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The pharmaceuticals sector is increasingly looking at how it can use the supply chain to create a competitive advantage while at the same time maintaining strict standards, says Johanna Parsons. Dealing with time and temperature sensitive products on which peoples’ health and often lives depend is bound to put pressure on any supply chain. But there is a sense that in its efforts to maintain such strict standards, the pharmaceuticals sector has been lagging behind in terms of actively using the supply chain to seek efficiencies. However, with regulations and markets changing rapidly, established processes are being shaken up, and the possibilities of the supply chain as a weapon of competitive advantage are catching on.

Compliance is one challenge, says Leif Krönkvist, global sector lead life science at Agility Logistics, but there is also the fact that regulations vary and change. One of the newest changes which is sparking new solutions has been brought on by the European commission. As of last September, the concept of ambient goods was transformed within pharmaceuticals in the EU, as it was decreed that room-temperature should no longer be a subjective matter.

“This is actually very logical,” says Krönkvist. “Ambient in Spain may be 30 degrees, whereas in Finland it may be ten or less.” So by the new rules, goods that require storage at between 15 and 25 degrees now have to be actively kept within those bounds, and monitored and measured too. As Krönkvist puts it: “What was not cold chain yesterday, is cold chain today.”

“There is a range of EU legislation coming through affecting many sectors with a focus on safety in the supply chain,” says Chris Doyle, industry marketing manager for healthcare at GS1 UK. “The pharma supply chain has already been impacted by the Falsified Medicines Directive upstream; the impact of the FMD on manufacturers to dispensing value chains is the next big crunch, and one that the supply chain is poorly equipped to address at present.” But the shake-up is having an effect.

NHS England has already announced detailed plans for its procurement strategy to be based on GS1 standards to meet the demands of EU legislation but also to boost visibility within the chain. Beyond the EU, Krönkvist says emerging markets such as India are where legislation and regulations are more prone to fast changes, which of course demands responsive action from distributors. And Melanie Hall, head of UK life sciences and healthcare for DHL, points out that some emerging markets simply don’t have regulatory bodies at all.

Alan Dorling, global head of pharmaceuticals and life sciences at IAG Cargo says that while legislation changes may appear rapid, the good news is that they usually reflect different countries coming on board with initiatives that are in practice very similar. He says that regulations from the Asia-Pacific Food and Drug Administration, The USA’s FDA 1083 Good Distribution Practices, and similar bodies in Canada, Ireland and by now even across Latin America are all broadly in line with the EU’s.

“We all have a shared goal of best practice to deliver purity, potency and stability of every medicine across the world.” Of course this all means more demands on distribution. “The level of maturity or alignment is one issue, but there’s also the systems and infrastructure that apply and develop those regulations,” says Hall.

Capacity is something that IAG Cargo has been investing in, upgrading its aircraft from narrow body aircraft to wide body Airbus A380 and Boeing 777 and 787 aircraft which take far more containerised fright which is essential now that ambient goods which could previously be loaded loose now have to be monitored. The firm recently increased capacity to Tel Aviv by 1000 per cent with a Boeing 777 which has been operating on the route since 30th March and is set up to carry 18 tons on the Heathrow-Tel Aviv route and 16 tons on the Tel Aviv-Heathrow leg.

Israel is a great example of an emerging manufacturing hub for pharmaceutical products and is seen as an important centre for production due to low start-up costs and a large population of angel investors. Its burgeoning life sciences sector grew from 300 companies in 2003 to more than 900 in 2012, according to trade group Israel Advanced Technology Industries. IAG has also introduced a B787 to help support the booming Indian pharma industry, expected to reach $27bn in sales by 2016 via Hyderabad and Chennai. And From October it will put on a new A380 super jumbo service flying out of Changi International Airport.

Capacity shift John Cheetham, regional commercial manager for Asia Pacific & India at IAG Cargo, commented: “With some pharmaceutical shipments valued at millions of pounds, our ability to offer temperature control capabilities between Singapore, Heathrow and beyond is a real competitive advantage.”

