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Page 1: Opportunities and Challenges for Pharmaceutical Supply Chains in India: A Case BY Dr. RAJESH KUMAR SINGH Associate Professor Delhi Technological University.

Opportunities and Challenges for Pharmaceutical Supply Chains in

India: A Case

BY

Dr. RAJESH KUMAR SINGH

Associate Professor

Delhi Technological University (DCE), Delhi

1

Page 2: Opportunities and Challenges for Pharmaceutical Supply Chains in India: A Case BY Dr. RAJESH KUMAR SINGH Associate Professor Delhi Technological University.

Plan of Presentation

• Introduction of Pharmaceutical Industry• Critical issues• Pressures and Challenges• Case Study• Supply Chain Performance Framework

Page 3: Opportunities and Challenges for Pharmaceutical Supply Chains in India: A Case BY Dr. RAJESH KUMAR SINGH Associate Professor Delhi Technological University.

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.

Page 4: Opportunities and Challenges for Pharmaceutical Supply Chains in India: A Case BY Dr. RAJESH KUMAR SINGH Associate Professor Delhi Technological University.

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

Page 5: Opportunities and Challenges for Pharmaceutical Supply Chains in India: A Case BY Dr. RAJESH KUMAR SINGH Associate Professor Delhi Technological University.

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

Page 6: Opportunities and Challenges for Pharmaceutical Supply Chains in India: A Case BY Dr. RAJESH KUMAR SINGH Associate Professor Delhi Technological University.

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.

Page 7: Opportunities and Challenges for Pharmaceutical Supply Chains in India: A Case BY Dr. RAJESH KUMAR SINGH Associate Professor Delhi Technological University.

The Value Chain Cost Distribution

Value Chain Stages Cost Distribution

Research & Development Cost 15%

Primary Manufacturing cost 5 – 10%

Secondary Mfg/Packaging 15 – 20 %

Marketing / distribution 30 – 35%

General Administration 5%

Profit 20%

Total 100 %

Page 8: Opportunities and Challenges for Pharmaceutical Supply Chains in India: A Case BY Dr. RAJESH KUMAR SINGH Associate Professor Delhi Technological University.

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)

Page 9: Opportunities and Challenges for Pharmaceutical Supply Chains in India: A Case BY Dr. RAJESH KUMAR SINGH Associate Professor Delhi Technological University.

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

Page 10: Opportunities and Challenges for Pharmaceutical Supply Chains in India: A Case BY Dr. RAJESH KUMAR SINGH Associate Professor Delhi Technological University.

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, (Laínez 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).

Page 11: Opportunities and Challenges for Pharmaceutical Supply Chains in India: A Case BY Dr. RAJESH KUMAR SINGH Associate Professor Delhi Technological University.

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)

Page 12: Opportunities and Challenges for Pharmaceutical Supply Chains in India: A Case BY Dr. RAJESH KUMAR SINGH Associate Professor Delhi Technological University.

Challenges• NPD as more important issue than the accepted need of

high quality, low cost, and differentiation to excel in today’s competitive market (Nonaka and Takeuchi, 1995)

• Quality standards are very stringent (Greene and O’Rourke, 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).

Page 13: Opportunities and Challenges for Pharmaceutical Supply Chains in India: A Case BY Dr. RAJESH KUMAR SINGH Associate Professor Delhi Technological University.

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)

Page 14: Opportunities and Challenges for Pharmaceutical Supply Chains in India: A Case BY Dr. RAJESH KUMAR SINGH Associate Professor Delhi Technological University.

CASE STUDY FROM PHARMACEUTICAL SECTOR

Page 15: Opportunities and Challenges for Pharmaceutical Supply Chains in India: A Case BY Dr. RAJESH KUMAR SINGH Associate Professor Delhi Technological University.

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.

Page 16: Opportunities and Challenges for Pharmaceutical Supply Chains in India: A Case BY Dr. RAJESH KUMAR SINGH Associate Professor Delhi Technological University.

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).

Page 17: Opportunities and Challenges for Pharmaceutical Supply Chains in India: A Case BY Dr. RAJESH KUMAR SINGH Associate Professor Delhi Technological University.

SWOT AnalysisStrength Weakness

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

Page 18: Opportunities and Challenges for Pharmaceutical Supply Chains in India: A Case BY Dr. RAJESH KUMAR SINGH Associate Professor Delhi Technological University.

Opportunities Threats

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

Page 19: Opportunities and Challenges for Pharmaceutical Supply Chains in India: A Case BY Dr. RAJESH KUMAR SINGH Associate Professor Delhi Technological University.

