Opportunities and Challenges for
Pharmaceutical Supply Chains in
India: A Case
BY
Dr. RAJESH KUMAR SINGH
Associate Professor
Delhi Technological University (DCE), Delhi
1
Plan of Presentation
•
•
•
•
•
Introduction of Pharmaceutical Industry
Critical issues
Pressures and Challenges
Case Study
Supply Chain Performance Framework
Introduction
•The pharmaceutical industry can be defined as a combination of
processes, organizations and operations involved in the
development, design and manufacturing of useful pharmaceutical
drugs (Shah, 2004)
•Pharmaceutical supply chain more complex (Bhakoo and Chan
,2011).
• The Indian Pharmaceutical sector is highly fragmented with more
than 20,000 registered units. Indian pharmaceutical market is likely
to grow at a compound annual growth rate (CAGR) of 14-17 per
cent in between 2012-16 in terms of volume.
•India is now among the top ten pharmaceutical emerging markets
of the world.
•Indian pharma industry is mainly operated as well as controlled by
dominant foreign companies having subsidiaries in India due to
availability of cheap labor in India at lowest cost.
Critical Issues in Managing
Pharmaceuticals
• Managing perishable products
• Degradation of the medicines as they move
along the supply chain which results in
allowing substandard products to be
dispensed to the patients
• Maintaining temperature control
• More focus on R&D
• Shipping of expiry products
Critical Issues in Managing
Pharmaceuticals
• In case of an epidemic break-out, global
demand for certain medicines overshoots the
demand suddenly.
• Product withdrawal during sales due to sideeffects and expiry
• Out of stock situations are unacceptable &
patent lifespan is low
• Complex Network Design
Critical Issues in Managing
Pharmaceuticals
• Controlling wide supply chain with huge Stock
Keeping Units becomes very difficult
• Training & education cost to the stakeholders
is high
• Integration of domestic and international
businesses.
The Value Chain Cost Distribution
Value Chain Stages
Cost Distribution
Research & Development Cost
15%
Primary Manufacturing cost
5 – 10%
Secondary Mfg/Packaging
15 – 20 %
Marketing / distribution
30 – 35%
General Administration
5%
Profit
20%
Total
100 %
Pressures
, i.e.
green the PSC
• To effectively
correctly disposing of
expired/unwanted medications and reducing the level of
preventable pharmaceutical waste (Breen and Xie, 2009).
• Innovative and environmentally friendly medication designs
(Nonaka and Takeuchi ,1995 , Xie and Breen, 2012).
• Cleaner production methods/processes and green packaging
(Zhu and Sarkis, 2004).
• Lean manufacturing principles for pharmaceutical equipment
manufacturing firm to reduce waste in its shop floor operation
(Albert ,2004)
• Development of decision support strategies and systems for
managing new product portfolios (Perez-Escobedo et al., 2012)
• Development of Trust among supply chain members and
consumers
(Hausman and Stock, 2003)
Significance of SCM in Pharmaceutical
sector
Excellent supply chain management can yield:
•
•
•
•
25-50% reduction in total supply chain costs
25-60% reduction in inventory holding
25-80% increase in forecast accuracy
30-50% improvement in order-fulfilment
cycle time
• 20% increase in after-tax free cash flows
Challenges
• To manage operational excellence in terms of cost-effective
development and faster lead-times (Pisano , 2000).
• Expenditure of high cost and time in conducting clinical trials
with low success rate in product discovery and clinical
Development, (Laínez et al., 2012).
• To improve Innovation rates in the industry (Talias, 2007).
• Drug prices rises as high as 650 percent than the acceptable
international standard in under developed countries in
addition to the low availability of cheap medicines in the
market, WHO (2009).
Challenges
• Inability to forecast accurately, lack of incentives for
maintaining stocks, inefficient distribution systems and
pilferage of medicines for private resale (Health Action
International and WHO, 2009).
• Majority of hospitals seem to have outdated information
systems
with
inter-organizational
connectivity
(Burns,2002).
• Inventory costs in the health care sector are substantial and
are estimated to be between 10% and 18% of net revenues
(Jarett,1998).
• Determining optimal inventory levels in the pharmaceutical
supply chain is a complex problem due to the involvement
of various stochastic variables (Shang et al., 2008)
Challenges
• NPD as more important issue than the accepted need of
high quality, low cost, and differentiation to excel in today’s
competitive market (Nonaka and Takeuchi, 1995)
• Quality standards are very stringent (Greene and O’Rourke,
2006).
