As a global pharma player, India has been experiencing interesting times. Companies today have fearlessly embarked on a growth trajectory aspiring to become a hub for low-cost manufacturing and R&D, and yet they are also facing unique set of local and global challenges that are creating significant pressure to tighten the end-to- end operations. While the companies are looking at the next phase of growth, they need to efficiently elevate their supply chain and gear up for the e-commerce wave that’s slowly hitting this sector.
The Indian pharmaceutical industry has contributed immensely not just to Indian but to global healthcare outcomes. India continues to play a material role in manufacturing various critical, high quality and low cost medicines for Indian and global markets. It supplies 50—60% of global demand for many vaccines (including ARVs), 40% of generics consumed in the US and 25% of all the medicines dispensed in the UK. Over the last 5 years, 35—38% of total ANDAs approved (including 25—30% of total injectable ANDAs) have been filed from Indian sites. Affordable anti-retroviral (ARV) drugs from India were a major factor in AIDS patients getting greater access to treatment. India supplies 60% of global ARV drugs and 30% of the annual UNICEF requirement. All these figures present a rosy picture for the Indian pharma industry globally, states a recent report by FICCI. Going by such stupendous performance, analysts predict that India will become one of the top three pharma markets globally by 2030.
On the promising dynamics, Vickram Srivastava, Delivery Head – Supply Chain, GDSO, Zydus Group, said, “Indian Pharma industry is overall in a very healthy state, registering double digit CAGR in the last 5 years. The Indian pharma industry driven mainly by generic drugs is expected to touch $85 bn by 2020. Domestic contribution is expected to be higher than exports as urban spending and insurance coverage is expected to improve healthcare expenditure. Supporting this growth rate must be a strong backbone of supply chain. Moving forward, it will get increasingly difficult to differentiate products on quality. Generic drug makers are catching up to competition and technology/manufacturing advantages are being negated. Cost, which will be driven by effective supply chain management, is expected to be at the forefront to drive the next wave of growth in the industry.”
Reflecting on his years of experience in this very industry, Rajasekhara Reddy, VP – Global Demand Planning & Logistics, Glenmark Pharmaceuticals Ltd, shared, “The Indian pharma supply chain is evolving from a past of unorganized small holding businesses. This has been aided by GST as well as due to the consciousness of the company to extract value and bringing more value out of supply chain in terms of service and cost efficiency to the business. Currently the supply chain cost ranges between 4—8% with largely unintegrated and undifferentiated service levels.”
Talking about transformation, B Raveendran, CEO, LBW Consulting Pvt. Ltd, says, “The Indian pharma supply chain is going for a major transformation primarily due to GST. All companies are engaged in optimizing the supply chain network, which will lead to huge cost savings and speed to market. The new trend is to de-layer the supply chain, which means cutting across channels and connecting with the customer directly because the pharma business is divided into 3 buckets – chronic, acute and specialty products. Hence, most of the companies are working on supply chain activities based on the nature of their products. Eg., the focus of chronic products is direct to customers since this must be consumed life long. Similarly, specialty products also work on the same line.”
As the competition is fierce, the focus is shifting towards developing an integrated supply chain to improve operational performance parameters such as service level and cost to deliver. If we assess health of Indian pharma supply chain on key performance indicators like customer service, inventory levels and supply chain costs, there is a huge room for improvement. Every company strives to ensure that products are available across the supply chain with good quality and ample shelf life. Best-in-class pharma companies operate at a 95% service level, this is 3 percentage point lower than best-in-class Indian FMCG companies and 4.5 percentage point lower than global best-in-class pharma companies. Supply chain costs for best-in-class pharma companies in India are 8% higher than best-in-class pharma globally.
In such scenarios, new trends like modern retail and e-commerce are paving way towards better supply chain management and delivering products directly to the consumer. E- commerce has integrated technology to enable better management of inventory levels across stakeholders and reduced cost of supply chain by dividing the products demographically.
