The right supply chain prescription

October 29, 2013
Thomas Kozenski

,
Fred Baumann, JDA Software

Pharmaceutical Commerce, Pharmaceutical Commerce - November/December 2013,

While pharma manufacturers may be concerned about the impact of item-level inventory tracking, it's an idea that actually makes great business sense

Fewer topics in the pharmaceutical industry are generating more discussion than the decision by the California Board of Pharmacy to require product serialization and tracking at the item level, beginning with 50% of products serialized by January 2015—and all items serialized by January 2017.

Pharmaceutical manufacturers are justifiably concerned about the cost of meeting this item serialization requirement, which is expected to become a global standard eventually. A recent article in Forbes estimated that it will cost up to $1 million to update just one pharmaceutical packaging line for compliance. [1] But pharma manufacturers are also concerned about the significant cultural, process and technology changes they will have to make across their already complex end-to-end global supply chains.

While the idea of item level serialization (ILS) is new to the pharmaceutical industry, the truth is that other industries—most notably, discrete manufacturers—have been tracking products at an incredibly detailed level for decades. These industries have adopted product serialization and item-level tracking not because these practices are mandated, but because they deliver a broad range of financial and strategic benefits across the global supply chain. There are a wealth of case studies that clearly demonstrate the power of item-level tracking to reduce operating costs, improve margins, protect product quality and enhance customer service.

Because item-level tracking is an accepted business strategy in other industries, the good news for pharma companies is that advanced track-and-trace and inventory-control technologies are readily available, and the related supply chain processes have been proven. There are plenty of benchmarks and best practices that pharmaceutical manufacturers can implement in their own supply chains in order to save the time and costs of a lengthy learning curve.

All that’s needed is for pharmaceutical companies to truly embrace the proven science of inventory tracking—and begin serious preparations for the January 2015 deadline. Following are four key business benefits they will realize by moving quickly to adopt item-level inventory tracking before 2015.

Precise supply and demand matching

Matching available product supply with demand in the marketplace is a complex endeavor for any business—but it is especially challenging for the pharmaceutical industry, with its incredible product depth and breadth. Track-and-trace tools offer a simple, straightforward way to achieve a singular view, and holistic control, of all inventory in one central repository. Because all pharmaceutical products have an expiration date, the exacting level of detail that comes with ILS will help to manage shelf-life issues and make all inventory more productive, while minimizing waste throughout the supply chain.

JDA Brand Protection: business benefits, ILS compliance

Pharmaceutical companies can quickly and cost-effectively meet the January 2015 item level serialization (ILS) requirements of the California Board of Pharmacy—as well as achieve a broad range of business benefits—by implementing JDA Brand Protection. This proven solution was designed by JDA to offer powerful network-wide trackand-trace capabilities that support stringent quality assurance (QA) management initiatives.

This solution replaces error-prone manual QA processes with new automated capabilities that are directly linked to

logistics systems. Pharma companies can create the robust documentation required by pending ILS requirements, as well as execute product holds and recalls. This JDA solution enables authorized individuals to see granular views of all inventories in the network, enabling precise inventory reconciliation, product holds and inventory releases in real time.

Pharmaceutical companies’ brands are their most important assets. Beyond meeting pending regulatory requirements, JDA Brand Protection can help pharma companies protect these assets via air-tight QA processes and rapid recall capabilities that can mean the difference between profit and loss—or even brand survival. JDA provides this protection by centralizing and automating item-level tracking processes, and delivering a single solution for complete electronic traceability across the extended supply chain. It provides a chain of custody for any item manufactured, stored or shipped within the supply chain, at a low cost and with minimal risk.

Beyond this obvious benefit, ILS can make all inventory more profitable by matching it to a demonstrated market need. Pharmaceutical manufacturers can combine their new, comprehensive view of inventory as a better input into their demand and supply planning capabilities—which are already mature in many pharma companies—to match market needs with available products at a new level of detail. By enabling individual products to be matched with local demand for those items, track-and-trace tools support granular inventory control. Because inventory can be held and moved more precisely, pharma manufacturers can expect to see dramatic improvements in their operations productivity, as well as in their transportation and distribution costs.

