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Opportunities and Challenges for Pharmaceutical Supply Chains in India: A Case BY Dr. RAJESH KUMAR...

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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 Slide 2 Plan of Presentation Introduction of Pharmaceutical Industry Critical issues Pressures and Challenges Case Study Supply Chain Performance Framework Slide 3 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. Slide 4 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 Slide 5 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 Slide 6 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. Slide 7 The Value Chain Cost Distribution Value Chain StagesCost Distribution Research & Development Cost15% Primary Manufacturing cost5 10% Secondary Mfg/Packaging15 20 % Marketing / distribution30 35% General Administration5% Profit20% Total100 % Slide 8 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) Slide 9 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 Slide 10 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, (Lanez 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). Slide 11 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) Slide 12 Challenges NPD as more important issue than the accepted need of high quality, low cost, and differentiation to excel in todays competitive market (Nonaka and Takeuchi, 1995) Quality standards are very stringent (Greene and ORourke, 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). Slide 13 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) Slide 14 CASE STUDY FROM PHARMACEUTICAL SECTOR Slide 15 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. Slide 16 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). Slide 17 SWOT Analysis StrengthWeakness 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 Slide 18 OpportunitiesThreats 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 Slide 19 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 Slide 20 Action Plan for improvement Step 1- Primary Distribution Setup Step 2-Evaluated existing C&FA network to setup independent C&FA network STEP 3- One company appointed as Distribution arm for the other STEP 4- Forecast from field implemented STEP 5- Incoming Logistics STEP 6- Transportation & Freight Cost STEP 7- Inventory levels STEP 8- IT Initiatives Slide 21 Supply Chain Performance Framework Slide 22 Supply Chain Performance Index SCM 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) Slide 23 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) Slide 24 Supply Chain Effectiveness Index Issues- 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 as S j = W i Log K i Where S j = SC effectiveness index for company J i= Coordination Factor R =Rank of Coordination Factor K i =Inverse Rank ( For i =6, If R=1, K= 6, if R=2, K= 5) W i =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

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