Results from the recent 2012 UPS Pain in the (Supply) Chain healthcare survey, conducted by TNS, reveal specific strategies that pharmaceutical, biotech and medical device companies are employing to bolster their supply chains over the next three to five years. The survey, now in its fifth year, also reveals the top business and supply chain “pain points” for pharma, biotech and medical device companies. Data shows that concerns are growing in many areas, and it’s important for pharma companies to recognize these areas and begin looking at new ways of addressing them in order to get ahead in an increasingly competitive market landscape.
Assessing Existing Conditions
One cannot fully understand the state of the pharma supply chain without first looking at the pre-existing conditions companies are facing in the current operating environment. The state of the global economy is a natural starting point. The Pain in the (Supply) Chain survey data reveals that 41% of global healthcare executives are still feeling the impact of the recent economic downturn, particularly in terms of tightened spending and other reductions and cut-backs at their companies. The highest percentages of executives reporting continued impact are those based in the U.S. at 53%, followed by Latin America at 43% and western Europe at 35%. Healthcare executives in Asia report the lowest degree of impact at 26%. In light of this global economic impact on the industry, it’s not surprising that companies are struggling with cost management, efficiency and operational flexibility, all of which impact supply chain operations.
Another key condition for U.S. executives in the pharma industry is healthcare reform. When asked their view of the state of the healthcare industry today against the goals of the Patient Protection and Affordable Care Act, 38% of U.S executives said they are “cautiously optimistic” and another 12% said they are “optimistic.” While this near-majority expressed a generally positive outlook, 26% reported a “negative” view on the state of the industry and 22% claimed a “neutral” stance. These varied perspectives reflect the variety of opportunities and challenges that decision-makers will face in the coming months. When it comes to the pharma supply chain, a key challenge from healthcare reform will be delivering on the goal for increased access to healthcare. Healthcare reform is anticipated to add 8.2 million new patients through Medicare changes alone, thereby opening up a substantial new population for pharma companies to serve. While this creates business opportunity it also presents challenges as companies strive to develop the appropriate distribution models and channels to serve this new population.
Another current condition that pharma companies are grappling with is how to increase global expansion while ensuring protection of everything from intellectual property to products to brand reputations in new markets. Nearly half (47%) of U.S. healthcare decision-makers cite IP protection as one of the greatest barriers to global expansion, coming in just after country regulations as the top barrier. Over the past three years, this condition has becoming increasingly apparent, with the number of executives citing IP protection as a top business issue growing steadily year over year from 40% in 2010 to 48% in 2012.
Diagnosing the Top “Pains in the Chain”
When it comes to specific supply chain issues facing healthcare companies, three rise to the top: regulatory compliance, cost management and product protection (including both product security and the prevention of product damage and spoilage). Below are some specific findings around each of these areas from the survey.
- Regulations: Not surprisingly, challenges related to regulations top the list of both business and supply chain concerns in the healthcare industry. Increasing regulations is cited by 52% as a top business concern, and regulatory compliance is ranked by 65% as the top supply chain issue. As mentioned earlier, regional regulations are also the top barrier to global expansion. While regulations aren’t going away in the pharma industry, companies can leverage the regulatory expertise of healthcare third-party logistics providers to stay ahead of evolving regulations, especially as they expand into new global markets, by looking for partners with regulatory compliance and quality assurance teams as well as those with compliant distribution facilities around the world.
- Cost management: Another constant concern in the healthcare industry is cost management, and “managing supply chain costs” was cited by 60% as a top supply chain issue, making it the number two supply chain issue after regulatory compliance. Only 41% of survey respondents reported success in addressing cost management, highlighting the need for improvement in this area. While supply chains require investment, they can actually be a large asset when it comes to driving cost efficiencies across the organization. One key consideration is moving from a fixed cost model to a more variable cost model for supply chain and logistics distribution infrastructure. For example, pharma companies can often take advantage of existing third-party assets, such as dedicated pharma distribution facilities, when looking to expand into new global markets versus having to build out their own infrastructure in each region. This approach allows companies to expand globally using a somewhat virtual supply chain model in new markets. In addition, some global third-party logistics providers operate multi-client facilities, which allow companies to use only the distribution space they need in any particular location at any given time. This allows companies to ramp inventory up and down in different locations as needed and pay only for the space they need.
- Product protection: One of the largest growing supply chain issues, particularly in the pharma industry, is product protection, including both product security and product damage and spoilage concerns. Globally, 57% of healthcare executives rank product security as a top supply chain issue, and 47% rank product damage or spoilage as a top issue. Executives in Asia display the greatest level of concern around product damage, with 72% of respondents citing this as a top supply chain issue.
Preventing product damage and spoilage is an area of increasing focus as more temperature-sensitive products come into the marketplace. For pharma companies that have temperature-sensitive products, it is essential to ensure that they not only have the tools and technologies to monitor the condition of their products as they travel across the supply chain, but also intervention capabilities. It doesn’t do any good to know that products experienced a temperature excursion after the fact if companies don’t have the ability to act on that information in real time. There are solutions today that allow immediate alerts and interventions when temperature-sensitive products go off-course, so that companies can implement contingency plans and eliminate costly product loss. Now that pharma supply chains are more global, there are even global air freight solutions to monitor and maintain the optimal condition of products in the air 24/7 as they travel overseas, often going long distances to their final destination and traveling to areas with limited logistics infrastructure.
Prescribing a Formula for Future Success
Looking ahead, healthcare companies are focused on three key areas of supply chain investments to build a more flexible and competitive supply chain that delivers on their business goals. These are: global market expansion, technology investment and increasing usage of new distribution channels.
- Global market expansion: Expanding into new global markets tied with technology investment as the top supply chain strategy for improving competitiveness during the next three to five years, cited by 83% of healthcare decision makers as a strategy they will employ. The top four countries where companies will expand are China, the U.S., Brazil and India. When asked about the barriers their companies will face in expanding globally, 56% of respondents cite managing country regulations, followed by IP protection (47%), in-country product quality (33%), product security (28%), managing global suppliers (23%), limited infrastructure (21%) and managing multiple logistics providers (13%). To overcome challenges and speed entry into new markets, pharma companies need to tap into existing global market expertise and resources from third parties, including customs brokerage expertise, regulatory compliance knowledge, access to multiple modes of transportation and global infrastructure and assets.
- Technology investment: A full 83% of healthcare executives are planning to invest in new supply chain technologies during the next three to five years to increase competitiveness and efficiency. Specific technologies that companies are planning to invest in include: order management technologies (77%), web ordering (65%), serialization/ePedigree/track-and-trace (54%), security-specific technologies (53%) and temperature sensitive technologies (50%). Technology investment is especially key as companies expand globally to serve new customer bases.
- New distribution models: Healthcare companies, including both pharma and medical device companies, are increasingly looking at multi-channel distribution models to bring products to market in order to create new sales channels, build greater brand loyalty and increase operational efficiencies. In terms of plans for the next 18 months, 20% will increase direct shipments to providers and retailers, 15% will increase their usage of wholesalers and distributors and 8% will increase direct to patient shipments. When determining the right distribution channels for their products, companies should examine goals and needs at the individual product level. Different products may have vastly different distribution needs, which in turn require different supply chain models. Companies should look for supply chain partners that can help them identify the right distribution channels for each of their products and execute on multi-distribution models.
Scott Szwast, marketing director, UPS healthcare segment. He can be reached at email@example.com. This article includes findings from UPS’ Pain in the (Supply) Chain study, which can be downloaded (PDF) at http://bit.ly/RJupzx.