In their warehouse operations alone, pharmaceutical manufacturers can expect to see dramatically improved efficiency and cost control. Serialized, barcoded individual products will enable greater use of warehouse automation, radio-frequency identification (RFID) and other innovative technologies that are commonly used to drive out costs, reduce human resource requirements, increase consistency and eliminate process inefficiencies in other industries.

Improved quality control

From the Tylenol product tampering events in the early 1980s to the problems with heparin contamination in 2008—and, more recently, the meningitis outbreak that originated at the New England Compounding Center last year—quality control issues have long placed the pharma industry under special scrutiny.

Manual quality assurance processes are both error-prone and time-consuming, leading to product holds and recalls. With their ability to automatically collect detailed information on every single product in the supply chain, track-and-trace tools can help pharma manufacturers to manage and protect product quality much more cost-effectively, with greater confidence and at a much more exacting level of detail. The key benefit is faster response to quality issues and removing only the products that are impacted from specific manufacturing lots.

Today, any quality issues automatically trigger broad recalls that have an enormous negative impact on short-term financial results—while also creating the risk of high litigation costs in the longer term. Rather than going into panic mode and pulling a broad range of products from store shelves and distribution centers, pharma companies with end-to-end product traceability can quickly locate the specific items that are part of the tainted batch. Only those end products containing ingredients from the affected batch need to be pulled from shelves, locked from distribution on point-of-sale systems and physically recalled. This could mean millions of dollars in cost savings during a single recall event.

Product serialization will also help legitimate product manufacturers to manage the growing threat of counterfeit drugs and online pharmacies. Recently the World Health Organization estimated that 5%—8% of pharmaceutical products traded worldwide are counterfeit drugs. [2] Not only do these products endanger patient safety, but they severely impact the revenues of legitimate companies. Track-and-trace capabilities will combat this threat by providing an easy way for consumers to verify that they are buying certified, quality-assured products.

Closer collaboration with trading partners

The new track-and-trace requirements will necessitate pharmaceutical manufacturers working much more closely with all their trading partners, in order to ensure compliance from the point of materials procurement through final distribution to the consumer. This close level of collaboration is a significant potential benefit, as it will allow supply chain partners to explore opportunities for cost savings and product/process improvements—as well as provide a higher level of service to the ultimate consumer.

In the consumer packaged goods industry, leading manufacturers have been leveraging these kinds of close trading partner relationships for years. By gathering consumer information from their retail partners—then applying these insights backward through the supply chain—consumer products manufacturers have been able to develop and market products that are designed, from the ground up, to meet the end-consumer’s needs. This strategy has become key to the ability of consumer products manufacturers to differentiate themselves in an increasingly crowded marketplace.

By bringing the end-to-end supply chain together, track-and-trace initiatives can help pharmaceutical manufacturers move toward this same highly collaborative level of consumer focus. Insights from their market-facing partners—including wholesalers, distributors and pharmacies—can inform manufacturers’ internal product development efforts, as well as those of their contract manufacturers. From a service perspective, pharmaceutical manufacturers can work with their packaging suppliers, third-party logistics providers and other back-end supply chain partners to deliver products in exactly the manner most valued by customers—such as drugstore retailers—as well as by end consumers.

Product and process innovation

The adoption of ILS represents a sea change for the pharmaceutical industry. Anytime there is a change of this magnitude, it opens the door for other innovation opportunities.

For example, new track-and-trace capabilities may mean the total reinvention of pharmaceutical warehouse structures, creating a new opportunity for handheld devices, RIFD, robotics and other technologies that have revolutionized inventory management and control practices in other industries. Companies in other industries save millions of dollars in annual costs by implementing these kinds of warehouse and distribution innovations, creating a tremendous opportunity for pharma manufacturers to study and adopt their best practices.