Offering perspective into the emergence of e-commerce players, Vikas Chauhan, Co-founder, 1mg, elaborated, “India is becoming a global pharma player with companies aspiring to become low-cost manufacturing and R&D hub, but still they are facing a unique set of local and global challenges that create a significant pressure on end-to-end operations. Currently, India’s pharma supply chain is highly fragmented and unorganized.”
Rajeshh Rao, Head – SCM, Rossari Biotech Ltd, remarked, “Lot of new age companies are mushrooming in this space lately because it’s a volume game more than a price game. Surely, there is a challenge of delivering goods to the final consumer because of the time lag in taking the order or the medicines are not in stock. The same challenges might not be there when you walk into a pharmacy and ask for the desired medicine. There is a lot of work that need to be done in the back-end for online pharmacy. They are not able to predict the demand-supply gap, which needs the intervention of data analytics. These online companies need to be thoroughly technology intensive to gain customer traction, which I think is still missing. Having said that, they are progressing well and have also deployed doctor-on-call who actually interacts with the consumers placing the order online and validate the prescribed medicines. This factor will immensely benefit these companies in this domain. These calls are also recorded, so if tomorrow there is any audit by the regulatory authority to cross-check the authenticity, they have the proof to show. In fact, they have gone a step ahead, if a diabetes patient has dosage of three pills a day and he is taking it regularly, there is an auto-replenishment system where one doesn’t need to upload the prescription every time. In this highly competitive environment, these people are not looking at profits in the initial stage, they just are focusing on customer acquisition by offering staggering discounts. While this model will not be sustainable in the long run, but that’s how these channels function to gain traction.”
According to Ryan Viegas, Head of Logistics – Asia Pacific, Teva Pharmaceuticals, “Although there has been some resistance from certain quarters, I would like to bring about the experience with private taxi aggregators like Uber and Ola, where there was a lot of resistance from the existing public transport operators in the past. However if we look at the current situation, there is space for all to operate and the end result is better quality cabs, rates and services where the customer is benefited. Similarly, in pharma, the objective of the industry and governments is to provide genuine products, affordable healthcare for all and compliance with regulations. All these aspects can be fulfilled by online aggregators; hence online e-tailing is one of the distribution channels that is getting popular in the country. It also provides better compliance, track and trace and historical data.”
For Yogendra Bhatt, COO – Pharma Division, Zytex Biotech Pvt. Ltd, “Currently e-pharmacy business is less than 0.5% but it is growing at a 100% rate, which is a remarkable feat and we cannot ignore it. Online pharmacy business has been compelled to rework supply chain system to fulfill the regulation and the need of e-commerce compatibility. It requires to set up omni-distribution channel model where the role of distributor and retailer is eliminated. Here the role of large-scale transportation does not exist and is replaced by courier services and operators who have wider and prompt distribution system to cater promptly. They all have to have digital compliance in place.”
The online supply chain has to be agile and highly responsive as the time factor is important to deliver the drugs; hence prompt order processing and availability of product is imperative. Packaging of product requires a thorough relook as it needs to be courier worthy to accommodate safe and informative packaging to handle small parcels. At warehouse level, it needs to maintain separate cell to keep account of e-commerce transaction, billing, GST formalities, packaging of product, shipment of product with special skills to create online information channel to co-ordinate with e-commerce agencies till customers’ end.
There is also a growing need to train courier service providers to handle pharmaceutical consignment, maintaining temperature and humidity with providing safety and counterfeit proof services. Online pharmaceutical business relieves from long channel of distribution, eliminates extra cost of supply chain, which ultimately results in consumers getting products at better price points.
