Cut costs in the quality sensitive pharma supply chain? How to face the strategic dilemma www.groenewout.com Supply chain management Assets & facilities Sourcing Customer Warehousing & distribution Manufacturing GW ref. 9026X020 V2.0 Transportation
Agenda A. Company profile B. Strategic developments in Pharma C. Cost saving & quality improvement opportunities D. Conclusions & recommendations Cut costs sensitive pharma supply chain - V2.0 Page 2
Our profile Groenewout is an international, independent firm providing a comprehensive range of professional consulting services and transition support focused on business improvements related to supply chains and logistics across all industries. Supply chain management Assets & facilities Sourcing Manufacturing Warehousing & distribution Customer Transportation Cut costs sensitive pharma supply chain - V2.0 Page 3
Added value as perceived by our clients Multi-disciplinary supply chain & logistics consulting Business improvements based on quantification, simulation, visualization and modeling Realistic, pragmatic approach Hands-on experience in operational environments BREDA & implementation processes Independent & 40 years proven success. Pan-European marketplace, local expertise References within wide range of industries - long lasting client relations Cut costs sensitive pharma supply chain - V2.0 Page 4
Quality measured by our clients Cross industries Pharmaceutical FMCG (Fine) chemical After market / spare parts Home-improvement Electronics And Cut costs sensitive pharma supply chain - V2.0 Page 5
Agenda A. Company profile B. Strategic developments in Pharma C. Cost saving & quality improvement opportunities D. Conclusions & recommendations Cut costs sensitive pharma supply chain - V2.0 Page 6
Strategic developments in Pharma Several important changes in the pharmaceutical industry in the last years Increased quality requirements Higher service level requirements Government rulings Rulings promoting generic medicine over brands in pharmacies, hospitals and at general practitioners GDP/GMP regulations Global medication issues Aids medication for third world countries Patent periods ending, resulting in more focus on generic medicines Cut costs sensitive pharma supply chain - V2.0 Page 7
Strategic developments in Pharma Increased quality requirements Global medication issues Stricter government rulings Profit margins under pressure! Patents ending; generic medicine Cut costs sensitive pharma supply chain - V2.0 Page 8
Define strategic approach With pressure on profit margins and increasingly demanding quality standards, Determine the cost drivers in your business Define related level of competitive advantage Define strategic approach Cut costs sensitive pharma supply chain - V2.0 Page 9
Define strategic approach Opportunity for competitive advantage Low Medium High Low Supply chain / logistics optimization Focus on economy of scale Cooperation Medium High Cost driver Cut costs sensitive pharma supply chain - V2.0 Page 10
Define strategic approach Opportunity for competitive advantage Low Medium High Low Service levels Research & Development Product quality Product assortment Fine distribution Validation GDP/GMP compliance Cold Storage Temperature controlled transportation Medium High Cost driver Product costs Cut costs sensitive pharma supply chain - V2.0 Page 11
Define strategic approach In high cost, high competitive value areas Focus on economy of scale buy companies specialized in R&D or increase market share by takeovers Not the focus of this presentation In high cost, various competitive value areas In high cost, low competitive value areas Optimize logistics Minimize (logistics) costs Why compete? Why not cooperate? Cut costs sensitive pharma supply chain - V2.0 Page 12
Agenda A. Company profile B. Strategic developments in Pharma C. Cost saving & quality improvement opportunities D. Conclusions & recommendations Cut costs sensitive pharma supply chain - V2.0 Page 13
Cost saving opportunities Two main areas addressed in this presentation Logistics / supply chain optimization Network redesign Warehousing optimization Stock cost management Cooperation Knowledge sharing Experience sharing Facility sharing Transport sharing Cut costs sensitive pharma supply chain - V2.0 Page 14
Cost saving opportunities Logistics / supply chain optimization Network redesign Service level requirements Stock costs Risk: Product life cycle Shelf life Interest: Product value Value/volume ratio Space: Product conditioning Building: - Regulatory requirements (Health & Safety) - Conditioning requirements - Security requirements (narcotics) Operational costs: - Indirect personnel (pharmacist) - Automation possibilities Transportation costs Warehousing costs In & Outbound distribution Conditioned distribution B2B distribution Home distribution Pharmaceutical regulatory issues per country Cut costs sensitive pharma supply chain - V2.0 Page 15
Cost saving opportunities Logistics / supply chain optimization Network redesign - centralization Service level requirements Stock costs Risk: Product life cycle Shelf life Interest: Product value Value/volume ratio Space: Product conditioning Building: - Regulatory requirements (Health & Safety) - Conditioning requirements - Security requirements (narcotics) Operational costs: - Indirect personnel (pharmacist) - Automation possibilities Transportation costs Warehousing costs In & Outbound distribution Conditioned distribution B2B distribution Home distribution Pharmaceutical regulatory issues per country Cut costs sensitive pharma supply chain - V2.0 Page 16