Another area for innovation may be in the mass marketing of personalized medicine. While the Human Genome Project has laid the foundation for highly customized drug therapies targeted to individuals or small classes of patients, the pharma industry needs a new logistics framework to fully capitalize on this exciting opportunity. ILS represents an important step toward the ability to deliver highly customized pharmaceuticals in the not-so-distant future.

Pathway to the future

While no one wants to have change forced upon them, the pharmaceutical industry needs to recognize that ILS is an idea whose time has come. Pharma manufacturers need to act quickly to implement track-and-trace capabilities across their end-to-end supply chains—not only to prepare for regulatory compliance, but also to begin to capture the significant supply chain benefits enabled by tighter inventory management, better quality control, closer collaboration with trading partners and support for future innovation.

It’s clear that, to date, the pharmaceutical industry has been slow to adopt track-and-trace practices in anticipation of the looming deadlines. In a February 2013 survey conducted by Gartner, 60% of respondents reported that less than 10 percent of their packaging lines were “serialization ready.” [3]

While companies may be slow to adopt track-and-trace technologies because of the perceived high cost and large amount of effort required, there are many ways to manage this process both time- and cost-effectively, in order to meet the January 2015 deadline.

First, pharma manufacturers need to recognize that there are a wealth of tools and best practices available, because ILS is already “business as usual” in other industries. They do not need to reinvent the wheel, just take leading technology solutions and established practices and apply them to their own unique supply chain challenges.

Second, since speed is of the essence, pharma manufacturers should consider partnering with a solutions provider and/or business consultant who has “been there, done that” in implementing track-and-trace tools and processes. They can avoid costly mistakes, as well as a painful learning curve, by benefiting from the real-world expertise some providers have developed across hundreds of similar technology implementations.

Third, pharmaceutical manufacturers may need to consider some outside-the-box solutions in order to meet what has become a very tight deadline. For example, a cloud-services approach might help them to manage the new volume of item-level data they will be collecting and sharing across the supply chain. Because pharmaceutical companies have not made swift progress to date, they might have to try new approaches that will help them to leapfrog ahead, saving both time and costs.

While there’s no doubt that pharmaceutical manufacturers will have to invest in supply chain improvements to meet the new industry requirements, companies in other industries have already proven that there is a meaningful return on the investment in inventory tracking and control technologies. The sooner pharmaceutical companies begin to optimize their supply chains in preparation for 2015, the sooner they can begin to realize a significant payback on their forward-looking investments.

ABOUTHE THE AUTHORS

As vice president, industry strategy for JDA Software, Thomas Kozenski is responsible for driving the product direction of JDA’s warehouse management and workforce management solutions for both the manufacturing and retail sectors. Kozenski brings more than 43 years of supply chain technology and logistics experience to this role. Kozenski joined JDA as part of the JDA/RedPrairie merger in 2012, where he served as an integral part of RedPrairie’s leadership team for more than 17 years.

As vice president, industry strategy, for JDA Software, Fred Baumann leads global industry strategy for several manufacturing verticals. Baumann has been instrumental in driving JDA’s collaborative trading community strategies and launching the company’s CPFR, S&OP and analytics offerings. Prior to joining JDA Software, Baumann spent eight years with The Pillsbury Company, where he served as a value chain manager and was responsible for starting the collaborative inventory program with Wal-Mart for Pillsbury.

[1] “Secure The Pharmaceutical Supply Chain From Risky Counterfeiters,” by Grace-Marie Turner, Forbes, May 20, 2013

[2] “Track and Trace in the Pharmaceutical Supply Chain,” by Edmund W. Schuster and Robin Koh, Massachusetts Institute of Technology

[3] “Time for Action on Track and Trace in the Pharmaceutical Supply Chain,” by Todd Applebaum, Gartner, February 28, 2013