There are multiple challenges that any supply chain faces in today’s uncertain and vulnerable global environment and pharma industry is no exception. From spiraling logistics and distribution cost (driven by rising fuel cost) to key material supply continuity and cost pressures on procurement, the list would be endless. With Regulatory Authorities becoming increasingly stringent, compliance is becoming a big challenge. Delivering cold chain medicines in temperature-controlled condition especially in the last mile poses a big challenge. The other challenge is cost pressures. With more and more drugs being brought under NLEM (National List of Essential Medicines) by the government, the margins are getting adversely impacted. This in turn is putting pressure on supply chain to reduce the costs. It is expected that supply chain works on ‘More for Less’ principle. SCM heads have to work out innovative methods to make available the drugs in the most cost effective manner, highlighted SG Rao, Former Head of Supply Chain, Novartis India Ltd.
For Rajeshh Rao, the challenge starts right from the forecasting process given the criticality of the business. Inaccurate forecasting leads to shelf life issues, which indirectly puts the burden on the reverse logistics. Secondly, medicines & injections that need less than ambient temperature through the movement, takes a major hit when transporting to the tier II & III cities as the companies don’t have temperature-controlled transportation infrastructure in those parts of the town. This again raises a question of reliability. Eventually when it reaches the patient, it may not reach in the right conditions, which have been prescribed by the pharma companies. If there is a temperature variation, then the drug is useless. In short, reach and network are still not up to the mark specifically in a country like ours, which is hugely diverse.
Giving a global perspective, Srivastava added that recently, pharma companies throughout the globe have been impacted by the Chinese government’s crackdown on polluting industries disrupting the supply of Key Starting Material (KSM) and API for drug substance and drug product manufacturing. This has impacted drug availability, leading to acute market shortage and driven procurement costs northwards.
Another challenge exports are facing is consolidation of business in the US. Historically, the US has been the biggest export market (both by value and by volume) for Indian pharma companies. US, over the years, has seen increased competition (buoyed by faster ANDA approvals) and channel distributor consolidation, which is directly impacting margins and profits for the companies operating in the US market. Supply chain for Indian companies are now under pressure to keep delivering as margins in both domestic and export markets are shrinking.
Raveendran highlighted that currently, the upstream is completely disconnected from the downstream. Hence, companies have to maintain a high inventory level. The last mile connectivity from the distributor to retailer is still not fully captured hence, the product visibility is poor. Fragmented approach in this area of supply chain is leading to poor customer service. For 1 mg, challenges were multi-fold, especially when they started. Chauhan reminisced, “Regulatory understanding was very poor, even amongst the regulators. They did not know where the regulatory standing of our platform was and we had to explain to them how this model operates. Because there was a doubtful perception in their minds about the legitimacy of e-pharmacy as a business, given the prevalence of international smuggling of medicines through online trade. We had to explain to them that this is a simple marketplace model – a consumer gives us the prescription and we pass it on to a third-party pharmacy. We are not even technically an e-pharmacy, just a platform connecting the consumer to the pharmacy.”
For 1 mg, the second challenge was from the consumer perspective– getting them into the habit of getting and sharing prescriptions. In an offline world, people often did not bother getting prescriptions and they could get any medicine they wanted – on the phone or through a pharmacy. “Consumers used to get upset with us, while we were merely following the law when asking them to upload prescriptions. This really hindered our growth at that stage. As cleaned. For pharmaceutical goods, no other goods are permissible for transportation owing to the contamination issue. The vehicles currently used are all not qualifying for transport worthiness for pharmaceutical goods.
> Lack of Shipment Visibility: Once goods leave C&F or Mother Depot, it becomes difficult to track them. Moreover, there is a complex system of distribution with more than 6,00,000 retailers, hence once it leaves distributors’ end, it’s a challenge to locate the goods.
> High Inventory Levels: It currently stands at 180 days of inventory of finished goods whereas good performer maintains at 100 days, which puts tremendous burden on the working capital. Expiration and reverse logistics drain substantial profits. It needs to be taken up seriously.
