The manufacturing of pharmaceuticals and medical devices is becoming increasingly complex. Companies are expanding their product portfolios to meet rapidly changing markets and lengthening product life cycles. Emerging economies want more affordable products. Quality and compliance issues are rising because products are more complex and regulatory scrutiny is stricter. The number of drug recalls is increasing. Yet the supply chain remains fragmented and incomplete, with weaknesses that put patients at risk, cost billions in value, and lessen the health-care sector’s ability to take on the challenges it faces.
The good news is that models do exist to strengthen and improve the health-care supply chain. We believe that by learning from the experience of industries such as fast-moving consumer goods (FMCG), the health-care sector could cut production lead times and obsolescence, while manufacturers, distributors, hospitals, and pharmacies could carry significantly smaller inventories. Improving the health-care supply chain also could give millions of people around the world access to safer and more affordable health care, reduce costs, and provide new revenue sources for manufacturers.
In this we identified five specific capabilities that can have a dramatic impact on performance and bottom lines:
better segmentation of products, markets, and customers
greater agility, to reduce costs and increase flexibility
measurement and benchmarking
alignment with global standards
collaboration across the health-care value chain
Now, we recognize that transforming supply chains isn’t easy. In our experience, limited improvement efforts yield poor results, while comprehensive, integrated efforts are complex. But the payoff can be significant. Supply chains now account for nearly 25 per cent of pharmaceutical costs and more than 40 percent of medical-device costs.
Industry research, together with our own experience serving clients, has revealed opportunities to boost profitability throughout the value chain. The improvement from better-performing supply chains would range from about 6 percent for retailers to 20 percent for hospitals and producers of devices and medical supplies. The cost of the shortcomings of today’s supply chain is substantial. In the meantime, drug shortages have nearly tripled in the Europe and added more costs for hospitals worldwide. Supply issues also create opportunities for counterfeiters and gray-market vendors, threatening patient safety and cutting into the revenues of legitimate companies. Supply-chain security breaches are increasing every year, rising not only in emerging markets such as China, India, and Brazil but also in the developed world. A typical Asian laptop manufacturer can accept an order on a Monday and deliver a pallet of freshly assembled customized computers to a European customer little more than a week later. In contrast, a typical pharmaceutical manufacturer has a lead time of about 75 days. How can medical-device and pharmaceutical manufacturers close the gap? Of the five comprehensive transformations we have identified, three can be accomplished internally. Two others—alignment and collaboration—are potentially the most powerful but require a company to work together with its customers, suppliers, and even competitors. Here’s what must be done.
Internal factors
1. Segmentation. Many pharmaceutical and medical-device companies come close to running one-size-fits-all supply chains. In practice, however, there can be significant differences in profitability, value per unit of weight, demand, the importance of a drug or device to patients, a customer’s cost to serve, and service expectations. Forcing products with such varied characteristics through a single set of supply-chain processes creates multiple inefficiencies, such as high inventories for some products while others are in short supply, the use of expensive air freight when slower surface modes would do, or a need to reschedule production campaigns hastily to meet urgent delivery requirements. Leading companies tackle these problems by intelligently segmenting their supply chains according to the characteristics of products and the requirements of customers. They then develop forecasting, production, and distribution strategies for each category.
2. Agility. This means more than just being fast when there’s an emergency; it means building an operating model that can better respond to demand shifts and customer wishes—at the same or even reduced cost. As we mentioned, the replenishment lead time from pharmaceutical plants to distribution centers is 75 days, on average. But leading companies in sectors such as fast-moving consumer goods take a fraction of that time, often without additional investments. Companies must better align the production cycle with the patterns of patient demand and increase the low frequency of their manufacturing processes. The average stock-keeping unit (SKU) is packaged every two to three months; only about 10 per cent are packaged every two weeks or less. An agile supply-chain model also requires stability in production, replenishment, and visibility. Many health-care companies need to make deliveries from third parties and in-house plants more reliable and to upgrade their sales- and operations-planning capabilities to the standards of the fast-moving-consumer-goods industry. The necessary improvements include a more disciplined cross-functional process, a better understanding of demand-and-supply scenarios and of underlying assumptions, more effective communication, and transparency on potential supply issues and bottlenecks.
