opportunities and challenges for pharmaceutical supply chains in india: a case
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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 side-effects 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,
• To effectively green the PSC i.e. 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 AnalysisStrength Weakness
Cost competitiveness Well developed infrastructure
with strong manufacturing base Access to pool of highly trained
scientists, both in India and
abroad Strong marketing and
distribution network
Low investments in innovative
R&D Lack of strong linkages between
industry and academia Unable to maintain global
quality standards
Opportunities Threats 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
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 improvementStep 1- Primary Distribution SetupStep 2-Evaluated existing C&FA network to setup
independent C&FA networkSTEP 3- One company appointed as Distribution
arm for the otherSTEP 4- Forecast from field implementedSTEP 5- Incoming LogisticsSTEP 6- Transportation & Freight CostSTEP 7- Inventory levelsSTEP 8- IT Initiatives
Supply Chain Performance Framework
Supply Chain Performance IndexSCM Coordination Issues References
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
Shin et al. (2000), Arshinder et al. (2008)Fisher (1997), Arshinder et al. (2007), Stanley et al. (2009), Gowen and Tallon (2002)
Organizational Factors Lean organization structure JIT environment and lean practices Organization culture for SC implementation Integration of functions with in the
organization
Melton (2005), Othman and Ghani (2008)Grittel and Wises (2004),Arshinder et al. (2008), Sawik (2009), Soroor et al. (2009)
Mutual understanding Factors 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 IndexIssues- 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 asSj =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 Coordination Factors Five Point Likert Scale1 2 3 4 5 Mean
1. Top management Commitment
Investment of time and money for resource development
√2.7
Focused communication system √
Ready to adopt new technology √
Employees training and empowerment √
2. Mutual Understanding
Agreed vision and goals of members of supply chain
√3.0
Trust development in SC members √
Effective implementation of joint replenishment forecasting decisions
√
Supply chain risk/ reward sharing √
3. Flow of Information
Use of Information Technology (IT) tools and techniques
√4 Information sharing/ exchange √
Sharing of data related to purchasing and supplies
√
Supply Chain Effectiveness Mapping for Case Company
4. Relationship and decision
making
Long term relationship with suppliers √3.25
Long term relationship with stockist √
Collaborative decision making/ planning with SC members
√
Logistics and network optimization √
5. Organization Factors
Lean organization structure √3.75
and lean practices √Organization culture for SC implementation
√
Integration of functions with in the organization
√
6. Performance
Efficiency √4.5
Innovations and NPD √Responsiveness √Drugs quality √
Illustration for evaluating Coordination IndexSr. No.
Issues of coordination Mean Rank
Inverse Rank (Ki)
Log Ki
Weight (Wi)
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
3. Flow of information 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. Performance 4.5 1 6 0.78 +1 0.78
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
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