Healthcare Life Sciences Supply Chain Report Pharmaceutical Focus 2012

Healthcare&LifeSciences SupplyChainReport PharmaceuticalFocus
AnindepthanalysisofEFTsrecentindustrysurvey
2012

Forfurtherdetails,pleasecontact: SophieFarrow, eyefortransport Worldphone:+44(0)2073757587 USTollFree:18008143459Ext.7587 CanadaTollFree:18669961235Ext.7587 sfarrow@eft.com
Healthcare & Life Sciences Supply Chain Report - Pharmaceutical Focus, 2012
TableofContents
I.Introduction&ExecutiveSummary II.MethodologyandApproach................................................................ III.ProfileofRespondents...................................................................... IV.PharmaceuticalManufacturerPriorities&Challenges.................... V.PharmaceuticalManufacturerStrategiesandInitiatives................ VI.ContractManufacturingChallenges.................................................. VII.ViewsofPharmaciesandHealthcareProviders............................ VIII.WorkingwithSupplyChainSolutionProvidersforPharmaceuticals..... IX.Conclusions...................................................................................... 4 5 5 7 12 14 18 21 25
ListofCharts
BusinessType............................................................................................... CompanyLocation.................................................................................... AnnualRevenue......................................................................................... TopPrioritiesforYearAhead..................................................................... EmergingMarkets....................................................................................... BiggestObstaclestoGlobalizingSupplyChain...................................... BiggestSupplyChainSecurityThreats.................................................... BiggestColdChainIssue.......................................................................... DirecttoCustomerDeliveries.................................................................. TrackandTraceCapabilities................................................................... UseofSerializationSystems...................................................................... SustainabilityInitiativeDrivers.................................................................. UseofContractManufacturers.............................................................. ChangeinUseofContractManufacturers........................................... KeyReasonForWorkingwithContractManufacturers....................... InputintheDesignPhaseofProducts.................................................... ContractManufacturerInputintheDesignPhaseofProducts.......... KeyReasonForNotWorkingwithContractManufacturers................ BiggestDifficultyforContractManufacturerClients............................ BiggestSupplyChainChallenges........................................................... PlanstoUpgradeorReplaceOrderManagementSystems............... InventoryTracking/VisibilityCapabilities................................................ InventoryTrackingMethods.................................................................. DesiredTraitsinOutstandingPartners. DifficultIssuesforCustomersSeeking3PLPartners............................... UseofServiceLevelAgreements. InvolvementinServiceLevelAgreements............................................... InvolvementinServiceLevelAgreements(LSPView).. 5 6 6 7 8 9 10 11 12 12 13 13 14 14 15 15 16 17 17 18 19 19 20 21 22 23 23 24
I.Introduction&ExecutiveSummary
Inrecentyears,pharmaceuticalcompanieshavebeenaggressivelyseekingnewand innovativewaystoreducecostsandimproveprofitsinthefaceofdecreasing margins.Formanycompanies,thesupplychainwasamajorfocusareaforcost reduction. Forthreeyears,eyefortransporthassurveyedsupplychainexecutivesfrommajor pharmaceuticalmanufacturers,aswellastheirsupplychainserviceandsolution providers,togetanindepthunderstandingofindustryperspectives. The2012surveyandreportshowsthecontinuationofseveralkeytrends.Moving intoemergingmarketsremainsastrongpriorityformanypharmaceuticalsupply chains,withAsiancountriesandRussialeadingtheway. Inaddition,thereremainsanincreasingshifttowardstheuseofcontract manufacturersinpharmaceuticals. Thisyearstopsupplychainpriorityshiftsawayfrompurecostcontrolinto enhancingforecastingandS&OP.Thismayshowamovetowardsimprovingoverall supplychainflexibility,ratherthansimplyremovingcosts. Withserializationlegislationbecomingevermorecomplex,manycompanieshave alsoinvestedsignificantlyintheirserializationcapabilities.Inaddition,companies havebeenimprovingtheirvisibilityandtrackandtracecapabilities.Thisyears surveyshowedimprovementinthisarea,yetthereisstillroomtoimprovefurther. Asalways,thesurveyemphasizedthecrucialimportanceofstrongrelationships betweenpharmaceuticalcompaniesandtheiroutsourcedsupplychainandlogistics partners.Visibilitycapabilitiesandhealthcareexpertisewerecitedastoppriorities forpharmaceuticalcompaniesseekingsupplychainpartners. Forsupplychainsolutionproviderslookingtoincreasetheirpresenceinthe pharmaceuticalindustry,investinginindustryspecificexpertisewillbecrucial.
