FROM Pharmaceutical supply chains: key issues and strategies for

optimization; Shah, Nilay; Centre for Process Systems Engineering,

Department of Chemical Engineering, Imperial College of Science,
Technology and Medicine, London SW7 2BY, UK; 2003

for Introduction/Abstract
Supply chain optimisation is now a major research theme in process operations and
management. A great deal of research has been undertaken on facility location and
design, inventory and distribution planning, capacity and production planning and
detailed scheduling. Only a small proportion of this work directly addresses the
issues faced in the pharmaceutical sector. On the other hand, this sector is very
much ready for and in need of sophisticated supply chain optimisation techniques.
At the supply chain design stage, a particular problem faced by this industry is the
need to balance future capacity with anticipated demands in the face of the very
significant uncertainty that arises out of clinical trials and competitor activity.
Efficient capacity utilisation plans and robust infrastructure investment decisions
will be important as regulatory pressures increase and margins are eroded. The
ability to locate nodes of the supply chain in tax havens and optimise trading and
transfer price structures results in interesting degrees of freedom in the supply
chain design problem. Prior even to capacity planning comes the problem of
pipeline and testing planning, where the selection of products for development and
the scheduling of the development tasks requires a careful management of risk and
potential rewards. At the operation stage, it is often difficult to ensure
responsiveness. Most pharmaceutical products involve primary active ingredient (AI)
production (often multi-stage chemical synthesis or bioprocess) and secondary
(formulation) production. Both of the stages are characterised by low manufacturing
velocities and are hampered by the need for quality assurance activities at several
points. It is not unusual for the overall supply chain cycle time to be 300 days. In
this environment, supply chain debottlenecking and decoupling strategies together
with co-ordinated inventory management are crucial for quick responses to
changing market trends. A good understanding of what actually drives the supply
chain dynamics is also required. As often as not, erratic dynamics are introduced by
business processes rather than by external demand, and may be eliminated by the
re-design of internal business processes or supplier/customer relationships.

Improvements to the strategic decision-making process

We can consider this in a bottom-up fashion. The current nature of the process
technology is one the main supply chain bottlenecks. There is a need for more agile

equipment which will shorten process cycle times by an order of magnitude and
require minimal time for cleaning and changeover. This will avoid long campaigns
and should lead to pull-based active ingredient manufacturing, and therefore
more responsive supply chains. The underlying processes will have to change as
well, with the focus being on designing processes that operate at intrinsic rates (e.g.
being limited by reaction kinetics) rather than being limited by equipment
performance (e.g. heat transfer, mass transfer or mixing characteristics) of
traditional equipment. In principle, the low tonnages involved should lead to much
less capital intensive plants if this is achieved. Generally speaking, significant
improvements to manufacturing technology have not been of the highest priority in
this field to date. Processes should be designed with a much greater level of
mechanistic understanding and controlled tightly if reductions in quality control
activities are to be possible. The impact of this has been demonstrated earlier. The
integration of development management and capacity and production planning will
be very important. Currently, capacity issues are often not considered at the
development stage. Booth (1999) lists three undesirable outcomes of not coordinating these activities: (i) shortages of materials for pre-clinical studies; (ii)
shortages of materials for clinical trials; and (iii) delays in time-to marketwhich is
not only dependent on having material available, but also on generating demand at
the late stages of development. The approach of Maravelias and Grossmann (2001)
is a very promising platform to treat the overall pipleline/capacity planning problem,
but it needs to be integrated with a sophisticated treatment of risk (e.g. through the
use of real options theory) and economics (e.g. taking account of local taxation
regimes, transfer pricing, duty drawbacks, etc.), both of which have a very
significant impact on investment decisions. Furthermore, the modelling of testing
and trials needs to be extended to account for variations in standard outcomes, e.g.
very successful trials resulting in short-circuiting of the approvals process in the
case of life-saving drugs. Generally speaking, the development of integrated models
of the life-cycle, from discovery through to consumption would greatly facilitate
strategic decision-making.