Anand Garg, Senior Director – Head India Supply Chain, Dr Reddy’s Laboratories, stated, “Over the last few years, Indian pharmaceutical industry has been grappling with various compliance challenges like never before: increased regulation, harmonization push and data integrity concern to name a few, which is not only impacting revenue stream and cost escalation for the current business but also hampering the ability to get approval for new drug applications. To address some of the concerns, industry has started gearing up quality and compliance capabilities through:
> Making regulatory compliance part of their corporate strategy
> Enforcing the culture of quality and imparting adequate periodic training to employees
> Attracting & retaining best talent in an increasingly competitive market
> Automating systems and infrastructure to reduce manual intervention (LIMS, DMS, DAS, SCADA, etc.)
> Practicing quality by design in early stage of product development
> On-boarding right suppliers in network (Raw materials, packaging material, logistics service providers), who understand evolving regulatory requirements and proactively institutionalize the change with timely communication to manufacturers.
With the passage of GST, the emerging model requires all cold chain products to be stored at the regional zones of India – South, West, North and East, and material to move to ‘junction boxes’ (Strategic cold chain nodules) placed across the country. This serves the purpose of product availability close to the market and ensures integrity of the product, shared Raveendran. Seconded Srivastava, “Logistics management tools and real-time data update helps companies track and trace their shipments. Data loggers and active RFIDs help companies monitor temperature sensitive shipments on real time basis. As organizations grow, Cost to Serve (CTS) becomes critical to keep a check on supply chain efficiency and minimize complexity in production management. New SKUs adding to the planning portfolio, increase the complexity of planning and drive up the operational costs. It is very important for any organization to periodically look at low performing SKUs and cut the tail. We have undertaken this exercise in close co-ordination with sales & marketing and were able to reduce up to 20% of non-performing/under selling SKUs improving the overall supply chain speed and agility.”
Deepak Patkar, Director, Patchems (Sical Supply Chain Solutions), stressed that pharmaceutical supply chain has to come to a level where e-commerce stands currently. They also need to follow the just in time method to live up to the consumers’ demands. The entire supply chain should become lean so that people aren’t investing heavily into stocks rather they look at investing more into services. 3PL companies need to think decisively on implementing automation in their warehousing facilities.
Logistics is the core area of expertise of 3PLs, which makes them more efficient in terms of both cost and delivery. “Most of our products are shipped through pharmacies by their delivery persons, but still a signi. cant number of orders are processed through 3PLs, mostly in II & III tier cities. For us, basic criteria for selection of 3PLs involves cost, delivery TAT, reliability in delivery and customer experience caused by the delivery agents. Reliability in delivery becomes even more important when it comes to pharma,” highlighted Chauhan.
Srivastava added, “Basic facets like fleet strength and global reach are a given which cover transportation and warehousing needs. Apart from this, additional key aspects companies look at before partnering with any 3PLs are what value-added services they can give in addition to logistics and warehousing support such as forecasting and inventory management, production and procurement support. All this coupled with useful MIS and accurate information visibility for client can give a 3PL an edge over competition.” The expertise that the 3PLs bring on-board needs to translate into speed with effective cost management for companies lowering working capital cost and also ensuring that top line and bottom line growth is sustained and augmented with seamless collaboration.
For Rajeshh Rao, 3PLs are the companies who specialize in the efficient handling of products and pharma companies can focus on their core business. There are pros & cons of appointing a 3PL. While they take care of warehousing, storage, transportation, invoicing, etc., which comes as a relief for pharma companies but at the same time, the management of 3PL is very important because at the end of the day, if something goes wrong with your product, the entire onus would come on the pharma company. So, one needs to critically examine what areas of operations you want to outsource and to which partners. Once you outsource those processes, you should have a control process in place. Companies need to strike a balance to gain the desired results. One must select a 3PL based on his experience in the healthcare sector because it is always advantageous to deploy someone who has the technical expertise in managing requirements of such a complex sector. A 3PL should have sufficient financial muscle and a reputation in the market. Their networking with the regulatory authorities needs to be good. Lot of these nuances need to be carefully ensured when you select a 3PL. Agreeing on the same, Viegas said, “3PLs are our partners and are an extended arm of the manufacturer’s supply chain. However, the ownership to ensure the quality and integrity of the products lies with the manufacturer throughout the supply chain.”