II.MethodologyandApproach
ThissurveywasconductedinJanuary/February2012withresponsessolicitedby targetedemaillists,selecttradeassociationmemberships,variousrelatedindustry databasesandothertargetedmethods.Themajorityofrespondentswerekey figures,representingmajorlifesciencescompanieswithannualrevenuesofover$1 billion.Noindividualresponseswereanalyzed,butratherallresponseswere consolidated.Thisreportfocusesspecificallyontheresultsfromrespondents representingpharmaceuticalmanufacturers.Furtherreportsinthisseriesfocuson responsesfrommedicaldevicemanufacturers,andsupplychainsolutionproviders totheindustry.ContactEFTfordetailsonthesereports.
III.ProfileofRespondents
Respondentstothesurveyrepresentedsupplychainexecutivesfromarangeoflife sciencesindustrysegments.Pharmaceuticalmanufacturers(24%),medicaldevices manufacturers(29%),andtransportorlogisticsproviders(19%)hadthegreatest representation.Supplychainsolutionprovidersmadeup10%ofthetotal respondents,whileotherindustriesrepresentedincluded:Pharmaciesorretailers (6%);Clinics/hospitals/healthcareproviders(4%);Wholesalersordistributors(5%); Contractmanufacturers(3%).
ThevastmajorityofrespondentswerebasedinEurope(51%)orNorthAmerica (31%).13%ofrespondentswerebasedinAsia(excludingMiddleEast),with2%from CentralorSouthAmerica,andafurther1%fromtheMiddleEastandalsoAfrica.
Themajorityofrespondents(42%)representedcompanieswhoseannualrevenues exceeded$1billion.16%ofrespondentsrepresentedcompanieswithannual revenuesbetween$250millionand$1billion,19%representedcompanieswith annualrevenuesbetween$50millionand$250million,14%representedcompanies withannualrevenuesbetween$5millionand$50million,and9%represented companieswithannualrevenuesof$5millionorbelow.
IV.PharmaceuticalManufacturerPriorities&Challenges
Pharmaceuticalmanufacturerswereaskedtoidentifytheirbiggestsupplychain prioritiesinthenext12months.Forecasting/S&OP(47%)andnewproduct launches(45%)werethemostcommonresponses,thoughcostcontrol(37%)and globalizingsupplychain(32%)werealsopopular.Responsestothisquestionhave variedmarkedlyoverthelasttwoyears,withforecasting/S&OPandnewproduct launchesseeingnotableincreasesinprioritylevelsincethistimelastyear. Interestingly,riskmanagementdecreasedsignificantlyasapriorityin2012.Though thismayatfirstseemsurprising,inconjunctionwiththeincreasedfocusonS&OPit suggeststhatcompaniesarefocussinglessonriskmanagement,andmoreon improvingagilityinthefirstplace. Costcontrol,whichwasastandoutleadingpriorityin2010,remained relativelyconsistentsincethistimelastyear.
EmergingMarkets Pharmaceuticalmanufacturerswerethenaskedtoidentifywhichemergingmarkets theyarelookingtoexpandinto,orcurrentlyworkingin.China,selectedby29%of respondents,wasthemostpopularresponse,withRussia(13%)nextbehind. Notably,mostoftheotherresponsesincludedcountriesintheAsiaPacific, reflectingthecontinuedgrowthforlifesciencesintheregion.
ObstaclestoSupplyChainGlobalization Scalingupsupplychainmanagementwasseenasthebiggestobstacleto pharmaceuticalmanufacturersglobalizingtheirsupplychain.50%ofrespondents sawitbeingaproblemforthem,whichwasanotableincreasefromthe27%who respondedlikewiselastyear.Regionallegislativerequirementsremainedaleading obstacle. Incontrast,visibilityortrackingissuessawanotabledeclineinthenumberof respondentsdeemingthemanobstacle,fallingfrom42%lastyearto26%thisyear. Thiscontinuesadeclinesincepreviousyears.
BiggestSupplyChainSecurityThreats Increasedsupplychaincomplexitywasseentoposethebiggestsecuritythreatto pharmaceuticalsupplychains,havingbeenchosenby61%ofrespondentsasatop threat.Regulatorycompliance(47%),distributinginemergingcountries(37%),and lackofoverallsupplychainvisibility(37%)werealsoseenasthreatsbynotable numbersofrespondents. Counterfeits&diversionssawthemostnotablechangeinresults,having beenseenasathreatby62%ofrespondentsin2010,65%ofrespondentsin2011, andonly29%in2012.Theseresultsmayreflecttheeffectsofawaveofserialization measurescomingintoeffectsuchastheItalianBolliniCode,theGreekEOFCode, andtheBelgianAPBcode.
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ColdChainChallenges Pharmaceuticalmanufacturerswerealsoaskedtoidentifythemainissuethataffects theircoldchain.Qualityoftransportproviderservice(35%)andcompliance challenges(26%)wereseenasthebiggestissues.
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V.PharmaceuticalManufacturerStrategiesandInitiatives
Phoneinterviewswithpharmaceuticalexecutivessuggestedanincreasingshift towardsdirecttocustomerdeliveries.Thesurveyresultsreflectthis,with61%of respondentsmakingdirectcustomerdeliveries,with3%lookingtodosointhenext year.36%arenotmakingdirecttocustomerdeliveries.
TrackandTraceCapabilities Inratingtheirtrackandtracecapabilities,pharmaceuticalmanufacturersgenerally feltthemtobegoodorsatisfactory.Thisisincontrasttothelasttwoyears'reports, whenthemajorityofrespondentsratestheirtrackandtracecapabilitiesasjust satisfactory.Therewasalsoanotableincreasethisyearinrespondentswhodeemed theircapabilitiesasbeingexcellent.Again,thismayreflectcompaniespayingmore attentiontotracking,tracingandserializationinreactiontonewlegislation.
