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Transforming Pharmaceutical Business Performance:
The Supply Chain as a Strategic Enabler
Robin Koh and Yun KangSupplyScape, Inc.
© 2008 SupplyScape Corporation. All Rights Reserved.
2
Leveraging technology with supply chain domain expertise…
… to deliver industry’s most relevant Track & Trace based Supply Chain Solutions
Turning Data Into Actionable Knowledge
Pedigree, Serialization & Authentication
SupplyScape Driving Product Integrity and Additional Business Value
Business Collaboration &
Traceability
© 2008 SupplyScape Corporation. All Rights Reserved.
3
A Safe & Secure Chain The Evolution Continues
Improving Accountability & Control
Chain of Custody SecurityIndividual Product Security
ProductSecurity
TransactionSecurity
Physical Auth.Features Serialization TraceTrack
Authentication Pedigree
Pharmaceutical Co Wholesaler Pharmacy
© 2008 SupplyScape Corporation. All Rights Reserved.
4
Agenda
Trends Driving a Focus on the Supply ChainTrack & Trace Implications on the Supply Chain
Case Study
Suggested Next Steps
© 2008 SupplyScape Corporation. All Rights Reserved.
5
Patent Expiry and Generic SubstitutionAn Increased Emphasis on Efficiency & Cost
US Patent Sales at Risk Number of Generic Filings
Impacts on price per dose
© 2008 SupplyScape Corporation. All Rights Reserved.
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Global Growth StrategiesEmerging Markets Offer Growth, Challenges
Source: IMS Market Data, 2007
25.7%
20.2%
15.7%
4.8%
3.8%
0% 10% 20% 30%
China
Russia
Brazil
Top 5 Europe
U.S.
Year over Year Growth
© 2008 SupplyScape Corporation. All Rights Reserved.
7
Product Security IncidentsThe need for better control on Supply Chains
Worldwide Commercial Impact
65
09
56
08
49
07
44
06
39
05
75
1004
35
(Counterfeit drugs — $ billions)
Sources: Center for Medicines in the Public Interest
Global Pharma Safety Incidents
Sources: Organisation for Economic Co-operation and Development
964
04
196
02
484
03
1,123
05
1,412
06
1,759
07
US Drug Recalls
Sources: FDA (CDER)
Incidents reported:• Counterfeits• Diversions• Thefts
(Prescription only, not including Biologics)
Drug Counterfeit Incidents Investigated
Sources: FDA
58
04
27
02
21
01
6
00
11
99
30
03
32
05
54
06
31
07
(# Investigation cases opened)
© 2008 SupplyScape Corporation. All Rights Reserved.
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Select Strategic Transformation Programs
© 2008 SupplyScape Corporation. All Rights Reserved.
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Supply Chain TraceabilityIncreasing Global Requirements & Complexity
(1) Hemophilia products only
Country Tracking Level Data Carrier Data Required Data Format Mandatory Timeline
Italy Sales Pack Code 39 Product License # 1 letter for Drug Class + 9 digit Numeric
Yes In effect
I2/5 Sequential # 9 digits - Numeric
Belgium Sales Pack EAN 128 Product License # + Random Sequence #
16 digits - Numeric Including 8 digit sequence #
Yes In effect
Greece Sales Pack EAN 13 National Reg. Number , Sequential #
13 digits - Numeric12 digits - Numeric
Yes In effect
Spain Sales Pack Data Carrier TBD – PDF 417 / Data matrix
Product Code, Batch #, Unit #, Expiry date
TBD Yes TBD
Ireland1 Sales Pack Data matrix Serial # - TBD SGTIN -96 Yes In effect
Korea Batch Level Linear Barcode - TBD Batch # TBD Yes Est. 2013
Japan Biologics Only – Unit
Data Matrix / QR Code Batch # In effect
Brazil Sales Pack Data Carrier – TBD Product Code, Batch #, Date of Mfg, Expiration Date
TBD Yes TBD
France Lot Data matrix CIP code 13, Lot #, Expiry date 13 digits - Numeric Yes Start – 01/08End – 12/10Data matrix on
vignetteReimbursement data
Turkey Sales pack, transport unit
GS1 standard (Data Matrix ECC 200 or GS1 128)
Product code, Serial # AI(01) + AI(21)14 digit – Product code 20 Digit – Serial number
Yes Jan 1, 09
China Sales Pack Code 128c manufacturer code + serial number + check digits
6 digits - Numeric9 digits - Numeric Serial # 4 digit – Numeric check digit
Yes Oct 31, 2008
© 2008 SupplyScape Corporation. All Rights Reserved.
