Pharmaceutical supply chain plays catch-up

The application of knowledge management solutions is crucial to the life sciences industry in terms of harnessing and sharing information toward drug and medical device discovery and development. But pharmaceutical companies have traditionally not put as much effort into tracking technologies and analytics to gain efficiencies in their supply chain. One reason may be that they haven't had the profit margin pressure in the past to force them to focus on supply chain inefficiencies.

The new environment

But that is changing, according to analysts and consultants. Cost pressures and regulatory compliance with anti-counterfeiting efforts are forcing pharmaceutical companies to become more efficient. For instance, state "e-pedigree" regulations in California will soon require sophisticated technology solutions to track and trace products throughout the supply chain. (Most solutions use 2-D barcodes on the bottle and item level, and RFID on the case and pallet level.)

"The typical pharmaceutical supply chain was built for a different time," says Wynn Bailey, head of supply chain strategies at consultancy PwC. In the blockbuster drug model, he explains, billions of oral solid-dose pills were shipped to a small number of wholesalers that then moved them on to retailers. (Three wholesalers—Cardinal Health, AmerisourceBergen and McKesson—control about 90 percent of the U.S. distribution market, he notes.)

"The blockbuster is going the way of the dinosaur," Bailey says. Newer drugs are suited to a narrower group of individuals and have more complex requirements, such as having to be kept cold. Bioengineered vaccines, nanotechnology and stem cell research all require more complex manufacturing and distribution processes than shelf-stable pills. He continues, "Also the push for safety in the supply chain is a factor in requiring backward visibility to your suppliers and your supplier's suppliers in a robust and real-time way."

The growth in emerging markets adds another level of complexity, according to Bailey. In India, there are 15,000 wholesalers. Penetrating that market is a complex undertaking. "Drug companies may think of product, price and marketing first and push supply chain down the list of priorities, but it is a significant challenge," Bailey says.

E-pedigree requirements

Most life science companies don't yet have item-level serialization. At companies that have both consumer products and pharmaceuticals, the contrast is stark, says Eric Newmark, a program director with IDC Health Insights. "On the consumer product side, they have near real-time visibility into inventory levels, but if you walk across the street to the pharma side, they have tremendous challenges knowing what's going on because they don't have item-level serialization," he explains.

The California e-pedigree legislation will require companies to provide an electronic, serialized pedigree of all the drugs sold, manufactured and distributed in the state. The regulation is expected to reduce incidences of counterfeiting, help with invoice disputes and make return and recall processes more efficient. Yet, because of the complexity of the transition and lobbying from the industry, the deadline for compliance has been pushed back twice. It is now scheduled to go into effect in 2015. Even if complying with regulations is the driving force behind product serialization, companies will recognize business returns on investment as well, analysts say.

"Ultimately they can gain visibility into events in the supply chain, and sales and marketing executives will be able to do a much better job of forecasting supply and demand," says Brajinder Singh, associate partner for Clarkston Consulting.

When the California deadline was pushed back, some companies put projects on the back burner, Singh says. But others are getting started because they view it as a business solution from a patient safety standpoint, not an IT project. "They have to work with multiple trading partners, including retail pharmacies, to make sure this works across the chain of custody," Singh says.

Serialization

The year 2015 seems like a long way away, he adds, but if you think of how many partners you might have, it takes a long time to get to proof of concept. "That doesn't happen overnight. If they choose to wait until 2014 to start, they are going to find themselves in a pretty big hole," Singh says.

Newmark agrees with Singh that there could be tremendous returns on investment in having item-level serialization, including just-in-time supply, cutting down on errors involving rebates and chargebacks on item returns. "When they do have to do recalls, they can be done much more quickly," he adds.

The California regulation delay took a little momentum from industry efforts and then the economy crashed. "Some of these efforts got put on the shelf," Newmark says, adding that most forward-thinking companies, however, are working on it. In a recent IDC Health Insights survey about progress on item-level serialization, 22.3 percent of life sciences IT executives said they have several lines serialized now, and 18.2 percent are in the planning stage.

Golden State Medical Supply (GSMS), a contract manufacturer, wholesaler, distributor and repackager of pharmaceuticals, got an early start on serialization a few years ago and is already seeing some benefits. It is using IBM track and trace technology to manage serialized drug pedigree information.

"Last year we went through a recall and it was our first targeted recall," says Benjamin Hall, VP of business development at GSMS. "In other words, we weren't just recalling everything of a certain name but particular serialized numbers. That has major potential cost savings for the industry."

The biggest benefit for the industry is the potential to eradicate counterfeits from the market. Hall says, "When we send 48 bottles and it arrives at its destination, they know and can confirm exactly what we sent. It didn't magically double itself in the supply chain. That's the real goal—tightening up that supply chain."

Other software companies that serve the industry, including SAP and Oracle, also have developed e-pedigree solutions. Most pharmaceutical companies are running SAP as their enterprise resource planning software. Singh says, "SAP has a pretty robust solution for serialization. It has an object event repository that provides organizations visibility into the movement of every product."

Scenario modeling tool

IBM has been working with McKesson, the largest U.S. distributor of prescription drugs, on a project to apply business intelligence and predictive modeling to its supply chain in order to cut distribution costs and carbon dioxide emissions.