Perfect package

Are logistics companies best placed in the supply chain to conduct key secondary packaging activities? Alex Klim explains why configuring product presentation to market requirements later in the supply chain can be cheaper, greener and easier to manage than traditional methods.

Diversity of labelling requirements exists throughout the global pharmaceutical market, with each country having its own set of regulations, barcode standards, languages and customer requirements. Packaging for pharmaceutical products therefore needs to fit specific market requirements and is reliant on accurate forecasting and demand planning.

Working with a logistics company that has secondary packaging capabilities enables decoupling of manufacturing from final configuration of the product and provides opportunities to reduce inventory and forecasting errors while improving the speed of response to market changes.

Packaging in the pharma industry relies on a number of criteria depending on the product.

The challenges of forecasting
The issue of forecasting product presentation is a complex and expensive one. When a pharmaceutical product is handed over to a purchaser, all the packaging and accompanying literature must be presented to meet the regulations in each country where it is distributed, while also meeting the needs of the prescribing doctor, dispensing pharmacist and end user. Furthermore, there will be supply chain packaging requirements to meet, at pallet level, case level and stock-keeping unit (SKU) level, either because of regulations, customers’ wishes or for the sake of efficiency. Finally, the product’s brand must be correctly displayed in addition to anti-counterfeiting measures.

Additional considerations must also be made for efficiently servicing sales reps with correctly configured marketing collateral and occasional samples, or clinical trial investigator sites with investigational product (IMP) and lab kits. All these variables imply that the same pharmaceutical product will potentially need different packaging within each country. Getting the right product correctly configured to regulatory and customer requirements available at the right time in the right place will therefore rely on accurate demand planning and forecasting; demand is also affected by many variables such as seasonality, sales force activity, shelf life, treatment durations and, most importantly, by the stage in a product’s lifecycle. Different types of healthcare products will have very different product lifecycles, with demand being reactive to different factors:

• ethical pharmaceuticals may be driven by product launch strategy and patent expiry
• generic pharmaceuticals by availability and price competitiveness
• clinical trial medication by patient recruitment and protocol
• biotechnology products by their shelf lives and obsolescence orphan drugs by treatment populations
• over-the-counter (OTC) medicine by seasonality.

Demand forecasting errors can therefore result in over-supplying a market (resulting in large write-offs), or losing crucial market share if in too short supply (especially around launches or for more competitive treatments). An uncertain economic climate and healthcare cost pressures makes decision making even harder. Supply chain strategies used in the pharmaceutical industry are increasing the burden on demand planners and forecasters by not providing enough flexibility.

Challenging current practices
Many pharmaceutical and biotechnology companies see manufacturing and packaging as a single activity rather than as different activities that can take place at different times in the supply chain. The traditional perception is that a pharmaceutical product can only be a ‘work in progress’ for a short amount of time, namely at the manufacturing facility, then immediately after at a packaging facility where primary and secondary packaging takes place. The finished product will then go into the supply chain at regional, then country levels, in a finished form at the product’s full value (minus local tax and duty).

On the journey from raw material to finished product, each process adds value and cost to the product. Configuring too early in the supply chain, also known as a ‘push’ supply strategy, is time and money spent that is not necessarily related to demand, so increasing the financial risk of having excess inventory, product obsolescence or incurring additional rework/ repackaging costs. This often translates into production managers wanting a more efficient long production run and country management teams feeling most comfortable when they have a good amount of stock ‘just in case’ ready to ship, resulting in unnecessarily large inventories and high packaging rework costs, to correct forecasting errors or face (unbudgeted) write-offs. The effectiveness of the supply strategy can be measured in the number of stock turns that take place; the faster stock can be sold, the less money is tied up in the supply chain which releases working capital. The opposite scenario is a ‘pull’ supply chain where inventory movement is triggered only by actual demand.

The benefits of change
By having a more adaptive supply chain and decoupling the final configuration of a product from manufacturing, significant savings can be made while becoming more reactive to demand and reducing the risk of forecasting errors. Flexible fulfilment is a method of supplying a market that attempts to delay as much of the final market-specific configuration to the last possible stage in the supply chain- hence the popular logistics terminology of ‘postponement’ for this system. It can be applied by creating a postponement centre within a regional or country distribution centre; global logistics service providers (LSPs) like DHL Supply Chain have responded by licensing their distribution centres to be able to perform secondary packaging activities to the same quality standards as dedicated packagers.

In an optimal scenario, mass production and primary packaging would take place together, but the products would be shipped as ‘nude’ vials or blister packs to the ‘postponement’ centre. This has an added benefit of improved space utilisation compared with secondary packed pharmaceuticals resulting in lower transport costs or viability of other means (air rather than road). Once at the warehouse, storage costs are also reduced.

In a regional distribution centre model, products are subsequently only configured once orders are ‘pulled’ by actual demand. In an in-country model, the unconfigured units can quickly be transferred between country depots to make the best use of batches before they expire.

Working with LSPs
The benefit of using an LSP over a dedicated packager is through having a secondary packaging cell under the same roof as the warehouse – transport costs to and from the dedicated packager are eliminated.

Logistics companies like DHL Supply Chain can also offer vertically integrated transport solutions such as global forwarding or courier services, which also reduce costs and benefit from load consolidations. These two transport factors will also play an important role in reducing the environmental impact that a pharmaceutical company makes.

As moving to a full postponement model can mean e-engineering a whole supply chain, using an LSP’s rework or repackaging capability is often a first step towards making a supply chain more responsive (and reducing waste) as allows reconfiguration close to the end user.

re-engineering a whole supply chain, using an LSP’s rework or repackaging capability is often a first step towards making a supply chain more responsive (and reducing waste) as allows reconfiguration close to the end user.

Postponement is used more commonly with orphan drugs or biotech products due to their smaller volumes. They require international postponement solutions to avoid very costly waste, although concerns regarding parallel trade need to be considered in partner selection. Some medium and large pharmaceutical manufacturers do use postponement as part of their RDC strategy, while others are contemplating the idea as part of their rationalisation plans.

A manufacturer’s supply chain can be used to gain a competitive advantage in a market; by understanding the product lifecycle of each line and by having a supply chain strategy in place that reacts to the corresponding demand patterns will ensure availability while reducing cost. The best way to achieve this supply chain strategy is by challenging traditional approaches of relying too heavily on forecasting and demand planning, and instead moving to postponement models where products are configured closer to when demand is known. The fastest way to make the change towards lower risk supply strategies is by working with an experienced LSP.

Author

Alex Klim works at DHL Supply Chain Life Sciences in product development.

Company profile

DHL is the global market leader of the international express and logistics industry, specialising in providing innovative and customised solutions from a single source. For further information, visit: www.dhl.com.