3. Measurement. Health-care companies need to increase the transparency of their costs, including manufacturing, transport, warehousing, inventory holding, staff, and obsolescence—moves that could cut operational costs and optimize route-to-market approaches and product portfolios. Improvements are also needed in structural drivers or capabilities: responsiveness, manufacturing frequency, reliability of supply, and stability are mostly not systematically measured or managed across the network. Consumer-goods companies are clearly more advanced: they watch metrics such as the manufacturing-frequency index to measure the share of SKUs that are produced with high frequency. Finally, companies must standardize metrics across countries and plants. Commercially available benchmarking tools and approaches provide rough guidance for high-level opportunities in services, costs, and inventories, but not fully comparable results or tangible recommendations on how to capture value.
External factors
While internal optimization can deliver better service at lower cost, companies have even more to gain from optimizing externally. To do so, they must align processes and improve 
collaboration.
4. Alignment. Manufacturers of fast-moving consumer goods use point-of-sale information from retail customers to build production plans. The grocery industry, for example, has created billions of dollars in value by adopting standard barcodes. To build a cost-effective supply chain, the health-care sector could align around a single set of global standards that support data interchange, processes, and capabilities. Doing so may increase efficiency and patient safety by making it harder for counterfeiters to operate, by reducing medication errors, and by improving recall processes.
5. Collaboration. While the use of common standards is part of the challenge, supply-chain partners must find ways to collaborate more effectively to reap the full benefit. Barriers to improvement are often cultural rather than technical—transactional relationships must be transformed into something more ambitious. In our experience observing successful collaboration projects, six essential steps can make the difference between a productive collaboration and a frustrating one: companies must collaborate in areas where they have a solid footing; agree on sophisticated benefit-sharing models; select partners for the potential value of the collaboration, as well as their capabilities and willingness to act as a team; dedicate resources to the collaboration and involve senior leadership in it; jointly manage performance and measure impact; and start out with a long-term perspective.
At a recent meeting of senior supply-chain executives in the pharmaceutical and medical-device industries, we asked attendees which of these five supply-chain changes offered the greatest opportunity. More than 70 per cent specified improved collaboration. Transforming the health-care supply chain can do much more than improve the bottom line. By embracing the challenge of supply-chain leadership, pharmaceutical and medical-device companies can provide safer, more affordable access to products that enhance or even save the lives of people across the world. .As reform continues to force hospitals to find new ways to cut costs and increase effectiveness, many organizations forget about the processes and supplies needed to keep the business moving. Getting a better grip on managing a healthcare organization’s supply and demand will save tons of money to the organization while also increasing positive patient care. Supply chain is also a key to creating better end-to-end visibility about all of the products, devices and supplies used in healthcare – critical to running businesses better. Logistics companies can help save time and provide better visibility within the supply chain. The supply chain management in healthcare is not only about medical-surgical supplies anymore, but complex in nature involving more technology, consolidation and partnerships within the supply chain community. With supply chain management being the second most expensive cost under labor, hospital authorities are looking for a better way to save more money and still be efficient at the same time. In the meantime five ways that healthcare organizations can utilize supply chain management to reduce the rising costs and run efficiently in light of all the constant healthcare reform changes.
Automating manual processes
By automating requisitions, purchase orders and invoices, providers and suppliers are able to remove manual, error-prone processes from the supply chain – these often lead to higher cost. Healthcare organizations, whether supplier or provider, looking to recoup these missing costs should consider e-commerce solutions for automating manual processes. E-commerce solutions like expense management software save both time and money when implemented correctly. These solutions would create critical connections across organizations and functions, providing visibility to data and enabling better management of data that are messaged daily. Accurately capturing data at the beginning is key to reducing costs; these include accurate charge capture, inventory management, demand forecasting, recall management and comparative effectiveness research. According to The Case for Global Standards in the Healthcare Supply Chain, there has been significant interest in developing standardized information that leverages automatic identification (Auto-ID) technologies to convey the information up and down the chain. These technologies can provide system benefits that are maximized when standardized and interoperable. Hospitals can then reinvest the savings earned into equipment and personnel that further enhance patient care.