Future scenarios Companies have recently moved away from product diversification
and locally adapted products. The common packaging and labelling standards in the
European Union, for example, have supported this. However, there has been much
development in the field of pharmacoeconomics which might generate pressures
to reverse this trend. This discipline helps to make choices in treatment options by
consideration of costs and outcomes (clinical, economic and humanistic). An
important outcome of this type of analysis will be the insistence on local solutions to
local problems (Thwaites & Townsend, 1998). Another trend, somewhat further
down the line, will come out of genetic research and which will identify target subpopulations for different treatment regimes (the so-called designer drugs). These
two drivers will give rise to considerable product and supply chain complexity. The

current manufacturing processes and supply chains are not well configured to cope
with this. Primary manufacturing tends to operate in campaigns; and secondary
manufacturing batchsizes are typically 14 million tablets. Clearly, the
manufacturing processes and supply chains will have to be re-designed if product
customisation is to increase in line with these trends. The manufacturers will have
to track supply chain performance measures very carefully in order to understand
the cost-to-serve for a diverse customer base. An emerging area is that of rapid
response vaccines and other treatments arising out of possible emergencies (e.g.
bioterrorism or very fast developing epidemics). Again the traditional supply chain
(particularly for vaccines) is very slow and unresponsive. If national governments
are to implement emergency preparedness programmes, the entire infrastructure
must be well designed and tested through simulation. Decisions such as where to
manufacture, in what quantities, where to hold stocks, where people should report,
etc. need to be taken in a robust fashion. The issue of how well the supply chain
measures up to emergency preparedness concerns is being raised in various fora at
the present (see, e.g. Anon, 2002). Companies are investing in the development of
crops that are designed in some way to produce pharmaceuticals; this will give rise
to new research activities in process (in particular recovery steps) innovation, novel
equipment design (e.g. supercritical separations) and of course in a new type of
supply chain to optimize. There are also some changes afoot in the industry
structure as wellthe growth in medicinal chemistry, biotechnology and genomics
will spread IP around and result in looser, virtual enterprises of joint ventures,
alliances, etc. Including as well the general tendency towards outsourcing of
manufacturing, this will give rise to complex extended supply chain co-ordination.
Lessons may be learnt from the automotive, PC and consumer electronics world,
where such supply chains already operate.

Conclusions
The pharmaceutical supply chain used to be seen as a tool to supply products to
market in an effective way, where the emphasis was on security of supply. Recent
changes in the operating environment mean that companies are revisiting the
components of their supply chains and identifying ways of extracting additional
benefits from them. In this sector in particular, the supply chain of interest is not
simply the physical processes of conversion and distribution of materials. Equally
important is the value-chain perspective of managing the innovation and
development processes through to capacity and production planning. There are still
several exciting research challenges in this value chain, many of which the process
engineering/process systems engineering community are well placed to address.

From

Supply Chain Analytics: Pharmas Next Big Bet; Jacob Snapp, Srihari
Rangarajan; 2015
Diagram http://images.alfresco.advanstar.com/alfresco_images/pharma/2015/01/09/9b4c5d2
7-ae40-4f56-b122-528055bbda33/i1.jpg

Inventory visibility Pharma company inventory metrics have been used for
a while; however, there has been a lack of focus on inventory accountability
within big Pharma due to business process and information disconnects and
commercial vs. supply chain inventory responsibility. Pharma lags in inventory
KPIs primarily due to no stock-out policies and complexity created by market
specific product expiration requirements. The result includes increasing product
discards year over year due to lack of coordination, thereby leading to inventory
shortages and overages worldwide.
A KPI dashboard with trend analysis for inventory at a market level and with a
multi-dimensional drilldown will be a welcome solution for pharma companies to
increase visibility and insight. With incremental detailed data, further analytics
can enable near real-time inventory tracking and tracing for controlled drugs.
Enabling such metrics will ensure that commercial opportunities are realized for
at-risk inventory. Once inventory becomes visible, all other supply chain parties
such as vendors and customers, both internal and external, can share
information and be in a better position to manage inventory. In the research
world, this inventory visibility will form the backbone in managing high-dollar
laboratory materials, track supplies in real time and reduce the negative impact
it can have on research productivity. Analytics in this space include inventory
variance analysis, inventory revaluation, slow-moving inventory reporting, tolled
inventory reports, gross-to-net inventory bridge, days on hand, as well as
inventory usability for obsolescence purposes.