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Respondentswerethenaskediftheycurrentlyhaveaserializationsysteminplace. Onthisoccasion,only39%ofrespondentshave,thoughaverylargenumber(48%) arelookingintoit.Only13%ofrespondentshaveruleditout.
Thefinalquestioninthissectionlookedatwhatdrivessustainabilityinitiativesfor pharmaceuticalmanufacturers.Companyimage(32%),companyethos(27%),and regulatorycompliance(24%)wereseenasthekeydrivers,incontrasttolastyear, whenamorediffusesetofreasonswereseen.
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VI.ContractManufacturingChallenges
Thenextsectionofthereportexaminestheuseofcontractmanufacturersby pharmaceuticalcompanies.Thevastmajority(92%)ofpharmaceutical manufacturerscurrentlyusecontractmanufacturers,however,only8%usethemfor allmanufacturing,with61%usingthemforlessthanhalfoftheirmanufacturing. Afull89%ofpharmaceuticalcompaniesareplanningtoincreaseormaintaintheir useofcontractmanufacturersthisyear.Only11%ofpharmaceuticalmanufacturers expecttodecreasetheiruseofcontractmanufacturersintheupcomingyear.This trendwasreflectedintelephoneinterviewswithpharmaceuticalsupplychain executives,ascontractmanufacturersareseentoprovideincreasedefficiencyand lowercostscomparedtomanufacturinginhouse.
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Flexibility(23%),costsavings(20%),3rdpartyexpertise&experience(17%),andlow capitalrequirements(14%)werethemainreasonsforpharmaceutical manufacturerswhendecidingtoworkwithcontractmanufacturers.As pharmaceuticalcompaniescomeunderincreasedpressuretoboostprofitsinthe faceoftighteningmargins,outsourcingkeyfunctionslikemanufacturingwillbecome increasinglyappealing. Only22%ofpharmaceuticalmanufacturersgetregularinputfromcontract manufacturersinthedesignphaseoftheirproducts,though39%getoccasional advice.
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Respondentsrepresentingcontractmanufacturerswerealsoaskedthesame question,regardingthelevelofinvolvementthatpharmaceuticalormedicaldevices customersgivetheminthedesignphaseofproductdevelopment.Theresultswere notableinshowingagreaterdegreeofinvolvementbetweencontract manufacturersandmedicaldevicesmanufacturers,thanbetweencontract manufacturersandpharmaceuticalmanufacturers.Theirresponsescorrelated directlywithpharmaceuticalcompaniesresponses.
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Respondentsrepresentingpharmaceuticalmanufacturerswerethenaskedto identifythekeyreasonsthatcausethemstopworkingwithcontractmanufacturers. Byfarthemostnotableresponsestothiswerelackofcontrol(47%)andcost(30%). Thefactthatcostisamajorreasonwhycompaniesceaseworkingwithcontract manufacturersisinteresting,ascostreductionisamainreasonwhycompanies startworkingwithcontractmanufacturersinthefirstplace.Theseresultssuggest thatthereisperhapsalackofclearunderstandingoverthefullextentofcostswhen companiesbeginacontractmanufacturingrelationships.
Thesamequestionwasthenputtocontractmanufacturers,whocorrectlyidentified lackofcontrolandcostasbeingkeyfactors.However,theyalsooverestimatedthe difficultiescausedbythecomplexityofrelationshipandqualityconcerns, significantlysointhecaseoftheformer. 17
VII.ViewsofPharmaciesandHealthcareProviders
Thenextsectionofthereportlooksatresponsestoquestionsaimedatpharmacies orretailers,clinics,hospitals,andotherhealthcareproviders.Thefirstquestion askedthemtoidentifythebiggestchallengestheyfaceintheirsupplychain operations,withextremepressureoncostcontrols(63%),inventorymanagement (58%),poorvisibilitythroughoutsupplychain(47%),andphysicianpreference (hospitalsetc)(47%)provingtobethemostnotableresponses.Therewasagreat degreeofvariationbetweenresultsfrompreviousyears,mostnotablyinthecaseof inventorymanagementwhichsawonly21%ofrespondentsdeemingitachallenge in2011,asopposedto58%in2012.
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Themajority(56%)ofpharmaciesandhealthcareprovidersarenotlookingto upgradeorreplacetheirordermanagementsystemsinthenext12months.42%are lookingtodoso(incontrastto21%lastyear). Aswithlastyear,respondentsrepresentingpharmaciesandhealthcareproviders generallyratedtheirinventorytracking/visibilitycapabilitiesasbeingsatisfactory (43%in2012and44%in2011).2012sawamoreevensplitbetweenthoseseeing theircapabilitiesaseitheraboveorbelowaverage(20%and23%respectively,as opposedto35%and18%respectivelyin2011),butincontrasttothis,thecurrent yearsawasignificantlyhighernumberofpharmaciesandhealthcareprovidersrating theirinventorytracking/visibilitycapabilitiesasbeingexcellent(14%asopposedto 3%).
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Thefinalquestionaimedatrespondentsrepresentingpharmaciesandhealthcare providersaskedthemhowtheytrackinventory.Aswithlastyear,barcodes(61%) andinhousesolutions(55%)werethemostpopularoptions,with paper/spreadsheet(12%)beinglesspopular,andRFID(1%)seeingalmostnouse.