Establishing efficient trading partner relationships
With the ability to connect with trading partners through a supply chain community, the frequency of accurate and efficient e-business transactions grows throughout the industry. Suppliers, partners and customers should form relationships with one another with each party performing a role in the supply chain, contributing to the movement of products, data or information and funds. Relationships are vital with distributors and getting the product to the end-user, the patient. Having these great alliances with major players will keep cost down and profits up. Flexibility in contracts will allow for movement amongst these key players to continuously look for better options or a lower cost solution to high-ticketed or needed items. Changes required to create efficient healthcare supply chain can’t be the result of one single person or entity, it must be a collaborative effort for everything to work. .It seems that the healthcare supply chain can look to retail supply chain models to get a head start on how to effectively foster these relationships. According to the industry found that the retail supply chain has done a better job in the critical area of collaborative planning, forecasting and replenishment, which involves suppliers and retailers or healthcare providers working together to adopt order forecasting and inventory planning to create an integrated supply-chain network. There is much to be done at this level to move in the right direction of having a more effective healthcare supply chain model.
Reducing waste/excess product
By taking supply chain data and turning it into information on supply levels and use, providers and suppliers can get a better handle on how much product is needed and when, leading to a decrease in loss due to wasted, lost or expired supplies. That’s money going down the drain. Healthcare organizations cannot afford to waste or not use all supplies or products needed. By utilizing streamlined supply chain programs, healthcare organizations and players can effectively track and monitor inventory of products by having instant access to product, pricing and order information, as well as enhanced inventory visibility and tracking, therefore reducing costs, improving customer satisfaction and better meeting compliance and regulatory requirements.
Capturing data for business requirements
In the future, the supply chain will serve a growing role as a key component of the technology infrastructure to help capture and share much-needed data to drive greater efficiency and compliance. As provider organizations stride toward new business requirements, they can consider the supply chain as a backbone a key component of technology infrastructure – that can help capture and share the data they need. For example, an organization that’s capturing data about all of the medical devices and products used during a patient procedure can then use this data to populate the same information in other locations, such as the electronic health record. In the future, a one-time data capture for a multitude of uses can drive much greater efficiency and compliance,
This can be achieved by identifying products a provider is frequently purchasing and at what prices; what products are being purchased off-contract; identifying like-products and determine whether they can be grouped onto contracts for future purchases; and assimilating those items onto group purchasing organization (GPO) or supplier contracts. With correct data capture, healthcare organizations can achieve significant savings from reduced errors, lower costs from better contract alignment and improved revenues through the use of more accurate, up-to-date data helping the business run much more smoothly.
Enabling automation amongst regional care networks
Regional hospitals and sub-acute care networks are underserviced by healthcare technology. There is an opportunity for scalable solutions, like supply chain automation tools, to serve these networks and allow them the efficiencies, data visibility and cost savings they need to survive. According to a Supply Chain Best Practices were observed over where there were a number of problems associated with limited investments surrounding not having enough funds invested in automation and IT services and solutions were found. It also provided a strong business case for reversing that trend, noting that “healthcare providers that make greater investments in back-office automation and process improvement enjoy operating cost ratios that are 2 to 4 per cent better than those of their peers.” Specifically, it called on providers to increase investments in tools to enable electronic order exchange with suppliers (including the use of order acknowledgements and advanced ship notices) and automate processes around procurement, invoicing and catalog price updates. An e-commerce infrastructure, for example, creates connectivity and linkages that enable supply chain partners to share data with one another, building both trust and visibility to drive many of the improvements in supply chain management. Automating the pricing synchronization process acknowledges and recognizes efficiencies by all participants in the contracting process, where all parties involved can share information electronically. Some multinational companies recommends investing in solutions that automates the pricing synchronization process with a collaborative platform that enables all parties to a contract to agree on key terms and conditions.
This would allow all parties to a contract generate an electronic letter in real time and can then have the contract integrated with a distributor on the same day it is executed, in turn activating new pricing with all parties in less than a week. Without the platform, it can take up to 60 days to synchronize contract data. This makes it easier for trading partners to share accurate information related to factors such as tier pricing and commitments, customer eligibility and price activation dates. With the increasing number in costs and supplies, healthcare organizations would definitely benefit from taking a look at their current supply chain and making some of these changes with healthcare spending consuming almost higher amount today.
Healthcare has two choices: dig in or embrace change. Supply chain leaders must adapt to the changing healthcare environment to help lead their organizations forward. Strong leaders should continuously look ahead at what patients and providers need to ensure the best quality of care.
0 comments: