Many pharmaceutical companies face challenges in matching upstream supply chain capacity with downstream capsule demand. For example, if downstream is growing as sales increase while upstream is constrained because of shrinking or otherwise allocated production capacity, the company will have problems. How can firms streamline the relationship between upstream and downstream, and make optimized decisions more quickly?
Some companies are looking to data and analytics to do just that, finding that an integrated supply chain also has benefits in terms of operational efficiency and quality control. Emerging technologies and innovations like the Internet of Things (IoT), big data, blockchain and artificial intelligence represent uncharted territory for many companies. These technologies are the future of supply chain analytics, presenting new ways for companies to gather and react to information more quickly and ultimately lowering their costs for production and improving quality control. This is especially important for capsule supply chains, as oral dosage formulations remain widely popular and comprise the largest category of pharmaceutical dosage form.
New Technologies in the Capsule Supply Chain
Innovative companies are harnessing several emerging technologies to increase integration in their supply chains. The common denominator among all these applications of new technologies is the integration of the supply chain between vendors and customers. As one piece of a partnered supply chain gains an advantage from the innovative use of data and analytics, everyone should gain the same edge.
Since capsules and other oral solid dosage forms are among the most widely used dosage forms, ensuring a secure and efficient capsule supply chain is a priority for many pharmaceutical companies. Integrated capsule supply chains are likely to become only more important for pharmaceutical manufacturers and drug developers around the world as the use of generic medicine continues to increase worldwide.
One example of emerging technology with implications for capsule supply is IoT, which refers to the integration of the physical and digital worlds. IoT advancements create new ways to generate and collect data, which companies can use throughout the supply chain to improve efficiency and patient experiences. The number of internet-capable devices is expected to grow from 8 billion in 2016 to 30 billion in 2020 enabling a drastic increase in the information flowing to the internet. This data can be tapped into by industry and used to optimize the supply chain.
As the IoT grows, it continues to generate large amounts of data, commonly referred to as “big data.” The pharmaceutical manufacturing industry is among the sectors leading the charge in generating big data, and some pharma companies are taking advantage of the increasing data at their fingertips to make better business decisions. Big data can be as granular as the number of opted-in patients receiving a seasonal diagnosis — such as the flu or allergies — in a region, or as conceptual as total volume of a specific pharma-grade raw material sold in a time period. If the supply chain is integrated and partnered appropriately it can ebb and flow together as outlook or trends change. The more data suppliers and vendors share quickly and efficiently, the faster the supply chain can capitalize on the opportunities that result.
Once IoT has generated data that has landed in the realm of big data, turning it into something actionable requires interpretation. How to start and where to focus can be a difficult decision for supply chain leadership, but even worse is when the recognition techniques are built around status quo expectations. Artificial intelligence (AI) tools can be deployed to analyze and anticipate supply chain trends both upstream and downstream in directions that common spreadsheet-style analyses are not looking. From future demand and capsule purchasing patterns to potential raw material shortages to shifts in regional or global demands, status quo analyses may not be dynamic enough to capture opportunity and generate results. In the scope of pharmaceuticals, this could mean saving lives or not. Some companies are applying these tools to better predict what’s ahead throughout the supply chain and more quickly recognize optimal responses to supply chain and market needs, end-to-end.
A final emerging trend with implications for the capsule supply chain is blockchain technology. This is the technology behind cryptocurrency, which uses a digital ledger shared between companies and entities through partnerships. This concept of a shared digital ledger is a robust mechanism for verifying and maintaining security and transparency throughout the supply chain. For example, supply chains where blockchain exists could do more to guarantee source and quality of ingredients or products used in drug development and manufacturing.
Supply Chain Integration Advancements
A key platform pharmaceutical companies are implementing is Electronic Data Interchange (EDI). EDI links vendor and supplier together, potentially up and down the supply chain. A system in which EDI has been established allows for seamless and instantaneous data-sharing between partners up and down the supply chain, from capsule manufacturers to customers to distributors to pharmacies. EDI can generate immediate optimizations in terms of savings, efficiency and quality control and can help ensure the right people have the right data to make smarter supply chain decisions.
The pharmaceutical industry is under great pressure to drive cost down as the shift to generics occurs globally. EDI removes wasted administrative effort, especially in the purchasing process, while establishing a lock-step supply chain. In the traditional purchasing process, the buyer generates an order and sends it to a supplier, oftentimes via email these days. The vendor then sends back an invoice — another document — which then has to be responded to. Many of these documents are restrictive and often have no capacity to be automated.
