Driving supply chain collaboration in the pharmaceutical industry

In conversation with Veratrak CEO, Jason Lacombe, Dr Kevin Robinson explores what’s underpinning supply chain collaboration in the life science sector and what benefits can be gained

Following the implementation of serialisation solutions and the subsequent focus on creating end-to-end supply chain visibility and collaborative networks, digitisation has had to become a priority for life science companies, explains Jason.

“Fuelled by the opportunities presented by Software as a Service (SaaS) platforms, the supply chain management market is expected to exceed $19 billion by 2021 and digitisation is expected to have the biggest impact on revenue and earnings.”1

Simultaneously, he adds, a range of factors are increasing supply chain complexity. These include growth in the number of biologics and specialty drugs in the supply chain, the emergence of virtual biopharma, fluctuations in supply and demand, an increase in the number and complexity of regulations and a greater diversity and range of stock keeping units (SKUs).

“These factors (digitisation and complexity) are accelerating the rate at which marketing authorisation holders (MAHs) outsource work to contract packaging organisations (CPOs) and contract manufacturing organisations (CMOs). Quite simply, collaboration and visibility are vital if these relationships are to be beneficial in the long-term.”

KSR: What is the value of collaboration to businesses throughout the life sciences?

JL: One of the most important areas in which value can be delivered is in preventing delays in drugs being released to market and reducing outages and overages. Every delay leads to lost revenue and every outage or overage leads to stock obsolescence and puts patients at risk.

A report from nVentic, for example, showed that the 30 biggest pharma companies collectively had more than $115 billion inventory at the end of 2018.2 If any company on this list could reduce its days inventory outstanding (DIO) by just one day, they could free up $21 million in cash on average.

Leaner and safer supply chains will be facilitated by better supplier collaboration and the enhanced visibility of both partner processes and the data for each drug. Using outdated collaboration tools (such as emails and faxes) means manufacturers often find themselves waiting weeks for quality documents to be produced, resulting in a slower release and distribution of medicines to the market.

KSR: What are the barriers to greater collaboration? How can they be addressed and who needs to drive change?

JL: The life sciences are among the most heavily regulated industries in the world and are traditionally risk averse.

Jason Lacombe, CEO, Veratrak

R&D costs are also phenomenally high and businesses fiercely protect every aspect of intellectual property to ensure they maximise potential returns. This has created an environment in which collaboration is seen as high risk as businesses constantly focus on compliance and fear disclosing proprietary information to competitors.

There’s also a heavy reliance on outdated or inappropriate technologies. Email, fax and post remain the default mediums for third-party collaboration, but these tools are not secure, prone to delays and human error … and lack true auditability.

There is also a heavy reliance on enterprise resource planning (ERP) systems, which are invariably excellent at managing internal business processes and data, but most are difficult to integrate across third-parties — often a result of years of customisation.

There’s also a concern around capex and resources. The perception in some cases is that the investment, implementation, process changes and user training are resource-intensive and disruptive, inferring that there must be a very strong business case for adopting new technologies.

Sharing, partnering and collaborating within the pharma supply chain will be essential if businesses want to remain competitive. This change must be driven by leadership teams who hold the authority to bring in new tools and the ability to allocate budget accordingly.

There’s a very strong business case for making such investments; better supply chain collaboration will deliver significant returns on investment (ROI). Recently, a partner using our platform saw a post-implementation ROI of more than 500% generated cumulatively across additional capacity, reduction in errors and delays, and better use of employee resources.

KSR: What does a fully collaborative pharma supply chain look like? What is Veratrak’s role in this supply chain?

JL: A fully collaborative and transparent supply chain will be characterised by more trust between partners, lower costs, better drug availability and increased speed to market.

A report by McKinsey suggests that by enabling access and harvesting data collaboratively to support advanced predictive analytics, operating efficiencies could improve by 45–70% in a decade.3

The industry wide potential impact of supply chain collaboration has been estimated at $5–10 billion in earnings.4

The Veratrak platform does exactly that. By seamlessly onboarding all partners working on a single workflow, removing barriers and the high costs of partner-partner ERP functionality, it supports end-to-end visibility into the provenance of medicines, their route to the patient and the corresponding documents that detail these journeys for an entire ecosystem of controlled partners.

Further efficiencies are gained amongst external partners when signing off critical documentation to further accelerate batch release.

KSR: How could better collaboration impact patient outcomes?

JL: One of the strongest arguments for collaboration is within markets when there is demand for crucial, low-margin drugs. There is little money to be made and many companies are exiting as a result. The antibiotics market is a good example of this. There are some large companies that are active in this space, but the majority are much smaller players that may not be in a position to meet demand.

Without competition, frequent shortages and quality issues are more likely and the remaining companies in the market have greater power to dictate prices. From 2010–2015, nearly a quarter of all generic medicines including antibiotics saw at least one price increase of 100% or more, and some saw increases of more than 1000%.5

In the active pharmaceutical ingredient (API) market, there have also been periods of significant fluctuation; in 2017, the prices of some APIs increased 30–50%.6

To prevent price hikes, which are inevitably paid for by patients, it is critical that a healthy market is maintained. For some pharma companies, this means creating a financially viable supply chain for drugs that have low margins. At the same time, counterfeit drugs entering the market remains a challenge.

Regulations such as the EU’s Falsified Medicines Directive (FMD) are a major step towards eradicating counterfeit medicines from the supply chain … but there are still gaps. We still share quality documentation such as packaging artwork, which can be replicated and counterfeited, using email.

For the FMD to have full effect, we can’t continue to send highly sensitive files through unsecure and non-collaborative channels.

KSR: Where do you see the life sciences supply chain in 5–10 years?

JL: Organisations need to break down data and operational silos by facilitating better communication and collaboration with their partners if they are to remain competitive. GxP-validated software providers offering blockchain-enabled cloud-based platforms will enable more secure and easily audited document flow.

This will be the perfect enabler of collaboration and better communication practices; we’ll see the adoption of such products — coinciding with new business models for collaboration between suppliers and their customers — accelerate in coming years.

References

  1. www.gartner.com/en/newsroom/press-releases/2017-06-22-gartner-says-supply-chain-management-market-will-exceed-13-billion-in-2017-up-11-percent-from-2016.
  2. www.nventic.com/Insights/White%20paper%207.php.
  3. www.mckinsey.com/industries/pharmaceuticals-and-medical-products/our-insights/how-pharma-can-accelerate-business-impact-from-advanced-analytics.
  4. www.pharmamanufacturing.com/articles/2016/unlocking-the-value-of-supply-chain-collaboration.
  5. www.health.harvard.edu/blog/why-many-generic-drugs-are-becoming-so-expensive-201510228480.
  6. www.business-standard.com/article/economy-policy/api-cost-increase-to-hit-pharma-firms-profit-117122100042_1.html.

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