Cost saving opportunities Logistics / supply chain optimization Network redesign - decentralization Service level requirements Stock costs Risk: Product life cycle Shelf life Interest: Product value Value/volume ratio Space: Product conditioning Building: - Regulatory requirements (Health & Safety) - Conditioning requirements - Security requirements (narcotics) Operational costs: - Indirect personnel (pharmacist) - Automation possibilities Transportation costs Warehousing costs In & Outbound distribution Conditioned distribution B2B distribution Home distribution Pharmaceutical regulatory issues per country Cut costs sensitive pharma supply chain - V2.0 Page 17
Cost saving opportunities Logistics / supply chain optimization Network redesign Due to high warehousing & stock costs optimal supply chains in pharmaceutical business tend toward centralization However this is largely limited by service level requirements and pharmaceutical regulations per country Also due to country specific products, stock level control remains an issue even with centralized stock Cut costs sensitive pharma supply chain - V2.0 Page 18
Cost saving opportunities Logistics / supply chain optimization Warehousing optimization Driving factors in warehouse optimization for pharmaceutical companies are: Tracking and tracing requirements on lot level Shelf life / FEFO requirements High picking accuracy requirements High risk products (narcotics) Conditioned products (temperature, humidity control) Quality status control Special packaging requirements GDP, GMP requirements and more... In general, any mistake can influence health. Cut costs sensitive pharma supply chain - V2.0 Page 19
Cost saving opportunities Logistics / supply chain optimization Warehousing optimization Due to high quality requirements warehouse optimization in pharmaceutical business tend toward reduction of human error possibilities by high level WMS support automation and mechanization of processes online info through RF / pick to light Automation and mechanization possibilities are limited depending on warehouse sizing RF control quality could increase dramatically by introducing standardized bar-coding Cut costs sensitive pharma supply chain - V2.0 Page 20
Cost saving opportunities Logistics / supply chain optimization Stock cost management Stock level management is extremely important for pharmaceutical product because of the following: Limited shelf life of products Relatively high value of products Product range increased due to country/label specifics High cost for space due to conditioning requirements Extra space required for separated storage of lots Costs per orderline 140 120 100 80 60 40 A-items B-items C-items D-items 20 0 75% 80% 85% 90% 95% 97% Service level Cut costs sensitive pharma supply chain - V2.0 Page 21
Cost saving opportunities Logistics / supply chain optimization Stock cost management Stock levels can be reduced by: Postponement activities - Delay the moment of switching from generic product to specific product to last (cost efficient) moment, when more is clear about sales profile Optimize production batch sizes - When determining production batch sizes take into account not only production costs but entire supply chain costs Centralization Use forecasting and stock control tools Cut costs sensitive pharma supply chain - V2.0 Page 22
Cost saving opportunities Logistics / supply chain optimization Knowledge sharing Create platforms on validation approach Share information on regulatory issues per country Experience sharing Select vendors based on experience in pharma / with validation If possible, purchase equipment / systems based on validated status Facility sharing Share temperature controlled storage areas Share GDP storage facilities Share GMP facilities (for postponement, Value added etc.) Use LSP s specialized in pharma Transport sharing Share temperature controlled transportation Combine direct distribution transport Share hazardous goods transportation Cut costs sensitive pharma supply chain - V2.0 Page 23
Agenda A. Company profile B. Strategic developments in Pharma C. Cost saving & quality improvement opportunities D. Conclusions & recommendations Cut costs sensitive pharma supply chain - V2.0 Page 24
Conclusions & recommendations 1. Cost savings become more and more necessary in the pharmaceutical world, and in the mean time quality requirements are increasing 2. Three ways to battle this strategic dilemma: Focus on economy of scale Supply chain / logistics optimization Cooperation The type of cost savings to use depends on the competitive value of that activity 3. If rules and regulations are driving up costs, why compete why not cooperate? Cut costs sensitive pharma supply chain - V2.0 Page 25
Conclusions & recommendations 4. The savings potential on annual supply chain costs in the pharmaceutical world are 10-30% 5. Whilst quality demands are high, supply accuracy typically is no higher than 95%. With the right approach this could be increased to 99.5 % and higher, maintaining the cost savings mentioned above Isn t it time to review your supply chain costs and determine what your potential annual savings are? Challenge your optimization plans -- Consult an objective and experienced specialist in pharmaceutical logistics! Cut costs sensitive pharma supply chain - V2.0 Page 26
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