10
Agenda
Trends Driving a Focus on the Supply Chain
Track & Trace Implications on the Supply ChainCase Study
Suggested Next Steps
© 2008 SupplyScape Corporation. All Rights Reserved.
11
Supply Network DesignImpact of Track & Trace Technologies
PharmaCo Distributor Pharmacy Customs CMO/CPO
GlobalizationAcquisitions & DivestituresOutsourcingCapability ConstraintsReliabilityFlexibility
© 2008 SupplyScape Corporation. All Rights Reserved.
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Inventory ManagementThe Systematic Reduction of Uncertainty
Supply Side• Supplier Integration/Collaboration• Inventory Visibility• Cycle stock/Safety Stock
Demand Side• Forecasting• Actual Demand• Rate of Depletion• Location• Shrinkage
Cost
Service
Time
Inve
ntor
y
Min
Max
© 2008 SupplyScape Corporation. All Rights Reserved.
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Other Supply Chain Initiatives
Supply Chain Rationalization
KPIs
ReverseLogistics
PricingPrograms
Description Opportunity for Track & Trace
• Rationalizing the number of supply chain partners for better control on product distribution
• Understanding the role of additional information in internal & external Process and Result measures
• Improving visibility into the qty and terms of products being returned to organization
• Wholesaler and pharmacy register the drug sold to Health Authority, and PharmaCo uses this info to pay discount to wholesaler
• Track & Trace technologies as an enabler for greater accountability of products
• Impact of granular information on Write-offs, Stock-outs, Service Levels, Fill Rates etc.
• Track & Trace technologies can provide visibility into the age of trade inventory and exact terms of sale
• Free Pricing is a complex system that can be simplified by bypassing much of the data recording and facilitating the verification process by the PharmaCos.
© 2008 SupplyScape Corporation. All Rights Reserved.
14
Agenda
Trends Driving a Focus on the Supply Chain
Track & Trace Implications on the Supply Chain
Case StudySuggested Next Steps
© 2008 SupplyScape Corporation. All Rights Reserved.
15
Case Study #1OverviewA Leading Global Pharmaceutical Manufacturer
Objective: - To understand and quantify benefits in product security and business
practice improvements enabled by Track & Trace
Key Issues:- A few top-selling product lines highly counterfeited and diverted- Faced with various global serialization mandates, and in need of
justification for what was expected to be substantial investment- Integrated production network that makes localized approach challenging
© 2008 SupplyScape Corporation. All Rights Reserved.
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Case Study #1Operational Areas Investigated
Product Security
Trade Financials
Supply Chain Efficiency
Out-of-Stock Reduction(Direct Channel)Anti-Counterfeit & Diversion
Returns Management
Theft & Shrinkage Reduction
Clinical Trials Supply Chain
Product Complaints Management & Resolution
Shelf-life Management
Chargeback Management New Product Launch Management
Demand Forecasting & PlanningRebates Management
Government Pricing Consignment Inventory / VMI
© 2008 SupplyScape Corporation. All Rights Reserved.
17
Case Study #1 Three Different Approaches Used To Estimate Counterfeit Revenue Loss
Online Pharmacy Model
• Treat on-line pharmacy to be major source of counterfeit, unauthorized generics, diverted.
• Determine amount of counterfeit purchased on-line
Overall Market Size Model
• Estimate market size by various patient group
• Determine different between estimated market and actual sales
Global Seizures Model
• Utilize actual seizure data• Derive amount of counterfeit sold
from seized API
Revenue Loss
Estimate
1 2
3
© 2008 SupplyScape Corporation. All Rights Reserved.
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Case Study #1 Returns Problem Decomposed
Returned Products
Direct Returns Indirect Returns
Sold on Contract
Not Sold on Contract
Sold on Contract
Not Sold on Contract
© 2008 SupplyScape Corporation. All Rights Reserved.