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VIII.WorkingwithSupplyChainSolutionProvidersforPharmaceuticals
Whenselectingasupplychainsolutionprovider,pharmaceuticalcompanies primarilyseekhealthcarespecificcapabilities(50%)andadequatefacilitiesor equipment(47%).Otherpopularspecialitiesincluded:Adequateaccreditation/ licensing;reputation;goodcustomerservice;lowrunningcosts;adequate technology;fastdeliverytimes.
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SupplyChainserviceandsolutionproviderswerealsoaskedwhatchallengesthey believetheirhealthcareandlifesciencesclientsfacein3PLselection.3PLsunableto provideenoughvisibility(52%)wasseenasthebiggestdifficulty(anincreasefrom 31%in2011),while3PLslackinghealthcarecapabilities(41%),highrunningcosts (35%),and3PLslackingadequatefacilities(33%)werealsoseenasbeingprohibitive.
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UseofServiceLevelAgreements Aswithlastyear,themajorityofpharmaceuticalmanufacturers(53%)useservice levelagreementstoenforcequalitystandardswithalloftheirsuppliers.Afurther 29%usethemwithmorethan50%oftheirsuppliers,andonly16%reservethemfor criticalsuppliers,with2%notusingthematall. Thishighlightsthecrucialimportanceoftransportpartnershipswithinthe pharmaceuticalsupplychain.Withsensitive,highvalueproductsatstake, pharmaceuticalcompaniesmustensuretheirsupplychainsolutionprovidersare completelyunderstandingandmeetingtheirrequirements. 61%ofpharmaceuticalmanufacturersthinkrepresentativesfromtheircompany shouldbefurtherinvolvedintheservicelevelagreementsbetween3PLsandthe shippinglinesandairlines.
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Bycomparison,respondentsrepresentingtransportandlogisticsprovidersorsupply chainsolutionproviderswereaskedwhethertheythinktheyshouldinvolvetheir customersintheservicelevelagreementswithshippinglinesandairlines.73% believedthattheyshould,which,interestingly,isahighernumberthanthenumber ofpharmaceuticalmanufacturerswhofeelthatshouldbethecase(61%).
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IX.Conclusions
In2012,manysupplychainprioritiesforpharmaceuticalcompaniesremain consistentwithpreviousyears. Wherethereareshifts,itsuggeststhatpharmaceuticalcompaniesarelooking beyondpurecostcuttingmeasures,andmovingtowardsinvestmentsand enhancementsthatimprovekeyagilityfunctionslikevisibility,forecasting,and S&OP. Forsupplychainserviceandsolutionprovidersinthelifesciencesindustry,the resultsareclear.Pharmaceuticalcompaniesareseekingsuperiorexpertiseand communicationintheirsupplychainpartners,ratherthansimplecostreductions. Astheycontinuetoenhanceandexpandtheircomplexsupplychains, Pharmaceuticalcompanieswillremainthirstyforthosecompaniesthatcanprovide atoplevel,secureandsophisticatedsupplychainsolution.
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Forfurtherdetails,pleasecontact: SophieFarrow, eyefortransport Worldphone:+44(0)2073757587 USTollFree:18008143459Ext.7587 CanadaTollFree:18669961235Ext.7587 sfarrow@eft.com