• Optimal process planning and scheduling is crucial for the
Development of New Product (Perez-Escobedo et al.,2012).
• Reverse Logistic for expired medicines (Xie and Breen ,
2012).
Challenges
• Risks and uncertainties related to the recovery of
pharmaceutical drugs (Srivastava, 2008).
• To control potential impact of pharmaceuticals that
reaches lakes and rivers via sewage plants and other
sources (New Hampshire Department of Environmental
Services, 2009)
• Implementation of e-business practices in the
healthcare supply chain such as lack of consistency and
poor data quality and global nature of suppliers.
(Bhakoo and Chan, 2011)
CASE STUDY FROM
PHARMACEUTICAL SECTOR
Profile of Company
• ABC Limited was formed in the year 1945. The firm used
to import Pharmaceutical formulations from Europe and
distribute them in Western India
• ABC Limited has three plants which are spread across
Maharashtra and Goa in Western India
• These facilities are built in line with the MCA- UK
guidelines and in compliance with WHO GMP
requirements
• It manufactures a wide range of products.
Profile of Company (Contd)
• ABC Limited has over 800 field staffs and 1400 stockists. ABC ltd
has emerged as the most suitable partner and provider of
CRAMS (Contract Research and Manufacturing Services) to its
customers globally.
• The R&D Centre has three divisions viz. Formulations, Active
Pharmaceutical Ingredients & Intermediates and Regulatory &
IPR Cell surrounded over an area of 70,000 sq feet.
• It has built a strong international presence across its markets in
USA, Europe, Asia, Africa, Latin America and other CIS countries
• It has set up a state-of-the-art R&D Centre at Rabale, near New
Mumbai (India).
SWOT Analysis
Strength
 Cost competitiveness
 Well developed infrastructure
Weakness
 Low investments in innovative
R&D
with strong manufacturing base  Lack of strong linkages between
 Access to pool of highly trained
scientists, both in India and
abroad
 Strong marketing and
distribution network
industry and academia
 Unable to maintain global
quality standards
Opportunities
 Significant export potential
 Marketing alliances to sell MNC
products in domestic market
 Contract manufacturing
arrangements with MNCs
 Potential for developing India as
a centre for international clinical
trials
 Supply of generic drugs to
developed markets
Threats
 Product patent regime poses
serious challenge
 Lack of Govt Support for R&D
activities
 Drug price control order puts
unrealistic ceilings on product
prices and profitability
 More competitive global players
Initiatives Taken
• Changing its role in the market from a 'Contract
Manufacturer of Finished Dosage Forms' to a
'Complete Solutions Provider'.
• In order to manage operations, ABC ltd was helped
by multiple FoxPro based in-house applications.
• ABC Ltd has also made efforts for conservation of
energy which includes a)Installation of 5 star rating Air conditioners and
Motors for plant machineries.
c) Introduction to Rain water harvesting in order
to save water.
d) Improved air compressor efficiency
Action Plan for improvement
Step 1- Primary Distribution Setup
Step 2-Evaluated existing C&FA network to setup
independent C&FA network
STEP 3- One company appointed as Distribution
arm for the other
STEP 4- Forecast from field implemented
STEP 5- Incoming Logistics
STEP 6- Transportation & Freight Cost
STEP 7- Inventory levels
STEP 8- IT Initiatives
Supply Chain Performance Framework
Supply Chain Performance Index
SCM Coordination Issues
Top management commitment Factors
 Investment of time and money for resource
development.
 Focused communication system
 Ready to adopt new technology
 Employees training and empowerment
 Investment in R&D
Organizational Factors
 Lean organization structure
 JIT environment and lean practices
 Organization culture for SC implementation
 Integration of functions with in the
organization
Mutual understanding Factors




References
Shin et al. (2000), Arshinder et al.
(2008)
Fisher (1997), Arshinder et al.