On the other hand, EDI allows a vendor and customer to link their systems together, passing information directly and instantly. The partners use enterprise resource planning (ERP) platforms to connect their purchasing, shipping and invoicing data, linked via “translator” systems that ensure information is in the right format for prompt sharing and integration.
Overall, EDI systems provide information more quickly, enabling responsive and deliberate decision-making based on current needs rather than historical data, potentially allowing inventory reduction. They also provide real-time engagement between suppliers and vendors, automate time-intensive tasks and promote sustainability by eliminating paper waste associated with old systems. Transaction costs can drop by 30 percent with the implementation of an EDI system, and the overall supply chain cycle can be sped up by more than 60 percent.
Another advancement that is optimizing the capsule supply chain is the Vendor-Managed Inventory (VMI) program, in which the capsule supplier eliminates the administrative burden of planning and ordering capsules, giving the vendor the responsibility of tracking and resupplying inventory within known parameters agreed upon between supplier and customer.
VMI systems can range in complexity. Some are quite simple: For example, the vendor goes physically to the warehouse, counting inventory and replenishing what’s missing, oftentimes considered a Kanban VMI system. Others are far more sophisticated. In some VMI systems, the customer can provide a forecast of what they expect to need, and the supplier will produce and deliver capsule inventory based on the forecast. In the most advanced VMI relationships, the customer and vendor are integrated systematically and can optimize inventory end-to-end, so the supplier restores product almost as soon as the customer needs it. Because of the integration, the supply chain is optimized end-to-end, ensuring working capital is kept to a minimum. The seamless supply chain becomes more competitive and can respond rapidly to market needs without building wasteful, excess inventory that is only later recognized as unneeded.
Like EDI systems, successful VMI integrations lead to considerable benefits in terms of lower costs, risks and oversight. They tend to simplify inventory management, contracts between partners, warehousing, administration and scheduling raw materials.
They can also lead to substantial quality control savings by optimizing lot sizes to minimize testing costs for specific lots. For example, consider a customer buying capsules at various points in the year, roughly 10 million capsules at a time. In a traditional system, the customer probably places an individual order and lot each time they want more inventory, after which the vendor puts the order in their schedule, produces it and ships it as available. With even the most basic VMI system, the customer and vendor decide in advance on a minimum inventory level and the vendor replenishes capsule stock when it depletes below that level. Using this process, the number of lots produced and delivered can be drastically reduced, leading to significant savings in quality testing. As the supply chain integrates, the lot size can be determined dynamically, optimizing all facets of the supply chain. The lot size can therefore be a function of demand outlook, not just a fixed level of inventory that does not recognize growth or decline on the horizon. In fact, an integrated VMI system can generate savings as high as 50 percent in quality control testing by reducing the number of lots delivered to a customer while improving the responsiveness.
Let’s consider some examples to illustrate the power of pharmaceutical supply chain integration as it continues to develop. A patient goes to the doctor’s office where she is prescribed medicine for an illness. Current technological tools allow that information to be placed in a data set as it passes from the doctor’s computers to the pharmacy to the patient’s hands.
Now imagine a local outbreak of contagious disease, like the flu. As prescriptions are written and medicine delivered to patients, AI tools can analyze the supply chain data generated by that activity as it becomes available in big data sources, allowing vendors and customers to see where the outbreak is taking place. That kind of insight can help optimize resource allocation through the supply chain by passing information to pharmacies, distribution channels and manufacturers about future expected demand for capsules and capsule technology, and where they should send supply. As more information is gathered over time and integration continues, the entire capsule supply chain can react simultaneously to changing conditions and new developments.
Companies focused on leveraging data and analytics to integrate their supply chain can get started by focusing on three steps:
- Identify their priority partners for supply chain integration.
- Quantify the benefits of implementing changes, in terms of savings.
- Look for new and innovative ways to use data and analytics to ensure downstream and upstream capsule supply needs are matched in real time.
New data collection and analytics technologies are bringing the pharmaceutical industry into the future of supply chain integration. Companies are finding new ways to anticipate future downstream capsule supply needs and seamlessly match them to upstream production, lowering waste and reducing costs for everyone. Considering the advancements that are showing up throughout our supply chain, no one company will have all of these advanced systems in place to recognize all of the opportunities at hand.
Imagine, however, an integrated partnership chain that shares data up-and down-supply chain. As one of the partner’s advancement helps them recognize a shift, everyone who is integrated appropriately with them can recognize and respond quickly. The result is a partnership that drives costs down, quality up and responsiveness to the maximum. As integration continues, companies throughout the supply chain will find new ways to use technology to simplify and optimize the capsule supply chain, with benefits for everyone — from manufacturers to patients.