ThevastmajorityofrespondentswerebasedinEurope(51%)orNorthAmerica (31%).13%ofrespondentswerebasedinAsia(excludingMiddleEast),with2%from CentralorSouthAmerica,andafurther1%fromtheMiddleEastandalsoAfrica.

ColdChainChallenges Pharmaceuticalmanufacturerswerealsoaskedtoidentifythemainissuethataffects theircoldchain.Qualityoftransportproviderservice(35%)andcompliance challenges(26%)wereseenasthebiggestissues.

Respondentswerethenaskediftheycurrentlyhaveaserializationsysteminplace. Onthisoccasion,only39%ofrespondentshave,thoughaverylargenumber(48%) arelookingintoit.Only13%ofrespondentshaveruleditout.

Thefinalquestioninthissectionlookedatwhatdrivessustainabilityinitiativesfor pharmaceuticalmanufacturers.Companyimage(32%),companyethos(27%),and regulatorycompliance(24%)wereseenasthekeydrivers,incontrasttolastyear, whenamorediffusesetofreasonswereseen.

Thesamequestionwasthenputtocontractmanufacturers,whocorrectlyidentified lackofcontrolandcostasbeingkeyfactors.However,theyalsooverestimatedthe difficultiescausedbythecomplexityofrelationshipandqualityconcerns, significantlysointhecaseoftheformer. 17

Thefinalquestionaimedatrespondentsrepresentingpharmaciesandhealthcare providersaskedthemhowtheytrackinventory.Aswithlastyear,barcodes(61%) andinhousesolutions(55%)werethemostpopularoptions,with paper/spreadsheet(12%)beinglesspopular,andRFID(1%)seeingalmostnouse.

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