Managing supply chains: A costly affair
Keeping drug prices under control is nothing short of a balancing act for the pharma industry. However, the agony is that expensive supply chains have been contributing to drug price escalations. As a considerable chunk of money goes into managing pharma supply chains the goal of keeping drug prices under control continues to take a hit.
Samar Nath CEO, DHL Global Forwarding, India |
Samar Nath, Chief Executive Officer, DHL Global Forwarding, India, put forth his views on why supply chains are expensive. He says, “Providing life-saving products is a big responsibility, one with risks that far outweigh those in a typical supply chain environment. The pharma industry has a significant need for high-end logistics, given that these products are temperature-sensitive, require specialised handling and bespoke solutions. A robust infrastructure is vital to preserve their efficacy and ensure safe delivery without any damage to the products.”
Rahul Agarwal Director, Bhoruka Logistics |
Fluctuating market conditions always find a place in the list of culprits that drive the costs of pharma supply chains. Demand-supply gap greatly influences the final bill in logistics. Rahul Agarwal, Director, Bhoruka Logistics, reveals more, “In an endeavour to reduce transit inventory, clients are using more expensive modes of transportation such as air/ express. Additionally, mismatch between production supply and sales demand leads to movement of loads in smaller lots, thereby taking up transportation cost.”
Shailendra Bobhate Director, Supply Chain and Operations EPD India, Abbott Healthcare |
Giving the healthcare perspective, Shailendra Bobhate, Director, Supply Chain and Operations EPD India, Abbott Healthcare, says, “Rising costs on one hand and price control (NLEM/DPCO 2013) on the other hand are putting a squeeze on margins. Costs such as rent, transport (diesel), labour and power have been continuously rising.”
Nitin Dahad Marketing, Dyzle |
“It is likely that the globalised nature of the industry will mean that India will need to plug itself into regulatory requirements, including good automated manufacturing practices (GAMP) and good distribution practices (GDP). With the prospect of global requirements being enforced in the Indian pharma industry, it is inevitable that the cost of compliance to global standards could rise,” informs Nitin Dahad, Marketing, Dyzle.
Measures for cost containment
There are ways to contain rising costs in supply chains. Besides good planning of transport, collective approach is the most preferred solution to keep check on additional expenses.
“One way of containing costs is by engaging in a more collaborative approach where pharma companies are willing to work closely and use a common supply chain with integrated players like DHL. We all are well aware of the infrastructure challenges in the country and as such, a collaborative approach could address most of of the concerns, while continuing to adapt to newer technologies which would further enhance the lifespan of these products,” says Nath.
According to Agarwal, if proper planning is done along with more accurate forecasting, such problems can be better tackled, helping reduce overall cost. Echoing Nath’s views, Agarwal says, “The concept of shared services needs to be implemented at major manufacturing locations, wherein pharma companies pool their requirements to LSPs thereby creating a win-win situation for both.”
Though cost is a limiting factor, there are certain expenses that can not be avoided. Fluctuation in fuel prices is a global phenomenon. Government has to adjust fuel prices depending on the price changes per barrel in the global market. Increased fuel prices make supply chain operators hike charges for their services. However, despite these unfavourable developments, cost can still be managed by implementing some pertinent steps.
“One can be innovative in cost management. Consolidation, leveraging economies of scale, effective use of negotiation and e-sourcing tools are some of the measures to keep cost under control,” says Bobhate.
Reshma Zaheer Vice-President, TTL Active |
Reshma Zaheer, Vice-President, TTL Active feels that a way to keep costs down is to make appropriate investments now in good practices to reduce the risk of non-compliance (and also wastage). Zaheer adds, “Implementation of any new process might add a small operational cost initially, but then once the process is bedded down and starts generating more business, the incremental cost is more than recovered.”
Challenges in globalising supply chains
Indian pharma supply chain operators have global ambitions but conditions in the international arena are often hostile. Regulatory requirements has been a big hurdle in globalising pharma supply chains, however, lack of interaction with global supply chain players is also a factor that decides the success of domestic pharma supply chain solution providers in the global market.
