trade can have a major impact on profitability – and ultimately, research and development expenditure.
In 2004, some 140 million individual pharmaceutical packages were parallel-imported across the EU – and wholesalers were responsible for repackaging all of them. It is said that one in five prescriptions fulfilled by UK pharmacies involves parallel-traded medicines. The complex nature of European supply chains can result in genuine medicines changing hands many times before they reach patients – opening up possibilities for fraud along the way.
It is now possible to manufacture drugs almost anywhere in the world, and transport them into any European country. A drug manufacturing facility in a developing country may not have stringent quality and security controls, and drugs could be improperly imported and sold as genuine, domestically manufactured goods.
As a e400 billion-a-year global industry, the pharmaceutical sector is a highly attractive target for criminals. The massive cost of drug development and testing, substantial levels of demand, and the high value of pharmaceuticals in relation to their bulk – all contribute to its charms. When one considers that counterfeit products may have no active ingredients at all (indeed some actually have harmful components), then there is clearly a huge differential between the legal manufacturer’s costs and those of the counterfeiter – a prime driver for fraud.
Globalisation is also promoting counterfeiting. The trend towards streamlining global trade and removing restrictions on the movement of goods across borders is making the fraudster’s life easier. Even the tightening of banking controls after 11 September 2001 prompted organised crime to divert resources into the manufacture and retail of counterfeit goods.
Counterfeit activities on the up
As a result, the counterfeit pharmaceutical business is growing at a much faster rate than the legitimate business. Globally, counterfeit pharmaceuticals are believed to represent about 12 per cent of the current legal trade – and if growth remains unchecked then the counterfeiting of medicines is set to become a e75 billion business by 2010.
The detection of fakes can be notoriously difficult. To the consumer, the counterfeit pharmaceutical might appear to be the same as the original. It may have identical looking packaging – indeed the packaging itself could be stolen rather than copied.
These difficulties have prompted the pharmaceutical industry to adopt a number of sophisticated strategies to reduce the menace of counterfeits. They fall into two main categories: overt techniques – such as holograms (sometimes also known as optically variable microstructures or OVMs), and covert techniques such as electromagnetic identification (EMID), radio-frequency identification (RFID), and injected chemical signatures (or ‘bio-molecular taggants’).
If criminals cannot ‘see’ the anti-counterfeiting measures then these are more likely to be successful, of course. However, this means that end-consumers are increasingly ill-equipped to distinguish between the original and the fake.
A much-vaunted solution to the counterfeiting problem is for the packaging of pharmaceutical products to be embedded with RFID tags. It is predicted that RFID adoption among life sciences companies will happen earlier and on a larger scale than in other sectors. In the US, the influential Food & Drug Administration (FDA) is pressing for pharmaceutical manufacturers to adopt widespread use of RFID by 2007. The good news for the industry on both sides of the Atlantic is that the cost of the technology is falling fast.
RFID tags are typically written with a unique electronic product code (EPC) that identifies the contents of the item, package, case, pallet, container or truck. The code relates to a manufacturer’s online database that typically holds information about the lot, case, pallet and/or load, plus the date of manufacture, place of manufacture, product history, composition, serial numbers, etc. RFID tags therefore offer a relatively secure way of sharing product information along the supply chain, and providing instant verification of drug pedigrees.
But RFID alone cannot win the battle against the counterfeiters. EPC-based verification is only as effective as the physical security that surrounds it.
What is required is a ‘zero gap’ supply chain, providing visibility throughout an item’s entire life-cycle – even when raw or semi-finished materials change their physical form or travel across borders. Leading international supply chain management specialists, like DHL Exel Supply Chain, already have the technologies, infrastructure and people in place to provide such a comprehensive end-to-end service, on a global scale.
All pharmaceutical manufacturers, along with health service providers and medical device suppliers, can benefit from having a strong logistics partner with established global networks that can optimise relationships with other trading groups and quickly establish robust international supply chains with high levels of integration and security. They need a sophisticated partner capable of achieving total life-cycle visibility and high product availability, while reducing stockholdings. They want an intelligent partner that can share global best practice techniques and cross-fertilise supply innovations from other industry sectors.
Not only can such smart support lower healthcare logistics costs, improve service quality, enhance compliance and reduce risk, but – most importantly of all – it can help to promote the safety of patients and the general public.
Anthony Mitchell is Senior Vice President Healthcare Development for DHL Exel Supply Chain, and may be contacted at: [email protected]