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Case Study #1 Returns Reconciliation – Issues and Opportunities
Unable to tie individual returned items to the original purchase. Credit is issued based on most recent WAC
Difficult to differentiate whether the returns are ‘legitimate’ or not.- This is turn poses challenges in enforcing
the terms and conditions of contract
Returns processing is labor intensive, requiring manually reading and typing the lot #
Business Issues/Challenges Opportunities Improved return goods accuracy by issuing
credit based on actual purchase price
Serial number on the items is tied to the transaction identifier (invoice #, PO #) that can be used to identify to whom the product was sold to identify ‘illegitimate’ returns
Scanning serial number rather than typing lot # results in more efficient returns processing
© 2008 SupplyScape Corporation. All Rights Reserved.
20
Case Study #1 Hard Savings Identification
Yearly Benefits (unit: $ Thousand)
Supply Chain &Trade Financials – I
Supply Chain &Trade Financials – II
TotalProduct Security
Realizable unilaterally by Client
Requires data sharing with TP
Benefit A
Benefit B
Benefit C
Benefit D
Benefit E
© 2008 SupplyScape Corporation. All Rights Reserved.
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Business Value Matrix
Benefit B
Benefit K
Benefit L
Benefit R
Benefit S
Benefit D
Benefit U
Benefit F
Benefit E
Benefit A
Benefit O
Benefit Y
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2
0 0.5 1 1.5 2
Feasibility of Implementation
Attr
activ
enes
s to
Clie
ntCase Study #1 Key Success Factor: Getting Downstream Partners to Participate
© 2008 SupplyScape Corporation. All Rights Reserved.
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Case Study #1 Key TakeawaysAs expected, most attractive benefits require
collaboration from supply chain- Internally realizable benefits do exist, but not as sizable
May need to look at areas other than finished goods for internally realizable, compelling benefits- Clinical trials, samples, reusable assets, etc.- Utilize the same infrastructure for Track & Trace
Some benefits require policy changes to be accompanied
Data sharing can lead to significant benefit- Manufacturers can do so much with data, if they can get it- Why would the downstream partners share data?
© 2008 SupplyScape Corporation. All Rights Reserved.
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Case Study #2:A leading chain drug store
Objective: - To understand the potential benefits of Track & Trace enablers
Key Issues:- Faced with various regulatory requires for Track & Trace- Pressure for margin improvement- Complexity in operation - # of SKUs, variety in the form and shape,
# of locations, etc.
© 2008 SupplyScape Corporation. All Rights Reserved.
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Frequency of manual checking of aging Monthly
Typical man-hours spent each time X hours
Average hourly wage $ Y
# of stores Z
Today’s practice
~ $ XX M
Business benefit
• Monitors exp-date of individual bottles
• Eliminate need to check for every bottles in store
Man-hour reduction due to T&T ~ X %(incl manual searching & checking, creating and managing current tags, etc.)
ePedigree processHow T&T can help
Stores
Case Study #2 Shelf Life Management and Control Made Easier at Store-level
© 2008 SupplyScape Corporation. All Rights Reserved.
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Inaccurate supplier mis-pick
• T&T picking is a self-auditing process, with additional verification step before sending to stores
• Expected to reduce picking of wrong items and quantity
• Improvement above 80% expected
• Minimal impact
• Individual item tracking allows monitoring of inactive bottles/units in store and generate warnings
• Otherwise, minimal impact
• T&Tputs in place a disciplined procedure for returns and transfers to be updated into the system
Root causes of inaccuracy% accountablefor inaccuracy How ePedigree can help
X %
Y %
Z %
V %
~ XX %
PI Improvement %
Dispensing error
Theft & misplacement
Unreported transfers & returns
% improvementby T&T
50 %
0 %
0 %
50 %
Stores
Case Study #2 Perpetual Inventory Accuracy Improvement Identified
© 2008 SupplyScape Corporation. All Rights Reserved.
26
Cycle count frequency Daily
Typical man-hours spent each time ~X min
Average hourly wage $ Y
# of stores Z
Today’s practice
~ $ XX M
Business benefit
PI accuracy improvement
~ XX %
% reduction in cycle count efforts ~ X %(excluding controlled drugs)
ePedigree process
Stores
Case Study #2 Inventory Accuracy Leads to Potential Reduction in Cycle Count Effort
© 2008 SupplyScape Corporation. All Rights Reserved.