Bobhate says, “Frequent changes in regulations, erratic fluctuations in demand, uncertainties in supply, inefficient transport network and pending tax reforms are some of the challenges.”
“In a global market, an efficient supply chain can be achieved by tie-ups between global LSP’s and local players having strength in their respective markets,” states Agarwal. He points out, “Currently, in a country like India, most global players are competing with local players for a slice of the local business, barring one or two examples of tie-ups. Hence the main challenge is the synergy of thoughts between the two sides, which will lead to a more efficient and effective global supply chain.”
Global and domestic supply chains: How do they differ?
The size of pharma supply chains in developed markets is huge. Their economic strength allows them to build top class supply chain infrastructure. Economic power also allows pharma supply chain operators to withstand market fluctuations. However, as far as emerging markets like India are concerned, domestic supply chain operators are struggling to tackle things on all these accounts. Though a force to reckon with in generics market, pharma supply chain infrastructure in India is always taken to task by concerned authorities.
Agarwal says, “In developed markets, LSPs have huge economies of scale thereby enabling services up to the last mile without any bottlenecks. Infrastructure available in such markets also augment such services. Customers have a range of services and multiple options. Most LSPs in organised markets have huge infrastructure of their own. In emerging markets, infrastructure is a major bottleneck.”
While explaining the situation in India, Agarwal adds, “In India, major bottlenecks are poor infrastructure, very high taxation, infrastructure boundaries (sales tax check posts), poor driver training facilities, no clear legislation for the road transport industry, very heavy corruption at state boundaries, lack of wayside amenities, highly fragmented supplier base leading to rise of intermediaries and very low accountability by small suppliers in terms of service levels leading to high level of unreliability.”
According to Bobhate, supply chains in emerging and developed markets are different in several aspects. He explains, “Developed markets are matured with very low growth and steady demand pattern, excellent infrastructure, high level of predictability and streamlined operations whereas, emerging markets are characterised by volatile demand, evolving regulations, poor infrastructure and high level of uncertainties in supply.”
Cold shoulder to cold chain?
With a spur in global R&D activities many temperature-sensitive pharma products are being introduced into the market. Their transport requires special cold chain infrastructure. Though developed markets, which are considered leading producers of cold chain products, have successfully set up pharma cold chain infrastructure, generics-focussed markets like India are still perhaps not interested in repeating what its overseas counterparts are doing.
The cold chain scenario in India is in a bad shape. Bobhate describes it as ‘very poor and far from satisfactory.’ He says, “Ensuring integrity of cold chain through the entire value chain is the biggest challenge. Poor transport infrastructure, poor connectivity, lack of electricity etc. are some of the challenges in this arena.”
According to Nath, in the past few years, there has been a growing awareness on the importance of the cold or cool supply chain for temperature sensitive products in India. In the recent past, Nath’s company had organised several programmes within the life sciences industry to share best practices with important stakeholders. In conjunction with the Organisation of Pharmaceutical Producers of India (OPPI), a study called ‘Transforming Life Sciences Logistics in India’ was also conducted.
Agarwal also joins the bandwagon of experts who feel that pharma cold chain scenario in India needs an immediate facelift. He informs, “There is no proper system for storage of goods. Private cold storages store pharma and non-pharma goods in the same space which is not accepted by FDA standards. Insulation standards are very bad. Moreover, very less use of technology and no real time information are also drawbacks. In addition to this, wide use of passive cold chain technology is also an issue as it is expensive and unreliable.”
Way forward
Supply chain operators and Indian pharma have to come out of their comfort zones. Indian pharma industry’s strength is low-cost generic medicines which mostly do not require high end logistics. Hence supply chain operators in India have limited themselves to certain levels of logistics solutions. On the other hand, developed markets tend to depend more on innovative products requiring high end logistics which has led to the establishment of sophisticated supply chains.
Besides these market dynamics, as pointed out by logistics experts, India lacks the infrastructure in terms of electricity, roads, etc. Variable taxes across states is also a key obstacle which the Government in India should look into. If the pharma manufacturers and supply chain operators change their attitude and government changes its approach towards this highly sensitive industry, pharma supply chains in emerging markets like India will surely get global acceptance.