Strength in Unity: The Case for Global Supply Chain Standards

Beyond these significant financial advantages, standardization has the potential to greatly simplify and streamline many aspects of operations and customer interactions for pharma companies. Automatic master data synchronization would greatly reduce ad hoc customer requests for product information, decreasing the burden on manufacturer staff to respond to these requests and allowing them to spend more time on value-added customer service.

Generating reports could also become more efficient. Global manufacturers face significant challenges in rolling up data across divisions and regions. One executive told us that his finance, local and hub planning locations and various other functional units could create as many as five identification numbers for a single product within the same company. Leading organizations could potentially generate valuable insights from data faster than their competitors and gain competitive advantages in an increasingly data-driven world.

Finally, there is potential for manufacturers to contribute significantly to patient safety through adoption of global standards, in three areas:

1. Raising the bar for counterfeiters by serializing products, to allow authentication at dispensing and usage points
2. Faster, more efficient and effective recalls by capturing standard location identification and batch number information, and tracking how products move through the supply chain
3. Reduction of adverse drug events due to medication errors in hospitals by placing standardized barcoding at the primary packaging level so that bedside scanning can ensure the Five Rights (right patient, right drug, right dosage, right time, and right route of administration)

Getting from here to there
In the 1970s, the grocery industry formed a committee of well-respected leaders of major manufacturers and retailers. In consumer packaged goods, a few global players worked together tirelessly to align on GS1’s single global standard for the industry. More recently, the Consumer Goods Forum organized senior executives to define requirements for global data synchronization. These leaders worked together across the value chain, and their decisions drove adoption throughout the sector.

Healthcare industry leaders who are convinced of the benefits of global standards are in a position to work across competitive and customer-supplier relationship boundaries to agree on a common vision and approach. Customers, vendors, competitors and regulators will have to act and collaborate in new ways. Their aim will be to create interoperable systems; these are the enablers for change.

However, healthcare is a more fragmented and regional industry. Unlike consumer packaged goods, in healthcare the manufacturers are the largest and most global players, and can therefore play a unique role in driving adoption of a single global standard. On the other hand, they will bear significant incremental costs if instead of a single global standard requirements proliferate across customers and countries. The cost of managing the resulting complexity in packaging operations and distribution centers is significant – particularly considering the indirect costs of maintaining quality and compliance requirements. McKinsey estimates that if manufacturers are required to comply with two standards, instead of just one global standard, investments could increase by 15 – 25% (additional equipment, additional implementation) and operating expenses (conversion cost) by 5% (shorter production runs, more or longer changeovers, cost of supplies).

Manufacturers could realize significant benefits if they work together to shape processes, industry norms, channel partner agreements and data management responsibilities to create greater visibility to their products’ end-to-end supply chain and demand patterns. In retail, manufacturers benefited from access to point-of-sale data about shelf space, stock, and retail forecasts, which enabled a second wave of supply chain optimization, including optimized assortments and delivery frequencies, collaborative forecasting and replenishment, and improved on-shelf availability. Healthcare manufacturers could also benefit greatly if they improve control over their products’ shipment and usage conditions, protect brand reputation and improve patient safety and effectiveness outcomes.

The healthcare industry is at a crossroads, and our research suggests that the case for alignment on a single global standard is compelling at both the total industry level, and for individual companies. More importantly, the case is compelling in terms of numbers of lives saved and medication errors averted. Industry leaders could seize the moment to create a true win-win opportunity, both for the industry and for patients.

Editor’s note: A more complete description of the models, costs and benefits associated with global standards across the entire healthcare value chain can be found in McKinsey & Company’s original white paper “Strength in Unity – The Case for Global Supply Chain Standards,” and is available at www. mckinsey.com, under Client service/Operations/Latest thinking.

About the authors:
Thomas Ebel (thomas_ebel@mckinsey.com), Katy George (katy_george@mckinsey.com), Erik Larsen (erik_larsen@mckinsey.com), and Ketan Shah (ketan_shah@mckinsey.com) are leaders in McKinsey & Company’s Pharmaceutical Operations practice