In terms of addressing the needs of emerging markets, UPS opened three healthcare-dedicated facilities last month to address high growth medical device and pharmaceutical consumption markets throughout Latin America. And it will open and expand new facilities near Mexico City, Mexico, São Paulo, Brazil and Santiago, Chile.

The firm reckons the region includes two of the top 15 healthcare consumer markets worldwide. Agility’s Krönkvist spoke at last month’s Logipharma event in Basel, Switzerland about the growing importance of India, and distribution network integrity in cold chains, but he told Logistics Manager that the cold chain there is primarily used for fruit and vegetables which emit gasses meaning that containers must be scrupulously cleaned before holding medicines.

For Agility, there is a real value in putting people in to train staff and manage these processes, simply to be sure of standards. Dorling says that the very nature of IAG cargo’s business, and its legacy of connecting BA and Iberian airways’ cargo routes is one of its strengths for the pharma supply chain. But in turn, the sector is shaping the way the firm operates, and the requirements of his business unit were key in the decision to upgrade the aircraft, in terms of capacity, but also to more efficiently serve the demands of IAG Cargo’s “Constant Climate” temperature regulation service.

He explains that the firm’s new aircraft have climate control conditioning which allows the hold to be pre conditioned to any particular temperature and regulated throughout the flight via a dial on the pilot’s cockpit, whereas “Historically there was an on/off switch, you either heated the hold or not.” “We’ve taken the decision to invest because it’s all about process and delivery.” And delivery businesses too are turning their strengths towards the sector.

UPS offers an Order to Cash service for the industry, and Hall says that for DHL also, drawing on wider businesses experience is the most promising route for addressing the challenges of the sector. She says they are looking to the firm’s strengths in other sectors as a real source of value for the healthcare division. For example, she says they’re exploring factory logistics, and using manufacturing methods to manage inbound flows even down to line feeds.

“Obviously we’re well established with automotive and also parts logistics so we’re drawing on our experience there.” She points to demand forecasting as a specific challenge that can be addressed by drawing on best practice elsewhere, and she gives the example of global clinical trials, “forecasting the amount of participants that will sign up is hugely complicated, and then making sure the correct quantities of a drug are present in time as required, without wastage is very difficult.”

Fed Ex too has two critical solutions in place: SenseAware and Priority Alert, a solution which provides priority handling of critical and time- sensitive shipments with additional monitoring and recovery services. “The crucial area for establishing a competitive advantage is the variety of cold chain options available to businesses entering new international markets,” says Craig Simon, president and CEO of FedEx SupplyChain. “Stretching the healthcare supply chain’s geographic boundaries means that maintaining product efficacy, including temperature control, has become more complex.”

Reaping rewards And focus on logistics is reaping rewards. In last year’s European Supply Chain Excellence Awards, GSK won the healthcare category with a supply chain transformation project, which made massive savings and streamlined the core business (see page 18). AstraZeneca with Yusen Logistics were the runners up, with a project that covered the re-engineering of its complex global flows to optimise freight modes by transport lane, shifting from a push to pull operation.

In this example, airfreight was reduced and ocean movements ramped up to reduce costs, and redefined road operations reduced lead-times and lowered costs. The collaboration also allowed consolidation of AstraZeneca’s volumes with those from other pharmaceutical manufacturers. And of course the internet is enabling whole new level of global visibility. Web connectivity has revolutionised patient care, particularly making the sector’s services available in remote areas.

But the internet has also given insights about the drugs available in any market to swathes of people over the globe, says Hall. And coupled with growing populations in emerging markets and changing demographics in established markets, this means whole new patterns and levels of demand. Sharing product data through global data synchronisation networks is fundamental to the healthcare supply chains in many countries around the world, believes Doyle. He explains, “The NHS’s decision to use the GDSN network to share master data will enable traceability and, ultimately, product authentication at the point of use.”

