Get the programme started – cost-effective supply chain security1 October 2014
With global serialisation legislation now in place, pharmaceutical companies are starting to realise its full impact, but they must endeavour to find a cost-effective strategy that ensures security of supply before it’s too late. Dr Evren Ozkaya, former director of the global track-and-trace programme at Sandoz, and the founder and CEO of Supply Chain Wizard, explains how organisations can develop a comprehensive programme that minimises disruption and delivers value beyond compliance.
If you are one of those senior executives who likes to over-simplify things just to avoid or delay the upcoming compliance investment because the deadline is over three years away (or you'd rather spend money on your short-term goals), please pass this on to your serialisation programme lead. Oh... you don't have one? You might be in trouble.
During my doctoral research years I studied diffusion theory applied in the context of new product and technology adoptions in high-tech industries. This theory is rooted in one of the most ancient realities humans faced: pandemics spreading in a population. Think of the plague in the Middle Ages. Once the pathogen starts to spread in a population of closely connected individuals, the count of infected people follows an S-curve over time, until the entire population is infected. Similarly, speed of infection follows a bell-curve, ramping up until a peak, and then slowing down. Unprepared or less-than-strong individuals may die.
In 1969, Dr Frank Bass, one of the founding fathers of marketing science, came up with a beautifully simple but powerful formula to model the behaviour of diffusion of technology, which shows an extremely similar pattern to diffusion of diseases. In it, he captured the essence of what is happening in a population of pharmaceutical companies: early adopters are moving well into their serialisation technology roll-out, while late adopters are struggling to even get started. In the end, every company should be compliant, or drop from the market.
The serialisation legislation around the world is a key focus of discussion for the pharmaceutical industry, and has been for more than a decade. The first, and only, country that has full track-and-trace implementation is Turkey, which gained that status in 2012, while Brazil, China, India, Korea and the US are in the process of implementing their legislation in the next couple of years, and the EU is getting ready to finalise its legislation in the next couple of months.
With new requirements and tight deadlines in place requiring new serialisation technologies to be implemented, the number of pharmaceutical companies that adopt such programmes over time will definitely follow a similar diffusion pattern. By the end of the legislation deadlines, every pharmaceutical company should be 'infected' to be compliant with regulatory requirements. However, how the new technology is adopted matters to the entire industry because it will define the amount of industry-wide disruption that will be experienced.
So what's the big deal? If you are a vendor selling your products or services to the pharmaceutical industry, you are in a great spot. However, if you are the manufacturer, you'd better get ahead of the curve to avoid market shortages of available vendor capacity. Combined with the complexity of serialisation programmes, you may already be short on time to meet legislation deadlines.
In essence, there are three big challenges with the serialisation pandemic we are experiencing. The first one is the large scope, which by now includes more than 40 countries with final and/or draft legislation, and covers all supply chain trading partners in these countries and all the prescription drugs there. The key take-home message is that it's a programme of massive scale, often compared with the large global ERP implementations in duration and budget.
The second challenge is the complexity, which includes elements such as the cross-functional nature of the project (which has a strong need for business, IT, engineering, operations and support functions to collaborate) and the requirement to implement five layers of new technology, from component and packaging line levels (level 1 and 2), to site and enterprise level IT infrastructure (level 3 and 4), and final e-Pedigree/data-exchange systems (level 5), ensuring the standard communication between supply chain partners. And just to make things more complicated, the serialisation programmes should often run in parallel with other major schemes such as a recent merger or acquisition integration or ERP upgrade/roll-out.
The final major challenge is the aspect of limited resources. This concerns the quality/experience of the available resources as well as the number of available resources vs required resources. Programme management office (PMO) serialisation programmes should compete with other major programmes for the best talent, which is often in short supply internally and externally in the industry.
Going back to the Bass diffusion model, we see two categories of adopters. Companies such as Pfizer, Novartis, Eli Lily and a handful of others started their programmes up to ten years ago following the introduction of the first set of legislations. They are the 'innovators'. Most of them already have serialisation programmes in place, yet they also struggle to manage this large scope and complexity with the limited resources. But the real challenge is for the 'imitators' (medium-sized or smaller companies) that are just starting to ramp up, as of late 2014, and by the time we see the industry peak adoption rate, probably between 2015 and 2016, we might be out of available vendor resources and equipment capacities to meet the full demand.