(2007),
Stanley et al. (2009), Gowen and
Tallon (2002)
Melton (2005), Othman and Ghani
(2008)
Grittel and Wises (2004),Arshinder
et al. (2008), Sawik (2009), Soroor
et al. (2009)
Agreed vision and goals of members of supply chain
Trust development in SC members
Effective implementation of joint replenishment and
forecasting decisions
Supply chain risk/ reward sharing
Arshinder et al. (2007), Bianchi
and Saleh, (2010), Aviv (2001),
Arshinder et al. (2008), Cachon
and Lariviere (2005), Ryu and
Yucesan (2009)
Flow of information Factors
 Use of information technology (IT) tools
and techniques
 Information sharing/ exchange
 Sharing of data related to purchasing and
supplies
Arshinder et al. (2008), Arshinder
et al. (2007), Cao et al. (2008),
Stanley et al. (2009), Marek and
Malyszek (2008)
Relationship and decision making Factors
 Long term relationship with suppliers
 Long term relationship with retailers
 Collaborative decision making/ planning
with SC members
 Logistics network optimization
Disny and Towill (2003), Arshinder
et al. (2008), Lyu et al. (2010),
Arshinder et al. (2008), Cao et al.
(2008), Soroor et al. (2009), Sawik
(2009), Othman and Ghani (2008)
Performance Factors




Efficiency
Flexibility
Responsiveness
Drugs quality
Beamon (1999), Persson and
Olhager (2002), Lai et al. (2002),
Berry (2006), Luning et al. (2002),
Van der Spiegel (2004), Valeeva
(2005)
Supply Chain Effectiveness Index
Issues-
Top management commitment, Mutual understanding, Flow of information,
Relationship and decision making, Organizational factors, Responsiveness
• On the basis of Cleveland et al. (1989) model, SC
effectiveness index is given as
Sj =Wi Log Ki
•
•
•
•
Where Sj = SC effectiveness index for company J
i= Coordination Factor
R =Rank of Coordination Factor
Ki =Inverse Rank ( For i =6, If R=1, K= 6, if R=2, K= 5)
Wi =Weight assigned to particular Coordination Factor
= +1 (Strength), when percentage score > 60% (Mean
value>3).
= 0 (Neutral), when percentage score is between 40-60%
(Mean value between 2 and 3).
= -1 (Weakness), when percentage score< 40% (Mean
value <2)
Supply Chain Effectiveness Mapping for Case Company
S. N
1.
Coordination Factors
Top
management
Commitment
Investment of time and money for
resource development
Focused communication system
√
Ready to adopt new technology
√
Employees training and empowerment
2.
2.7
√
√
√
Agreed vision and goals of members of
Mutual
supply chain
Understanding Trust development in SC members
Effective implementation of joint
replenishment forecasting decisions
Supply chain risk/ reward sharing
3.
Five Point Likert Scale
1 2 3 4
5
Mean
Flow of
Information
3.0
√
√
√
Use of Information Technology (IT) tools
and techniques
Information sharing/ exchange
√
Sharing of data related to purchasing and
supplies
√
4
√
Supply Chain Effectiveness Mapping for Case
Company
Long term relationship with suppliers
4.
Relationship
and decision Long term relationship with stockist
making
Collaborative decision making/ planning
with SC members
√
3.25
√
√
√
Logistics and network optimization
5.
6.
Lean organization structure
Organization and lean practices
Factors
Organization culture for SC
implementation
Integration of functions with in the
organization
Efficiency
Innovations and NPD
Performance Responsiveness
Drugs quality
√
√
√
3.75
√
√
√
√
4.5
√
Illustration for evaluating Coordination Index
Sr.
No
.
Issues of coordination
Mean
Ran Inverse
k
Rank
(Ki)
Log Ki Weigh Wi
t (Wi) LogKi
1. Top management
commitment
2.7
6
1
0.00
0
0
2. Mutual understanding
3.0
5
2
0.30
0
0.0
4
2
5
0.70
+1
0.70
4. Relationship and
decision making
3.25
4
3
0.48
+1
0.48
5. Organizational factors
3.75
3
4
0.60
+1
0.60
6.
4.5
1
6
0.78
+1
0.78
3. Flow of information
Performance
Coordination Index = Cj = ∑{Wi Log Ki}= 2.56
Concluding Recommendations
• Improving Forecasting Accuracy
• Reducing Inventory levels
• Improving Customer Servicing levels and trust
building
• Increasing Information Availability of all SKUs
• Development of new product development
capability
• Need to develop effective performance
framework for pharmaceutical supply chain
considering emergency situation
THANK YOU