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

Page 20: Opportunities and Challenges for Pharmaceutical Supply Chains in India: A Case BY Dr. RAJESH KUMAR SINGH Associate Professor Delhi Technological University.

Action Plan for improvementStep 1- Primary Distribution SetupStep 2-Evaluated existing C&FA network to setup

independent C&FA networkSTEP 3- One company appointed as Distribution

arm for the otherSTEP 4- Forecast from field implementedSTEP 5- Incoming LogisticsSTEP 6- Transportation & Freight CostSTEP 7- Inventory levelsSTEP 8- IT Initiatives

Page 21: Opportunities and Challenges for Pharmaceutical Supply Chains in India: A Case BY Dr. RAJESH KUMAR SINGH Associate Professor Delhi Technological University.

Supply Chain Performance Framework

Page 22: Opportunities and Challenges for Pharmaceutical Supply Chains in India: A Case BY Dr. RAJESH KUMAR SINGH Associate Professor Delhi Technological University.

Supply Chain Performance IndexSCM 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)

Page 23: Opportunities and Challenges for Pharmaceutical Supply Chains in India: A Case BY Dr. RAJESH KUMAR SINGH Associate Professor Delhi Technological University.

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)

Page 24: Opportunities and Challenges for Pharmaceutical Supply Chains in India: A Case BY Dr. RAJESH KUMAR SINGH Associate Professor Delhi Technological University.

Supply Chain Effectiveness IndexIssues- 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

Sj =Wi Log KiWhere Sj = SC effectiveness index for company J

• i= Coordination Factor• R =Rank of Coordination Factor • Ki =Inverse Rank ( For i =6, If R=1, K= 6, if R=2, K= 5)• Wi =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 <2)

Page 25: Opportunities and Challenges for Pharmaceutical Supply Chains in India: A Case BY Dr. RAJESH KUMAR SINGH Associate Professor Delhi Technological University.

Supply Chain Effectiveness Mapping for Case Company

S. N Coordination Factors Five Point Likert Scale1 2 3 4 5 Mean

1. Top management Commitment

Investment of time and money for resource development

√2.7

Focused communication system √

Ready to adopt new technology √

Employees training and empowerment √

2. Mutual Understanding

Agreed vision and goals of members of supply chain

√3.0

Trust development in SC members √

Effective implementation of joint replenishment forecasting decisions

Supply chain risk/ reward sharing √

3. Flow of Information

Use of Information Technology (IT) tools and techniques

√4 Information sharing/ exchange √

Sharing of data related to purchasing and supplies

Page 26: Opportunities and Challenges for Pharmaceutical Supply Chains in India: A Case BY Dr. RAJESH KUMAR SINGH Associate Professor Delhi Technological University.

Supply Chain Effectiveness Mapping for Case Company

4. Relationship and decision

making

Long term relationship with suppliers √3.25

Long term relationship with stockist √

Collaborative decision making/ planning with SC members

Logistics and network optimization √

5. Organization Factors

Lean organization structure √3.75

and lean practices √Organization culture for SC implementation

Integration of functions with in the organization

6. Performance

Efficiency √4.5

Innovations and NPD √Responsiveness √Drugs quality √

Page 27: Opportunities and Challenges for Pharmaceutical Supply Chains in India: A Case BY Dr. RAJESH KUMAR SINGH Associate Professor Delhi Technological University.

Illustration for evaluating Coordination IndexSr. No.

Issues of coordination Mean Rank

Inverse Rank (Ki)

Log Ki

Weight (Wi)

Wi LogKi

1. Top management commitment

2.7 6 1 0.00 0 0

2. Mutual understanding 3.0 5 2 0.30 0 0.0

3. Flow of information 4 2 5 0.70 +1 0.70

4. Relationship and decision making

3.25 4 3 0.48 +1 0.48

5. Organizational factors 3.75 3 4 0.60 +1 0.60

6. Performance 4.5 1 6 0.78 +1 0.78

Coordination Index = Cj = ∑{Wi Log Ki}= 2.56

Page 28: Opportunities and Challenges for Pharmaceutical Supply Chains in India: A Case BY Dr. RAJESH KUMAR SINGH Associate Professor Delhi Technological University.

Concluding Recommendations

• Improving Forecasting Accuracy• Reducing Inventory levels• Improving Customer Servicing levels and trust

building• Increasing Information Availability of all SKUs• Development of new product development capability• Need to develop effective performance framework

for pharmaceutical supply chain considering emergency situation

Page 29: Opportunities and Challenges for Pharmaceutical Supply Chains in India: A Case BY Dr. RAJESH KUMAR SINGH Associate Professor Delhi Technological University.

THANK YOU


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