This major gap between supply and demand in the market will create multiple issues for the late adopters, such as increased cost of implementation, delays, or simply the risk of being non-compliant by the legislation deadline. The sheer size of the overall market, which is in the order of thousands of companies, is making it extremely difficult for the vendor base, which is in the order of tens, to match the demand.
Industry conferences are filled with many case examples illustrating the types of struggles early adopters faced, and this should all be leveraged to reduce costly implementation mistakes for the rest. Some horror stories include system issues leading to not being able to ship products for days, wrong deliveries of serial numbers leading to product recalls, and insufficient vendor support causing production stoppages. Many more stories illustrate the fact that this programme should not be taken lightly.
So what are the top strategies needed to navigate these challenges? For starters, begin early. The easiest and simplest strategy is to get 'infected' while there are still enough 'doctors' around to support you. Start with your strategy and vendor selection steps, and move into the pilot project phase soon.
Next, reduce scope. The best time to do that long-due network design study might be now. Take another look at your vendor, customer and distribution networks and see if you can simplify. If you can, this is a double win, due to improved operations and reduced investment needs for serialisation.
Planning right is vital. Learn from others and imitate the innovators. Jumping fast into the pilot project will bring with it lots of issues. Make sure your strategic planning project considers all aspects of the project: planning, vendor integration points and organisational structure, together with the overall budget available/needed.
Running a comprehensive programme will bring a level of cost-effectiveness and a sense of supply security. However, you need to go beyond the obvious to capture value beyond compliance.
Here is a more specific set of initiatives that can be run as part of your serialisation programme to reduce the total cost of compliance, and which may bring value as a competitive advantage in the short term.
1. Partner with experienced consultants and get the strategy right
Leverage consulting support to learn from industry mistakes and plan the project strategy correctly from the beginning. The difference between having a technology vendor quoting you with or without the presence of an experienced track-and-trace consultant might be significant if you are not familiar with various solution options that are available to solve your serialisation challenges.
2. Plan end to end, order in bulk
Planning the entire programme end-to-end means that all relevant costs and resource requirements are considered from the beginning to avoid issues later. Once the entire scope is clear, ordering some of the equipment in bulk may generate substantial savings for vendors, which is then passed on to the customers.
3. Consolidate packaging lines and sites
The future of your supply network is a critical decision, and consolidating slower packaging lines into a fewer number of faster lines will minimise track-and-trace investments. Similarly, avoiding investments in a site that may not exist in the future supply network is an important consideration, which requires an upfront strategic assessment.
4. Select the right vendor combinations and negotiate on TCO
Various cost models exist, and choosing purely on the one-time initial investment is a typical mistake. Companies should evaluate and negotiate on total cost of ownership (TCO), which also includes annual maintenance and service contracts, and future, potentially frequent, upgrade needs as new countries come into the picture. Choosing vendors that have worked together before will also minimise the cost of building new interfaces and reduce the project delays.
5. Optimise your roll-out timeline and resource planning
Spreading the investment over the available timeline is a wise strategy. However, the resources required towards the end of serialisation programmes may not be easily sourced due to industry competition and high demand on these resources. Timelines should be optimised with resource constraints in mind.
Besides the above-mentioned cost-saving strategies that deliver value to pharmaceutical companies, there are also a good number of return on investment (ROI) initiatives that could be launched to increase the value of the new technology for the company. In some cases, the returns might significantly exceed the initial investment amounts. Hence, it would be wise to investigate the potential value early in the programme.
Most of the ROI initiatives are concentrated in supply chain operations. These include: better returns tracking and refund management, shortage tracking and claims optimisation, and inventory tracking and visibility. There are also large potential savings in the packaging operations area, such as overall equipment efficiency (OEE) improvements, or specific initiatives focusing on boosting productivity in the distribution centres, both of which are expected to experience efficiency losses due to new serialisation systems and processes. Innovator companies are leading the way in analysing these ROI initiatives earlier in their programmes, but these proposals would be equally important for smaller-scale companies looking to stay competitive with their cost structures.
Now that you know what you need to do, don't wait to understand everything in every detail. Get the programme started, learn quickly and start aligning your senior leadership soon. Whether you call it Bass's diffusion theory, Darwin's evolution theory or a big meteor approaching fast, you don't want to be eliminated from the world of pharmaceuticals because you failed to take action.