Network Visibility - With industry acquisitions and consolidation, it is widely

understood that network design is the most fundamental decision that will
impact customer service levels. This will be the key profitability driver because
networks directly affect both supply chain costs and customer satisfaction. The
huge investment cost of buying assets and building facilities makes it essential
to design a supply chain network which performs well over a long period of time.
Because drug and medicine are globally considered a strategic commodity,

achieving a stable yet flexible design while optimizing cost becomes the end
goal.
Increasingly, supply chain networks have become disparate. As pharma
companies seek tax efficiency in European countries, a variety of factors ranging
from cost structure, tax laws, materials, and new product launches have driven
drug companies to reconsider their supply chain networks. Network design is a
powerful analytic driven, modeling approach proven to deliver significant
reduction in supply costs and customer-service-level improvements.
A targeted multi-stage network optimization approach will immediately help the
pharma landscape. Most PLS companies are constantly evaluating a multitude of
product launches, emerging markets, process and real estate investment, as
well as divestitures to drive their future state. At this juncture, it is vital to do a
quick cost-based analytics exercise focused on KPI's such as investment cost;
return on investment; sunk costs; stock costs; transportation costs; etc. Once
these KPIs are established, they can then be leveraged to choose between a
centralized and a decentralized network design model. Once the right model has
been established to optimize the network, a series of "what-if" analyses can be
performed. These scenarios would be based on demand and supply fluctuations,
cost inflation, currency exchange risk, fiscal and economic policies, market
volatility, tax and tariffs, social sentiments, and so on. The simulation structure
would then enable a new, rationalized network with significantly less operating
expenses and no impact to customer service levels.

nother key area of working capital that analytics can address is inventory
optimization. An end-to-end methodology uses several analytical steps to
optimize inventory. The leading step is to develop a supply chain network map
that captures the product flow across the network. This is crucial as this will
identify the involved sites, the relative volume, and the value of product flows,
inventory holding points, the supplier base, and the key markets for the network
products. Simultaneously, the lead times across the network are also
established and, then, segmented into release, production, quality, and logistics
buckets. Once all the information is enabled, statistical analytical models can be
built to determine inventory target levels based on observed demand and
supply variability and the desired service levels.
The supply chain is globalized in a typical pharmaceutical company. The pharma
supply chain is also complex, so inventory optimization should be carefully
managed using a two-step approach.

Step 1: Highly strategic inventory locations are analyzed and optimized

individually at single stages. This will secure quick wins and allow inventory to
be released within a few weeks to months without decreasing customer service
levels. The output of this model should be target cycle and safety stock
quantities calculated at each node, including factors such as minimum order
quantities, production costs, and vendor managed inventory among others.
Step 2: The second phase will be to optimize inventory at a multi-echelon level,
which is typically done with the help of an advanced optimization tool. A true
multi-echelon approach should take into account the following factors:
Elimination of demand signals from the next node in the supply chain.
Account for all the lead-time variations from suppliers, both internal and
external.
Harmonize order cycles throughout the distribution network.
Segmented customer service levels based on product demand and supply.
CONCLUSION - The end game: Maintaining supply chain efficiency
Integration of global supply chains and establishing end-to-end supply chain
visibility in the pharmaceutical industry have spawned a variety of challenges;
this includes growth in emerging markets, competitive generic equivalents, and
volatile customer demandall of which add to pharmaceutical supply chain
complexity. Supply chain analytics represent a systematic approach to ease the
brunt of these challenges. Enablement of basic supply chain metrics and
standardized operational reporting are important stepping stones, as these
capabilities will pave the way to increasing supply chain effectiveness. Advanced
analytics, inventory optimization engines, and network design models will
support supply chain executives with the necessary tools to meet the everchanging needs of the pharma supply chain landscape and enable them to
maintain a competitive advantage.