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% of scripts with OOS X %# of scripts/week/store YAvg retail value of script $ ZAvg markup % V %
Out-of-stock (OOS) relevant status
Leave for a competitor nearby ~ 5 %Leave for another ABS store ~ 15 %Accept partial fill and/or ~ 80 %return some other time
Patient reaction to OOS
Ordering
• Exceptional demand
• Inappropriate parameters in sys
• Item not in masterfile
• Supplier OOS• Supplier mis-pick• Operational
interruptions/ delay
• Receiving error• Dispensing error• Theft &
misplacement• Unreported transfers
& returns
Supplier delivery failure
Inaccurate perpetual inventory
Root causes of OOS% accountable
for OOS% improvement
by Track & Trace
~ X %
~ Y %
~ Z %
~ 0 %
~ 0 %
~ 30 %
~ $ XX M
Business benefit
Stores
Case Study #2 Inventory Accuracy Also Leads to Out-of-Stock Reduction at Stores
© 2008 SupplyScape Corporation. All Rights Reserved.
28
Sample on-hand qty of an item at DC A
On-hand qty for Item # A
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
0 10 20 30 40 50 60
Day
Qty
Order point = 2880 - If products are received and made
available for sale faster, the order point can be reduced
- Lower order point results in lower average on-hand inventory
Rationale for inventory reduction
~ $ XX M
Business benefit
Assumptions:(1) Inventory holding cost is X% of inventory value per year.(2) Build-to-week is 0.8 for DC A(3) Avg receiving hour for a PO is 6 hours currently, and is reduced to 4 hours
DC
Case Study #2 Inventory Accuracy Leads to Similar Operational Savings at DC Level
Productivity Increase in Receiving Leads to Potential Inventory Reduction
© 2008 SupplyScape Corporation. All Rights Reserved.
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Key TakeawaysCase Study #2:
- Overall benefit at the store level order of magnitude higher, due to scaling factors
- Rather than a single large benefit area, business case will most likely exist in sum of smaller ones
Overall- Benefits do exist at all segments of supply chain. - It’s matter of identifying where it works at each party, which will most likely
be very different for both parties. Type of benefit Prioritization on product lines, locations, timing, etc. Beyond operational
- There are evolutionary opportunities, and they are revolutionary ones.
© 2008 SupplyScape Corporation. All Rights Reserved.
30
Agenda
Trends Driving a Focus on the Supply Chain
Track & Trace Implications on the Supply Chain
Case Study
Suggested Next Steps
© 2008 SupplyScape Corporation. All Rights Reserved.
31
What Top Pharmaceutical Companies Need To Be Able To Address TodayCompliance responsibilities around the globe
- Localized approach vs integrated- Balance between doing too much vs. taking too much risk
Alignment between compliance, product security, and business value initiatives- Prioritized implementation plan
Alignment between US efforts and global needs- Need for greater supply chain control and closer customer access- Manifested by strong trends such as wholesaler consolidation, direct
distribution, quota system, free-pricing
Getting the downstream trading partners aligned- Negotiating from the position of strength- Knowing what and how much to give and get
© 2008 SupplyScape Corporation. All Rights Reserved.
32
Business Opportunities in Supply Chain Traceability
What if you could?Leverage investments in product
serialization initiatives to drive a higher return on product and brand protection?
Increase new product launch success by ensuring proper supply into key markets?
Establish a global network of trading partners to provide greater visibility into distribution channels?
Overcome barriers to entry into new markets by more efficiently addressing local distribution requirements?
Facilitate financial reconciliation across chargeback, rebate, and re-imbursements across your supply network?
© 2008 SupplyScape Corporation. All Rights Reserved.
33
Next StepsGet Started on Improving Supply Chain Performance
Contact Mary Hall Contact Mary Hall todaytoday to schedule a to schedule a
consultation!consultation!781.503.7462, [email protected]
Visit Visit SupplyScape.com to SupplyScape.com to
learn morelearn morewww.supplyscape.com