The government has been proactive in promoting warehouse services within the pharma sector. and the industry needs to focus on establishing an organised warehousing sector, reports Usha Sharma
The warehousing industry in India is one of the most lucrative and consumer-driven industry, where it plays a major role between manufacturers and the end consumers. As per KPMG India analysis, in 2015, the total warehousing demand was about 550 million sq ft, which is expected to grow at a compound annual growth rate (CAGR) of 8–10 per cent until 2020, resulting in a demand of approximately 800 million sq ft.
Jaideep Ghosh, Partner and Head, Transport and Logistics, KPMG in India says, “Currently, pharma logistics constitute merely five per cent of the total logistics industry. However, it is expected to grow to seven to eight per cent of the total logistics industry in the next five years.”
Manish Panchal, Senior Practice Head — Chemicals & SCM at the TATA Strategic Management Group says, “Presently, the Indian warehousing industry is pegged at nearly Rs 750 billion excluding the inventory holding costs and had been growing at a healthy rate of about 10 per cent annually in the recent past. Of this, the pharma sector contributes to about Rs 50 billion.”
In the last couple of years, the government has undertaken significant investments and initiatives in infrastructure development to select and set up logistics parks across India. For example, government subsidies for pharma manufacturers in Sikkim, Baddi and other locations, port upgradation projects in Visakhapatnam by 2020 and road connectivity enhancement from Chandigarh to Baddi (four-lane) clearly indicate government’s interest and support.
Indicating the Goods and Services Tax (GST) implementation and its impact on warehousing, Panchal informs, “The government has come up with policy initiatives revolving around setting up logistics parks in various parts of India which would house pharma products also. In addition, due to implementation of GST in the near future, the current set-up may undergo a major change to get economies of scale.”
Ghosh opines, “The implementation of GST is also expected to be a positive step for the pharma industry. The subsuming of sales tax as well as inter-state taxes within GST is expected to facilitate companies to consolidate and operate from a few centralised warehouses to distribute goods to the rest of the country.”
Warehousing plays an important role in pharma logistics as well. It helps pharma companies to deliver quality medicines to the end consumers. However, the pharma warehousing segment in India is highly fragmented. The Indian pharma distribution chain consists of three layers.
a) Pharma companies with their own national/ regional warehouses, which supply product to Carrying and Forwarding Agents (CFAs) in each state in order to operate within the current Central tax-State tax regime
b) Bigger companies have two to three exclusive CFAs, while some CFAs may carry products of multiple smaller companies
c) The CFAs then supply to the wholesalers/ distributors in each district/ city who service the retail pharmacies.
Commenting on the government’s involvement in the process, Panchal says, “The government’s involvement in the pharma sector is in production and distribution of products from their own plants to the market as well as procurement from the market through tender operations for various Central and State government medical service organisations. There are government-owned warehouses for pharma products in India.”
Moreover, the government is also helping companies to set up pharma zones/ hubs.
What will be the regulatory requriements for setting up pharma warehouses in India?
Pharma zones for warehousing
Explaining this further, Ghosh suggests, “Pharma warehouses need to adhere to all regulatory compliances, which harp on product quality, safety, security and traceability. To achieve all of these, a few important aspects from a regulatory standpoint are appropriate GxP compliance, fire safety and fire-fighting equipment, safety and quality trained champions on-site, technology to support traceability, awareness and expertise of products being handled on-site, proper disposition of expiry stocks, i.e. waste management, and more. The absolute value of logistics spend to revenue is five to seven per cent in the Indian pharma sector; however, considering the delays in handling, clearances and other system inefficiencies, the value of logistics spend increases to 10–12 per cent.”
Gulshan Bakhtiani, Director, Wellness Forever, has a pharma warehouse which ensures zero error product handling and disbursement in Mumbai. He informs about the key elements which need to be considered before setting up any pharma warehouses. He says, “There are multiple licensing, storage and compliance requirements for setting up a pharma warehouse. Pharma warehousing is broadly classified into two – CNF agents and distributors – both of which, often times, work on per-pallet-per-day basis and their primary focus is cost optimisation.”
He suggests, “Two broad areas of focus while designing a pharma warehouse are quality control and process automation. There are many other factors that can help warehouses achieve reliability. Automation also helps in reducing costs and staying competitive in this price-sensitive and heavily regulated industry.”
Suggesting the features which need to be considered while designing a pharma warehouse to make it competitiveness and reliable, Ghosh emphasises, “An effective cold chain management system, RFID and GPS technology for tracking, along with trained personnel, would be essential for effective functioning of a warehouse. These features would result in making a warehouse reliable and compliant to handle goods, which if positioned well, could enhance the overall competitive offering of a logistics provider.”
He elaborates, “While designing a pharma warehouse, it is important to choose a strategic location from consumption and distribution point of view. Further, it needs to be identified that proper approach roads, parking bays and other factors are aligned to GxP requirements for a warehouse. Also, the GxP requirements recommend appropriate flooring, storage-box design, handling procedures, temperature monitoring, for example, data loggers with appropriate number of docks and material storage rack design for pallets, boxes, units (as required), labour changing and washing rooms, and many more.” Apart from this, the growth of pharma warehousing industry also depends on good logistics services and therefore meeting regulations and quality standards in logistics is a must.
Logistics, a driving force
Dinesh Kothari, Director, Rajsons Pharma expresses, “The warehousing industry is one of the top happening subject in any industry for matter as many existing key players like DHL, VRL, DTDC, etc. have been serving the best while meeting the requirements from various industries across nation and globe. The warehouse industry is yet to form the standards required in serving at the micro level of operations.”
Many logistics players have set up pharma zones at their warehouses. With a focus on various government-run initiatives, it is a need of the hour to have well structured organised warehouse. Then, how to ensure the quality of the products?
Ghosh suggests, “The team on ground must be trained on products knowledge, handling and storage specifications. Also, the usage of technology, such as GPS, data loggers and supervision cameras, software — Warehouse Management System, telematics and others — which can trigger important notifications to people for deviations would help ensure to track, trace, monitor and measure the activities being performed on products during their logistics movements.”
Since the pharma warehouse industry is largely dominated by the unorganised players, there are many steps which needs to be taken into consideration for the future.
Bakhtiani emphasises, “Warehousing is one such important qualitative factor which needs to focus on demand for high-quality and hi-tech warehousing that’s temperature sensitive and product specific.”
Post 2017, the Indian pharma industry will see more opportunities, as many patented drugs will go off patent creating more opportunities for generic drug manufacturers and opening new avenues for exports. This in turn will create more demand for organised warehousing facilities.
Panchal says, “To serve the global market in addition to India, pharma products require climate cGMP warehouses which will reduce product losses in storage and transit for the companies. It will thus help to reduce the price of the drug.”
The need of the hour is to focus on establishing an organised warehousing industry.