Early in my career when I worked for Baxter in Belgium, my group had responsibility for the supply chain for blood collection bags manufactured in France. Periodically we would donate blood so that we could see how much time had elapsed between manufacture and use. I’ll never forget the day when my colleague came running into my office thrilled because the blood bag used on him earlier that day had been manufactured only two months earlier. We understood the importance of cycle time, inventory and supply chain velocity.
My experience in the pharmaceutical industry was like being transported into a different world. If you were to survey pharmaceutical companies on how long it takes from beginning to end of manufacturing (Active Pharmaceutical Ingredient to availability of the packaged product for customers), it would not be uncommon to hear of overall cycle times in the hundreds of days. Add to that another four months or more for the product to move through the pharmaceutical distributor to the pharmacy and eventually to the patient.
To truly understand how inefficient pharmaceutical supply chains are, the next time you fill a prescription or buy an over the counter drug, do my “blood bag” test by looking at the expiration date. Keep in mind that most pharmaceutical products have about a three-year shelf life. We took this test in my home earlier this year. My wife filled a prescription for our daughter and was given two EpiPens, each at $140, with five months of remaining shelf-life. EpiPens have an 18-month shelf life, so this means that it took more than a year after manufacture for this product to get to a patient. Believe it or not, this is one of the more efficient supply chains.
I am amazed that customers continue to accept this kind of performance. I am also amazed that manufacturers and distributors haven’t broken through industry barriers to bring their supply chains into the 21st century. There are certainly regulatory constraints around the world governing patient privacy, but there is still so much that could be done with a higher level of collaboration and trust. This is a win–win that would take billions of dollars of working capital and cost out of health care.
There are two things the industry needs to do: First, focus on cycle time. Cycle time is the single best measurement of an organization’s health. My company has decomposed the typical supply chain into the 10 to 12 key manufacturing, quality and transportation steps — from API manufacture to the final customer — into a high level infographic dashboard. For each of these steps we measure the average cycle time as well as the standard deviation and the sigma (i.e., std. dev/average). This data is updated daily and allows a company to understand the areas where they need to improve both the average and the stability/reliability of the process. Behind this high-level data, we have drill down and root cause analytical capabilities that allow users to quickly pinpoint the drivers of performance.
The second thing pharma companies need to do is securely open up their internal data to supply chain partners. They need to have absolute control over what data both internal and external users are able to see — to the extent that core ERP data can be shared with external parties, including pharmacies. They also need powerful analytics that allow users to quickly drill down from high-level indicators to the root causes driving performance and supply. Information such as order status, delivery dates, inventory, future demand signals, etc., can be made transparent across the supply chain network.
Imagine a world where all key stakeholders (manufacturers, distributors, pharmacies and regulatory bodies) have visibility into the supply chain. Not only would the pharmaceutical industry destroy its reputation of supply chain inefficiency, but much more importantly, it would create efficient processes to improve drug supply and reduce the drug shortages that most of the world has been dealing with over the last decade.
And let’s not forget global serialization. Our industry is on the cusp of implementing a capability far beyond leading edge: The ability to follow and authenticate a product through every step of the supply chain all the way to the end-user. If we don’t use big data to leverage this capability for disruptive supply chain transformation, shame on us.