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Ready for a makeover: What’s trending in the global pharma logistics?

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Mayank Taneja, Senior Analyst, The Smart Cube, elaborates on some of the key trends shaping logistics in the global pharma industry

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Mayank Taneja

The winds of change are blowing through, and, in fact, revolutionising logistics in the global pharma industry. The prime factors contributing to this are rising costs, growing risks, changing consumer needs and tightening regulations globally. From using data analytics to developing cold chain capabilities, pharma companies, in tandem with logistics firms, are leaving no stone unturned to tackle the mounting challenges. Since payers and consumers are likely to continue demanding effective and proficient healthcare, the part of the supply chain that handles the last mile of delivery is changing.

Outsourcing to third-party logistics providers (3PLs)

“More companies are outsourcing logistics than we have seen in many years”
Joe Carlier, Senior VP – Sales, Penske Logistics (June 2015)

The desire to control the entire supply chain hindered the outsourcing of logistics operations in the pharma and life sciences industry in the past. However, the benefits of outsourcing, including reduced costs and cycle times, improved customer responsiveness and shifting focus on core capabilities, are driving pharma companies to outsource parts of their overall logistics function to 3PLs. For instance, in March 2015, Germany-based pharma company STADA Arzneimittel outsourced its domestic logistics business to DHL in a bid to save costs and focus on its core activities.

Buoyed by their growing importance for healthcare companies globally, 3PLs are increasing their service offerings. For instance, in October 2013, FedEx partnered with Ohio-based healthcare service provider Cardinal Health to offer premier 3PL solutions for the healthcare industry. And it does not stop there.

Growing popularity of cold chain logistics

“UPS sees the greatest demand for cold chain transportation services in Europe and the US, which are the two largest export markets for healthcare. Since 2011, we have experienced a significant increase in demand from leading biotech, pharma and medical device manufacturers alike”
Susan Li, Senior Manager, UPS Temperature True Packaging (April 2015)

“The pipeline of drugs waiting for approval over the last few years has been biologically based drugs with large molecular structures. These require temperature control”
Angelos Orfanos, President, DHL Life Sciences & Healthcare (June 2015)

Due to a surge in the demand for chilled/frozen products, both pharma and non-pharma (primarily FMCG), global logistics service providers are focussing on augmenting their cold chain infrastructure. In June 2015, just a month after opening a healthcare-dedicated air freight forwarding facility at the Amsterdam Airport Schiphol, UPS, one of the world’s largest parcel delivery firms, announced that it was building a new healthcare distribution centre in Roermond, Netherlands, to meet growing demand from the pharma sector. The facility, expected to be completed by January 2016, will provide temperature-sensitive storage, apart from services such as quality assurance and inventory management. UPS’ competitor, DHL, is also quite active in cold chain logistics. During 2012–2014, the company invested heavily in people and facilities capable of handling temperature-sensitive shipments. As of June 2015, DHL has added 13 life sciences packing stations to its pool of 41 stations in 2014.

The rising demand from pharma is attributed to companies focussing on complex-structured biotech drugs, which typically require strict temperature control during shipping. According to Pharmaceutical Commerce, a US-based pharma magazine, pharma cold chain logistics will generate >$10 billion in revenue in 2015, which is expected to increase to $13 billion by 2019.

Technology, technology everywhere

What air is to humans, technology is to today’s business world and logistics companies are no different. From analytics to serialisation, technology is omnipresent in today’s pharma logistics landscape, and how!

Serialisation technologies: Governments across the world are enacting regulations to check the infiltration of counterfeit drugs, whose prevalence has grown considerably in the last few years. For example, India’s Directorate General of Foreign Trade (DGFT) has mandated the use of unique numbers and barcodes, a practice known as serialisation, on primary, secondary and tertiary packaging for easy tracking of all exported drugs. The California ePedigree Law, which requires pharma manufacturers and distributors to implement serialisation, also came into effect from January 2015. Quick to react, pharma and logistics companies have started gearing up for a stricter regulatory regime. Global pharma major Pfizer has been implementing serialisation aggressively since 2012, and helping suppliers do the same. In June 2013, DHL launched a temperature-controlled, high-visibility air freight service, DHL Thermonet, targeted at the life sciences and healthcare industries. The solution employs ultrahigh-frequency (UHF) RFID tags with in-built temperature sensors, and allows DHL’s customers to maintain a record of shipping temperatures, in addition to helping them track their shipments.

Analytics (Big Data): How could one dare underestimate the importance of the massive volumes of data being generated all around us? Over the past few years, there has been a sharp spike in the near real-time data that logistics providers collect through various sources, including sensors, smart phones and other telematics tools. This data is now being leveraged to optimise delivery schedules and even forecast, with the aid of predictive analytics, future demand, in order to maximise resource utilisation. UPS is the perfect example of a logistics company deriving benefits from analytics and telematics. The company has been using predictive analytics to plan its delivery operations since 2003, and has seen a yearly reduction of 85 million miles driven per year, reducing its fuel need and carbon emissions by 8 million gallons and ~7,700 tonnes, respectively.

Increased use of reverse logistics

Consumers and retailers are increasingly returning sold and unsold goods, respectively, to manufacturers, which have started focussing extensively on customer satisfaction and environmental concerns. As most companies (including the pharma giants) outsource this task to 3PLs, the onus of delivering results lies with the latter.

For instance, Genco (acquired by FedEx in January 2015) offers reverse logistics services to about 80 healthcare product manufacturers, including 14 of the top 20 global healthcare companies. The company has installed specifically designed software to manage the reverse flow of products, lowering costs and expediting the movement of returned products. Additionally, it has established warehousing facilities and implemented security services for returned pharma products.

Collaborative logistics

“Eastern Europe was chosen because the destination points of UCB and Baxter were in the vicinity of capital cities, and because the distance from Baxter and UCB distribution centres in Belgium to the final locations was quite huge. The greater the distance, the more are saving opportunities of flow bundling”
Sven Verstrepen, Business Development Director, Tri-Vizor (November 2013)

Increasing cost pressures have compelled companies in various industries, including pharma, to collaborate with peers, even direct competitors, to reduce transportation and distribution costs. The best example in the pharma industry is that of American giant Baxter’s collaboration with Belgium-based pharma manufacturer UCB. The two companies partnered in 2011 to share logistics for six Eastern European countries, including Romania and Slovakia, owing to closer destination points. The partnership was arranged by Tri-Vizor, a Belgium-based firm engaged in facilitating horizontal collaboration among organisations. It has helped the companies achieve cost savings of >15 per cent, along with a 50 per cent reduction in carbon footprint. Later, in 2012, Baxter partnered with US-based filtration product manufacturer Donaldson to cut logistics costs. During 2012–2013, the company worked with European consortium Collaboration Concepts for Co-modality (CO3), a government-funded project, to demonstrate the viability of horizontal collaborations. Over the course of the project, Baxter and Kimberley-Clark witnessed 10 per cent savings on transportation through horizontal collaboration. After various instances of successful implementation, Baxter is now eyeing an opportunity to partner with consumer goods giant P&G.

The impact of the trends discussed in this article is likely to be far-reaching and transformational enough to devote separate articles on each of them. A quick glance, however, prods one to consider which trend could likely be a game changer, and which would fade like a transient flash in the pan.

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