IBM Study Reveals Drug Companies Struggle to Improve Supply Chain

The study surveyed executives at pharmaceutical, biotechnology, medical device and consumer health care industry companies who are responsible for planning, logistics, procurement and coordination throughout the life of a drug or medical device.

Companies must work to improve their ability to keep wholesalers, hospitals and pharmacies stocked with the products they need to meet patient demand. Tracking every step of how drugs are manufactured and distributed are key priorities for more than 70 percent of companies. And while the industry is far ahead of most others when it comes to supply chain planning with suppliers, the study indicates the industry falls far behind on collaborating with customers on demand planning, forecasting and replenishment. These are all critical steps to rapidly responding with new vaccines in the event of pandemics, and to ensure that demand does not outstrip supply.

Other key findings:

• 64 percent reported rising customer demands such as requests for designer drugs or specialized packaging as a major challenge
• Monitoring risk to prevent counterfeiting, drug and device recalls, or even the loss of intellectual property, is a priority for 75 percent of executives, as margins become slimmer and supply chain complexity rises. Three-quarters have risk and performance initiatives such as surveillance programs, anti-tamper devices and specialized labeling, but with mixed results.
• 46 percent consider vendor-managed inventory for their customers extremely effective but only 4 percent use it to ensure they are precisely meeting customer demands for products
• 65 percent collaborate with suppliers on demand planning but only 31 percent do so with customers, often resulting in an overstock of supplies or missed sales targets

Compared to 18 other key industries, the life sciences business is one of the most highly globalized, particularly in the area of Research and Development. From a supply chain perspective, the industry is not as advanced. In general, global sourcing brings with it challenges including daunting capacity, quality, lead times and delivery issues. For the life sciences industry, seventy-six percent of respondents suffer quality issues linked to global sourcing while nearly fifty percent reported increased sales from their globalization efforts due to the growing population of consumers in rapidly developing markets.

More pharmaceutical companies are selling drugs, devices, therapies and services supplied by different partners. They are also serving smaller patient segments, rather than relying on major new drug discoveries that drive revenue over many years. The IBM study underscores the fact that drug manufacturer supply chains need to be more interconnected and intelligent, equipped with sensors and smart devices that share data so they can rapidly change their business models to address new market opportunities.

"As the industry faces a time of transition, supply chain executives are outsourcing more business processes, turning to emerging markets and becoming more globally integrated, all while actively managing risk," said Dr. Philippe Cini, IBM Global Business Services, Life Sciences Supply Chain Management Partner. "The companies we spoke with said they are looking to a different kind of supply chain - one that gives the insight to react instantly to risks or threats, is much smarter and able to provide them the insight and agility necessary to compete in a changing marketplace."

Counterfeiting is one of the biggest risks facing the pharmaceutical industry today. According to the World Health Organization, approximately 10 percent of the worldwide drug supply is counterfeit. To combat such risks, sophisticated simulations and data models help companies calculate risk, and building intelligence into products and packaging such as barcodes, RFID tags and other smart devices, supply chain executives can prevent theft. This type of new intelligence along with e-pedigree and track-and-trace capabilities also enables the entire supply chain to respond quickly in the event of a recall.

Using smarter, more intelligent supply chain systems that connect suppliers, manufacturers, distribution and customers can more effectively allocate inventory around the world, making real-time adjustments in production and distribution and avoiding costly stockpiles. With the help of sensors and other smart devices to communicate and share information, new efficiencies can be attained. For example, smart pallets of flu medication can sense what and how much medication they are carrying, monitor proper levels of refrigeration and storage, and automatically send a signal when the pallet needs to be replenished.

A smarter supply chain helps drug companies capitalize on revenue opportunities in emerging markets while more advanced customer insight allows firms to tailor their products and create new drugs, devices and even diagnostic tools to expand their business.

The study - "The Smarter Supply Chain of the Future: Life Sciences Edition" - was developed by IBM Global Business Services' Supply Chain Management Practice in conjunction with the IBM Institute for Business Value, which develops fact-based strategic insights for senior business executives.

IBM will host a webinar featuring AMR Research, Smarter Medicine: The Smarter Supply Chain of the Future, on September 10 that will provide insight about how Smarter Supply Chain Management can drive innovation into the health care and life sciences industries.

To register, please visit: http://w.on24.com/clients/ibm/157263

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