There is clearly demand for wider visibility and connectivity through the supply chain. The proposed European Medicines Verification System, for example, would offer the potential for manufacturers to guarantee the veracity of their product right through the supply chain to the end patient. But Doyle says: “To build such a system outside the existing GDSN infrastructure will represent an additional cost to manufacturers and health systems throughout Europe.”

Playing catch-up Hall believes that this is the type of development that shows how the sector is playing catch-up with other sectors such as retail, and even with counterfeiters. “With this level of change and acceleration of demand and population shifts such as the ageing market here in the UK, it all calls for organisations to be much more agile and innovative than they have been recently.”

“Historically in healthcare and pharmaceuticals there hasn’t been the desire to innovate – there was for the product – but we’ve got to understand that change is the new constant… and people have got to make that cultural shift in this industry, whether that’s training, leadership, or change management. “I mentioned automotive but in actual fact we should be reaching out anywhere to address this weakness in the sector. It’s about enabling better patient care, so we’re all on a mission.”

Dan Gagnan, UPS’ Europe Region healthcare marketing director agrees and says that recent years have seen more supply chain managers coming into the sector from retail and other business units. “Healthcare has always been very different and people coming in from outside, questioning the status quo is great for the industry.” Indeed, supply chain efficiency has been a factor in one of the most significant plays in the industry, when last month GSK and Novartis revealed plans for an inter-conditional deal.

GSK will acquire Novartis’ vaccines business, Novartis will acquire GSK’s oncology portfolio, and they will create a new consumer healthcare business with 2013 pro forma revenues of £6.5 billion. “Opportunities to build greater scale and combine high quality assets in Vaccines and Consumer Healthcare are scarce. With this transaction we will substantially strengthen two of our core businesses and create significant new options to increase value for shareholders… The acquisition will also strengthen our manufacturing network and reduce supply costs,” said Sir Andrew Witty, chief executive officer, GSK. And even the traditional focus of resources on product R&D, is now becoming a driving force behind the push to develop more sophisticated supply flows.

New products are becoming more complex, and more sensitive, putting logistics back in the frame. DAI, a distributor for clients such as AstraZeneca, GlaxoSmithKline, Novartis, and Roche is benefitting from the particular logistical demands of new breeds of medicines, that take personalisation to a whole new level, and ramp up the demands of the supply chain likewise.

This can mean tailored devices and kits for administering and monitoring doses, but in the extreme there are medicinal products derived from the patient’s own cells to be delivered back to them. “The batch size is extremely small, the manufacturing process involves a laboratory rather than a factory, speed is essential as the product may have a very short shelf life and very strong tracking is essential as each batch is suitable for only one patient and dangerous to anyone else,” explains John Millard, head of DAI’s pharma business unit.

“The product must then be delivered to where ever that patient is, which may not have a pharmacy associated with it, This creates a unique challenge for the supply chain.” The pharmaceutical firms that seem to be leading the way in their own field are also those that are looking to the processes of linking the product to the end user. As with many medicines themselves, the product is only as effective as its delivery.


CASE STUDY: What makes GSK a double award winner?

Last year, GlaxoSmithKline achieved the extraordinary feat of winning in two categories of the European Supply Chain Excellence Awards, namely Health & Pharmaceutical and Sourcing & Procurement. The scale of this success is underlined by the fact that the firm turned over some £26.5 billion in the year, but this scale also represents a challenge. And at the Logistics and Supply Chain conference in London last week, Trevor Reay, GSK’s procurement director, R&D lab supplies, explained how it implemented its multi-award winning transformation project.

In order to drive innovation and value through a fragmented supply chain, Reay started with the fact that supply chains evolve, and when products take up to 18 years to get to market, bad habits can set in. GSK began by completely re-imagining the structure from an idealized point of view, consulting suppliers, stakeholders, and scientists alike.

The scope for the transformation covered the requirements of over 4,000 scientists based at a number of locations throughout Europe and the USA and covered over 1.2 million items, initially supplied by over 2,800 suppliers. By simplifying the product range, consolidating the supply chain and creating an e-catalogue punch out tool, the company has enabled researchers to quickly search and locate their required item, leaving them more time to conduct their real job.

The firm achieved a 90 per cent reduction in its supply base and a 20 per cent reduction in its product range. The transformation has taken £10 million of costs out of the business, and that wasn’t even the main objective, says Reay. The prime focus was reducing cycle time. Reay reports that lead times have been reduced to within 48 hours on average and delivery on time in full has been improved from 40 to 90 per cent.

This success has been recognised across the wider business and is now being implemented in 25 sites including Asia, and has just been rolled out in Latin America. “Performance management is just one part,” said Reay, “You have to step change to supplier relationship management for the big wins.” He explains that as well as measuring KPIs they monitor customer feedback and CSR projects too “We won’t deal with anyone who doesn’t measure those, and with our reduced supply base it allows us to do that easier.”

By working with fewer partners the company has also identified added value services that vendors can offer that were not visible when dealing with 2,800 suppliers. 18 initiatives have resulted in increased service levels in delivery and quality, cycle time reductions, waste reduction from consolidation and data visibility, and greatly reduced risk.

The 2013 Awards judges said “This is a highly innovative project for Pharma R&D, bringing good procurement processes to an area that has traditionally been seen as science only. They have demonstrated excellent supplier management and key suppliers have been identified and managed as partners.”

Richard Hunt who was the conference Chair was impressed by the idea of revising supply chain structures as an ongoing process, an exercise to be revisited like “cutting the grass,” but Reay says that maintaining the process will only be effective if it is ramped through to the people in the organisation. “If you don’t get the people in the labs involved, it falls flat.” And Reay admits that this is not yet 100 per cent, “We’ve still got mavericks.”

But an engagement campaign including posters, tutorials, and demo packs have broadly worked to bring staff on board. And he says GSK has established shared incentives with suppliers to enable an honest dialogues about shared objectives. He says getting the right people talking to the right people is vital.

“What’s encouraging for me is that we’ve got senior VPs talking to senior VPs, as governance is key.” Reay acknowledges another challenge was that by virtue of the sector itself, predicting demand had always been a weak spot. “We discovered some interesting things about how and where bottlenecks occur – it wasn’t always a problem with suppliers, it was our own variable demand… “We were poor at forecasting, but in our defence in R&D the churn is really high for new products… I’m not going to apologise for that, we’re in R&D.”

And enabling that core business was the grand aim. “Those researchers in the lab are no longer waiting for the next delivery of a chemical to do an experiment.” On a basic level, Reay says that this project was about driving efficiency and productivity and removing barriers, to give GSK’s workforce the ability to focus on the science. Beyond that the statistics, and awards, speak for themselves.


CASE STUDY: Sky rocketing temp management

UPS says healthcare is its fastest growing business worldwide, and its Pain in the (Supply) Chain healthcare survey last year, showed that changing regulations and customer demands are the key drivers for investment. The 2013 update to EU Guidelines on Good Distribution Practice were a significant example.

Previously only ten to eleven per cent of goods through its European healthcare hub in Roermond were temperature controlled, but that’s sky rocketed. UPS established the facility in 2009 to be strategically positioned between its logistics campus in Venlo and its international air hub in Cologne, offering easy access to France, Belgium and Germany by air as well as seaports.

It is fully licensed and fulfills customised services such as bar coding, labelling, kitting, inventory management, service parts logistics and returns management. It has managed temperature zones for ambient at 5–15°C, cool at 2-8°C, frozen at –20°C and has a cryogenic chamber for products at –70°C. It operates from a customised Manhattan WMS, with workers using ring mounted Motorola barcode scanners, and narrow aisle racking and wire guided trucks from Jungheinrich.

The site has 25-26,000 pallet locations, gets through some 60,000 kilos of dry ice each month, and as an example of throughput, one key customer accounts for some 80 million units passing through the site per quarter.

Originally published in Logistics Manager 05/2014


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