I spent the last several days in Philadelphia at the LogiPharma 2012 event.
The event was held at the Loews hotel on Market street, a refurbished historic building, which was the former home of the Philadelphia Savings Fund Society (PSFS), the first savings bank in the United States. Many elements of the hotel harken back to the banking heritage including a huge vault door in the lobby. But this isn’t John’s historic building blog. What about supply chain you ask?
We’ve been to several of these over the past years. One thing that we’ve noticed is that we are seeing more supply chain interest at these events. As we talked to the various people who came by the booth, it isn’t surprising why. Pharma has several unique supply chain challenges. Combine this with more and more government regulation, rules that change with geopolitical borders, and you can understand why we were so busy at our booth.
Cold chain – Many pharmaceutical require that the product be maintained at a specified temperature throughout the manufacturing life of the product. From API (the active ingredient in the drug) through to delivery into the customer’s hands, the product must maintain a specific temperature –or it is ruined
Expiry – Every drug I’ve seen has an expiry date associated with it. Also each country has different regulations that restrict how close to the expiry date you can sell the product. One country may allow you to sell a product within 6 months of its expiry date, other countries may be stricter and only allow sales up to 18 months before expiry
Long lead times – Many pharmaceuticals especially biologically derived drugs have extremely long lead times. The active ingredient must be grown and as such will take months for a batch to be ready. One company we talked to was telling us of a product that took 6 months to produce, had a 2 year shelf life and had to be sold at least 12 months before expiry. (Yikes!)
Yield –Traditional supply chains consider yield to be a percentage of production. If I make 100, 3 may be defective. However, many pharmaceuticals are produced in batches. If the batch isn’t good, 100% of the batch fails and you have to start from scratch – combine this with a 6 month lead time and you have a scheduling nightmare.
Patent expiry – Imagine that you have a very lucrative product. Sales are good, you are operating at capacity and are making very good money. Now imagine that a competitor comes along, uses your design and makes a competing product at ½ the price. This happens all the time to pharmaceutical companies when the patents run out and generic drug companies are allowed to start production. If not planned for, this event can have a significant impact on capacity utilization and revenues.
FDA approval – Introduction of a new drug is serious business. Every aspect of the design and manufacture of a drug must be approved before a drug can be used. Even if a company decides to manufacture the drug in a new location, the new location must be approved. If demand for a drug is higher than anticipated, you can’t simply offload manufacturing to a new supplier – they must be approved for that drug in that country. Finally, if that approval is delayed, you cannot manufacture that drug until approval is received.
There are more aspects, but I think you can see why pharmaceutical supply chain is complex. But one thing to remember is that in many cases, these are lifesaving drugs. If the customer doesn’t get their product, they can become very, very sick and perhaps even die. Adds a whole new dimension, doesn’t it?