“It is expected from 3PL companies that they are well equipped for handling pharma products, having understood its regulatory compliance and standard for operating. They need to maintain strict vehicle conditions and hygiene. 3PLs need to avoid any contaminated stuff with the consignment. It is advisable to have exclusive vehicle for caring pharma product. 3PL operators are expected to be prompt and rapid responsive as it is highly service oriented function and the success lies in timely and safe delivery. 3PL operators are required to adhere to warehouse arrangement in line with Drug and Cosmetic Act. The change is required by inculcating a sense of responsibility and ownership of work by training and guiding them,” remarked Bhatt.
Offering 3PLs’ perspective, Patkar stated, “3PL companies are gaining tremendous traction in the pharmaceutical space. If you are at the right space at the right time and have the right capability, you are bound to get business. People who lack the right capabilities to cater to the pharma critical requirements are going to lag behind their counterparts. If you want to serve the pharma clients, you need to adhere to stringent quality parameters, compliance, cold chain norms, and offer them utmost safety while handling medical products be it medicines or injections. We should be geared to meet very challenging demands of the industry. 3PLs need to work aggressively on the training of the people in handling such critical products. Also, they need to critically examine the scope & efficacy of automation in their warehouses and strike a perfect balance so that it is not capital intensive. Yes, it’s a challenging market but not difficult to serve. You should have a regular assessing mechanism in place, which can help you in scrutinizing yourself as per the stringent market requirements and prepare for the tough times ahead.”
For companies, technology adoption is no longer a choice. Industry leaders and even smaller companies have embraced ERP systems to manage production, inventory and procurement. With growing complexity and scope of business, technology support is a must. Next generation tools for supply chain finance, procurement tools like ARIBA and advanced planning tools have made way into supply chain function of pharma companies. Rajeshh Rao is of the view that technology is there, what is desired is that people need to be flexible to adopt a new technology. Viegas also agreed that like all industries, the pharma industry has little option but to adapt to the tech changes shaping up in the world, there cannot be exceptions. Several pharma companies have already initiated 2D barcoding to support track & trace and overcome counterfeit products to an extent.
Bhatt revealed another side of the story and stated that adoption of high technology is being quickly adopted by large scale manufacturers who have no constraint of finance and volume to justify spending whereas small manufactures are finding it strenuous to spend on technology where value of implementation is very high. Highly automatic machines from making to packing need substantial investment, which SME finds difficult considering to their revenue. Our major manufacturers are following under this category. Considering above fact, we are far behind developed countries. They have regulatory norms, which force them to have automatic process that do not allow any human touch.
The new development that is taking place in supply chain is a single point contact for servicing the entire country. “We have implemented a ‘Plug & Play’ model. This model helps the company to be completely flexible and get cost benefit since it is based on a ‘pay as per usage’ policy,” shared Raveendran. Logistics being a key driver, Srivastava avowed “With good scope and potential for supply chain consolidation in Indian pharma domain, I see tremendous growth prospective lined up for the logistics industry in the country. In the domestic market, C&F network consolidation and better resource/infrastructure utilization will mean better operating cost for companies. In export, with newer geographies being explored by Indian companies for business, will mean logistics service providers will have to up their game to compete with global players. IT enabled MIS and tracking will mean better decision making for service providers and more transparency for customers.”
Digitization, optimization, Blockchain technology, introduction of Integrated Business Planning are some of the key things that will boost the efficacy of pharma supply chain. The real impact will be seen when the supply chain is treated as a profit centre instead of a cost centre.