Secure Supply Chain 2015 for Life Sciences
Deloitte has traced recent historical trends and analyzed emerging developments to help clients in their efforts to understand what is next as well as assess the potential risks and reap the benefits presented by the next stage of globalization. Our goal is to provide a starting point for life sciences companies striving to predict and prepare for the future to consider as they look forward to 2015 and beyond.
Pharmaceutical manufacturers have not been immune to the rising costs affecting other industries, and have subsequently followed suit in globalizing operations wherever possible, a strategy that appears destined to continue. The cost pressures facing the life sciences industry have increased; R&D costs have increases while exclusivity periods of drugs decreases. Considering this, it appears that the pressure to globalize operations to maintain profit margins and grow a global revenue base will only increase. As operations become ever more globalized, pharmaceutical companies must be prepared to address the challenges inherent in managing a global supply chain.
Globalization has increased opportunities for counterfeiters to exploit and profit from weak links in the supply chain due to inconsistent degrees of regulation by foreign governments, differing reactions to counterfeiting across cultures, and the logistical challenges of monitoring far-flung operations and commercial markets. The World Health Organization has cited the dramatic growth of the counterfeit drug market while the FDA reports the sophistication of counterfeit drugs. Product integrity is at greater risk as globalization continues and is a primary concern for the future that compromises the ability to leverage the financial benefits of global manufacturing.
As more tainted products make it into the homes of customers there is increasing concern for public safety. Headlines of the domestic and international fatalities due to contaminated consumer products from eggs and baby formula in the U.S. to toxic teething powder in Nigeria have caused uneasiness with the general public. As the supply chains are increasingly global the ability for contaminated product to have global impact becomes a greater possibility and a valid concern of the global population.
In response to growth in the international counterfeit drug market and mounting concerns about consumer safety, governments are increasing regulatory scrutiny. The FDA has made an effort to tighten regulatory policy and other government bodies such as the European Union and Japan have followed suit. As regularity scrutiny increases globally the ability to track and trace drugs globally from the raw materials to the consumer is going to change from a competitive advantage that enhances product integrity to an essential part of doing business.
As the supply chain becomes more global the complexity increases. Pharmaceutical companies must now manage a supply chain that is inherently more vulnerable to risks such as counterfeiting and contamination, while also maintaining efficiency in the face of additional government regulation and oversight. Other complicating factors include the increased reliance on third parties, lengthened replenishment cycles and the ensuing increase of inventory, and the political and economic instability of many areas now included in the global supply chain. Looking ahead to 2015, there will only be new layers of complexity.
Of the trends shaping the future the evolution of emerging markets is increasingly influential. Emerging markets not only represent a major opportunity to increase revenue and growth market share but they are also the preferred location of manufacturing and outsourcing opportunities. China and India are the primary examples where manufacturing is taking place but the potential for future expansion increases due to the increase in per capita income and low cost labor. The challenge is maintaining control and information pertaining to the flow of materials as more manufacturing is outsourced.
In order to meet regulatory standards and also meet the needs of customers it be becoming more essential to achieve great information regarding product history and current activity. The FDA has strongly encouraged, though not yet mandated, similar tracking through the use of radio-frequency identification (RFID) technology. Physicians, advocacy groups as well as consumers are pushing for transparency for products as well as services. The push for more information will also be accelerated as consumers take more responsibility for making their own health decisions.
As the consumer demands more information they become the epicenter of future activity. Pharmaceutical companies should consider adapting by offer consumers more tailored medications and enhance consumers’ ability to conveniently access their products. These are predictions by analysts the production of custom medication for individual customers is a possibility in the future. With custom products for specific individuals this will have implications across every link in the global supply chain, but most directly for product development, manufacturing, and distribution operations.
To mitigate the growing global risks and future uncertainties, life sciences companies must make supply chain security a strategic priority and establish a secure value chain ready for 2015 and beyond. The three cornerstones of a secure value chain are an organization’s assessment of risk, integrity and finally, value. Clear messaging, appropriate transparency, and visibility into the organization’s risk management practices are necessary to change the culture and empower employees to use risk intelligently and appropriately. Integrity projects provide benefits to multiple functions within the organization and lie at the heart of many Life Sciences organization’s primary purpose–namely, to provide medical products to consumers in the safest and most efficient way possible.
Given the industry’s pressures on profitability and the challenges of the current economic climate, value carries significant weight for the global supply chain. Companies need to focus on high-quality, cost-effective supply chain performance, not mere compliance. These initiatives represent the secure value chain framework and these three areas, when woven together, can create a holistic safety net for the supply chain.
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