Pharma industry – an insight in supply chain management

Wed, Feb 1, 2012

Industry Speak


This article explains how Pharma companies in India are coping up with ever increasing complexity of operations in the midst of strengthening regulatory and inflationary pressures. More than the time tested approaches of implementing standard SAP packages, the author explains how the real need of hour is  to be able to respond to  changes over and above planning.

The author, Ratish Mukhoti, a Mechanical Engineer and MBA is currently working with Glenmark Pharmaceuticals as a DGM and heads the Planning function. Mr Ratish has an extensive experience in FMCG  and his previous stint in Marico as a part of Supply chain transformation project there was the main driver of service level improvement.

Here he shares his experience in Pharma and describes how manufacturing, purchase and planning need to work  seamlessly for effective market- catering as well as to work for the overall company objective.

The Indian Pharma industry today is in the midst of unprecedented growth with companies faced with multiple options varying from going for new molecule development, partnering with innovators for marketing rights to capturing new markets with their own, and existing formulations.  A typical mid- sized pharma company in India today can aspire for turnovers ranging from 3000- 4000 cr in topline with a value growth, close to 30% y.o.y.  With the West having wisened in the post recessionary scenario, cost and productivity seems to be the key drivers worldwide , bringing new and enhanced focus on the Supply chain, forcing it to explore  and deliver , consistent and never – before efficiencies.

So, while increasing demand and growth is welcome but the way native Pharma companies are gearing up for the same is a big question. If one sees a typical setup, broadly most organizations can split their operations into two halves, the first one being called pure Generics and the latter as Branded Generics or second/ third generation generic formulations. To understand the difference, take for example a typical molecule, say Telmisartan (used against Hypertension related disorders). In highly regulated markets such as US and EU, for example, Telmisartan will be typically sold as a generic drug, meaning a Pharma chain/ large scale distributor will buy the same as a generic and market it as its own product along the chain to the end consumer ( usually through the prescription and insurance cover route). A finished formulation, however, will be given a brand name, for e.g.- Telvam and marketed through a certain warehouse- Stockist- Chemist route to the end consumer.  Herein, the objective is more of end consumer reach with the intermediates acting as inventory nodes to absorb demand fluctuations, whereas the former is more of a business chain reach. This is what is mostly seen in less regulated markets, such as in Asia, Africa and India.  Thus whereas the former is more of B2B, the latter is more of B2C, in typical Supply Chain lingo.

Let us, for now, look more closely at Branded Generics/ Formulations- the second of the above case. In a standard, mid-sized setup, annual SKU variety can vary from 4000 to even 5000 plus. Monthly volumes in such cases will typically be around 2000 SKUs, with volumes of close to 50000 packs per SKU or 100 Mn units. In a standard production setup there are usually 3 different dosage forms (tablet, liquid and lotion) and thus with an even balance also 700 SKUs will be needed per dosage to form line and thus in a month of 25 working days it will be 28 changeovers or more than one changeover a day!

So, for the supply chain, the key issue herein to cope with this level of variety is how can material, capacities, manufacturing times and manufacturing yield, all four fall inline with the deliveries.  There are, of course, other associated imperatives of quality and expenses, typical of any other manufacturing setup. At the outset, what is more important is to make a preliminary make vs buy decision. Apart from a cost and delivery driven, decision, in pharma, it is also a function of regulatation and licensing.  E.g., if one has to market a certain product, say in Russia and there is an existing manufacturer who is approved by Russian Health authorities to market goods there, it is best to go on third party basis with the manufacturer who has the licence and approvals. Similarly, for a company aspiring to add a product to its basket , obtaining licence from the FDA is going to be time- consuming.

Going back to our issues of complexity, let us look more closely at how the pharma sector is dealing with it. There are typically two parts in the overall Supply chain planning and coordination. The first is called Master Planning of Resources and the second is called Scheduling. Typically the demand forecast comes in 2-3 months prior to the start of the actual manufacturing cycle and this is where master planning starts. So, considering the forecast and available capacities at each location, the master planning stage works out material requirements and also projects the capacity shortfall. Typically, in most companies this is worked out in an ERP package such as SAP or other software. Inputs can be directly taken from past ERP data such as expected opening inventory for each input material to arrive at net requirement or can be manually fed in, typically for capacities available, linewise which can vary from month to month. The output from such a system is a firm plan and also material requisitions which are forwarded to the procurement team, alongwith the expected delivery dates, considering the testing times. The next step is scheduling, which is active when that particular month is reached. So, based on net of previous month’s production shortfalls, how much has to be made in next one week say, daywise, and when, looking at the available material releases.

So while Master Planning of resources enables the Planner to look at the long- term and broader picture, scheduling is the immediate future and at a more micro level. So, e.g., while Mater planning will project the capacity constraint in tablet manufacturing at a location depending on the bottleneck capacity, say 3 months ahead, scheduling will be more granular, stagewise breaking of tablet production into granulation, compression, coating and packing. Other key inputs will be the recipe (called formulation or BOM), product routing, i.e. how each product moves and how much time is taken for processing at each stage and alternate recipes, as applicable. So, obviously the need for ERP and other Software applications to handle this level of data and analysis arises.

With all this and much higher levels of automation, where do the challenges exist now. It is firstly on the ability to handle changes. Changes can be market driven, such as market driven urgencies, it can be unexpected breakdowns, it can be delayed material availability or rejections in quality. In many cases it can also be a regulatory change calling for new artworks to be developed on the packs for a certain market. Thus the supply chain planner typically has to navigate these and replan as needed to ensure that value loss to the market and sales loss is minimized.  The second is to continuously upgrade. This upgradation may be in terms of reduced cycle times of processes, in terms of improved vendor reliability calling for lesser inventories to be maintained in the chain or it may be a more cost- effective formulation. Third, but not the last is to analyze plan vs actuals at regular buckets and translate these deviations into inputs for better future planning.  The right set of people of course will thus continue to be the backbone in the entire process.

Thus there are certainly exciting days ahead for Supply chain professionals in Pharma but the key will be looking at processes rather than looking at complexities. Where are our NVA (non value adding activities) and what is the COPQ (Cost of Poor Quality). An objective, number driven, focus to drive efficiencies and control is the path ahead coupled with traditional wisdom and time- tested methodologies. Success at the end of the day will be success at the market and Supply Chain needs to be geared for that just as other teams in the organization.

Contibuted By :

Ratish Mukhoti

Deputy General Manager, Planning and Inventory Control

Glenmark Pharmaceuticals

, ,

3 Responses to “Pharma industry – an insight in supply chain management”

  1. Abhishek Says:

    This article gave some wornderful insights!!!

  2. Shekhar Says:

    Well written article shows the complexity in Supply Chain Management in Pharma industry, ERP packages to some level help in activities like planning and scheduling.

  3. K D Hoosur Says:

    This is really a need of the hour in the growing market in Asia,EU countries.

Leave a Reply

IMPORTANT! To be able to proceed, you need to solve the following simple math (so we know that you are a human) :-)

What is 3 + 8 ?
Please leave these two fields as-is: