Supply Chain Management in Pharmaceutical Industry

Taneli Ruda
Senior Vice President and MD
Global Trade Management
Tax & Accounting Business
Thomson Reuters

Supply Chain Management in pharmaceutical industry plays a very critical part as availability of the product at right time has to be ensured for unpredictable demand patterns. This article provides an overview of various verticals in pharmaceutical supply chain management.

Global trade in pharmaceutical products has a unique set of risks. Prescription drugs are heavily regulated, perishable, subject to counterfeiting and other forms of graft and have high production costs.

So, getting a pharmaceutical shipment from India to the United States or the United States to Brazil intact and on time can present difficulties that other industries don't have to deal with. Any disruption in the supply chain can be extremely costly to buyer and seller.

Significant supply chain disruptions lower the share price of affected companies by an average of 7 per cent, according to the management consulting firm Accenture.

What's needed is technology that can track a shipment from beginning to end and take the stress and confusion out of importing and exporting by making the whole process transparent to customers.

Regulation

Pharmaceuticals "are among the most highly regulated of all products, with many nations enforcing strict regulations on the marketing and sale of drugs ," said an academic study led by Ann Marucheck of the University of North Carolina. Regulations affecting the pharmaceutical industry vary from country to country.

The 2011 study, entitled "Product Safety and Security in the Global Supply Chain: Issues, Challenges and Research Opportunities," noted that governments world-wide have increased their regulatory oversight of pharmaceutical products as a reaction to tampering, counterfeiting and other problems that have caused sickness and deaths.

The pharma industry is a heavily regulated segment and has a lot of special requirements, like import and export licenses, which are required in most countries.

License management is a particularly trouble some regulatory issue for pharmaceutical companies. A myriad of import and export restrictions apply both to ingredients and finished products in every country where pharmaceutical companies operate. Managing them is tricky and requires a state of the art workflow solution, as failure to comply with them can lead to costly supply chain disruptions.

Counterfeiting

Counterfeiting of prescription drugs is rampant and "can occur at each point in a multi-tier supply chain, particularly when the contamination is intentional or where there is fraudulent certification that the product has met all the regulations and passed inspection," the Marucheck study says.

Counterfeiters use the Internet to market fake drugs to consumers around the world. About 30 percent of the drugs sold online are counterfeits according to the US National Institutes of Health.

The World Health Organization estimates that about 30 percent of the medicines sold in parts of Asia, Africa and Latin America are counterfeit. In 2011, 64 percent of anti-malarial drugs in Nigeria were found to be counterfeit.

Most countries' customs services lack the wherewithal to detect counterfeit drugs in incoming shipments. Consequently, an incoming shipment labelled as anti-anxiety drug may be something else altogether. That is harmful to patients who rely on the drug and to the perceived integrity of the company that makes it. Companies that are victims of counterfeiting can suffer revenue losses, plummeting stock prices and litigation.



The counterfeiting issue came to the fore in 2008, when fake batches of the anticoagulant Heparin exported from China killed at least 81 people in North America, Europe and elsewhere.

Free Trade Agreements

There are more than 370 free trade agreements in effect worldwide and many more under negotiation. India is a party to more than a dozen FTAs, several of them with more than one country.

Taking advantage of the privileges that FTAs offer, such as duty-free access and intellectual property rights protection, can be confusing and onerous to comply with, particularly for small exporters. They need licenses, country -of-origin certifications and other documentation. Compliance can be particularly difficult in a multinational production process. On the other hand, ignoring FTA benefits means leaving money on the table and putting the producer at a competitive disadvantage.

So How Does Technology Support Big Pharma?

Globalization and rapidly growing global trade have increased the prevalence of these supply chain issues.

In some countries, an import license is required for each shipment of a single product. Technology can provide a workflow to control these licenses , including due dates and screen each transaction to identify when the licenses are required.

Batch management is a good example of how technology helps the pharmaceutical industry take advantage of FTAs and other special incentive programs. To make use of various export incentive programs, each batch needs to be tracked separately, because each needs to be matched with the sources of raw materials and ingredients it consists of. Pharmaceutical companies use a lot of specialty and commodity chemicals and they often procure them from multiple countries. That leads to complex country-of-origin management issues.

As for free trade agreements, pharmaceutical companies are typical users of FTAs between countries and trading blocks. Technology can support companies by doing all the calculations and the country-of-origin determination process needed to qualify for preferential treatment under an FTA.

Batch management can also help pharmaceutical companies combat counterfeiting. In addition, here are technologies today that can spot counterfeits for example by scanning pharmaceutical product labels and detecting what kind of ink is on them.

Even with the best supply chain management technology, importers and exporters need to understand who they're doing business with. They themselves have the responsibility to do the due diligence on their trading partners to assure themselves that they're legitimate. Again, many companies are harnessing Restricted Party Screening technologies to ensure they are only dealing with legitimate trading partners, both upstream and downstream.