understanding local pharmaceutical supply chain visibility · pdf fileunderstanding local...

SIMTech technical reports Volume 9 Number 4 Oct-Dec 2008

234

Understanding local pharmaceutical supply chain visibility

N. S. Zhang, W. He, and P. S. Tan

Abstract – Supply Chain Visibility (SCV) is cur-rently a hot topic for the supply chain and logistics industry. In order to provide technology and com-mercial intelligence to understand industrial needs for potential research in this area, this project is aimed to conduct technology analysis and market research for a specific industry sector, local pharmaceutical supply chain, to understand their requirements for SCV. Firstly, intensive literature review on SCV and analysis of its characteristics were conducted. Sec-ondly, a specific industry vertical, Singapore phar-maceutical industry, was identified. Lastly, the needs of the industry vertical have been identified after engaging the industry. The findings of the project provided us better understanding issues in local pharmaceutical supply chain and help us identify potential research areas.

Keywords: Supply chain visibility, Supply chain management, Pharmaceutical supply chain

1 BACKGROUND

Supply Chain Visibility (SCV) is an important issue for both academic research and industrial prac-tice. However, it is a popular buzzword which remains an ill-defined and poorly understood concept in sup-ply chain literature [1]. Visibility is a complex issue that involves people, process, technology, and infor-mation flow. From an IT perspective, SCV is an or-ganisation’s ability to collect and analyse distributed data, generate specific recommendations, and match insights to strategy [12]. While an increase in avail-able supply chain data gives the illusion of visibility, it adds to a company’s challenges.

According to recent Aberdeen Global Supply Chain Benchmark Report [14], some 79% of large companies from more than 150 surveyed companies said that the lack of supply chain process visibility is their top concern. An astounding 90% of all supply chains report that their global supply chain technology is inadequate to provide finance organisation with the timely information it requires for budget and cash flow planning and management. The lack of visibility is especially crippling to large supply chains with $1 billion or more in revenue, 79% of which cite this as a major concern. These large companies are at a scale at which poor visibility and uncoordinated multi-tier processes result in significant “just in case” inventory carrying costs, premium freight expenses, and ex-tended cycle times. They need more accurate fore-

casting and overall SCV to help improve the bottom line based on the surveys.

SCV is an emerging topic in both business prac-tice and academia. It receives increasing attention as more companies realise its importance. However, despite its practical relevance, no commonly accepted definition of SCV exists in literature or within com-panies until today. Thus, the goal of this paper is to contribute to an understanding of SCV by analysing various definitions of SCV from different perspec-tives. This has been approached on the one hand by pursuing a literature review of both practitioners and academic literature and on the other hand by con-ducting case studies in companies. First, a common definition of SCV is generated from a combination of findings from literature and expert interviews, and second, a set of the visibility needs is identified after analysing the characteristics of SCV for local phar-maceutical industries.

The rest of the paper is organised as follows: Section 2 briefly introduces the objectives of this research; Section 3 presents the research methodology we used in this study; Section 4 presents the research results by discussing the characteristics of SCV based on literature review and the visibility needs for the pharmaceutical supply chain; and Section 5 provides a brief conclusion and the last section discusses the significance of the research for the pharmaceutical industries.

2 OBJECTIVE

The goal for this study is to conduct research to understand the needs for SCV for at lest one specific industrial sector, Singapore pharmaceutical supply chain. The objectives for the study are as follows:

- To conduct technology analysis of SCV - To identify visibility needs for targeted sec-

tor

3 METHODOLOGY

3.1 Methodology and Paper Selection

In the project, we conducted a preliminary search for the papers on SCV. We identified three main digital libraries: Science Direct, InterScience and IEEE as we found major academic journal and con-ference papers related to SCV could be found in these libraries. Initially, we could find only about 12 papers directly with key word “SCV” from these libraries.


235

After reviewing most of these papers, we ex-panded our search to include “supply chain” and “visibility”, “supply chain” and “information sharing” as “supply chain visibility” appeared in most recent literatures and the discussion of it typically refers to information sharing which is related to visibility from an IT perspective. Table 1 shows the journals and distribution of papers we selected for the study.

Table 1. Summary of Paper Selection.

Journal No. of papers found

No. of papers selected

European Journal of Operational Research

25 20

Business Horizons 1 1 Computers & Industrial Engineering

6 4

International Journal of Production Economics

21 16

Journal of Operations Management

12 8

Journal of Purchasing and Supply Management

3 1

Transportation Research Part E: Logistics and Transportation Review

3 1

Omega 5 2 European Management Journal

1 1

Information & Manage-ment

2 1

IEEE Journals and con-ferences

44 35

Decision Support Sys-tems

8 2

Applied Mathematics and Computation

1 1

Management Science 3 2 Others 46 20

3.2 Industrial Outreach

In order to understand the local industry better, we conducted preliminary industry analysis to iden-tify possible industry verticals for potential collabo-rations based on our contacts. In consideration of time limitation, we decided to look into Pharmaceutical supply chain as SCV is very important to the supply chain with good response from the local players. In-terview and survey methods have been used in the project.

4 RESULTS & DISCUSSION

4.1 Supply Chain Visibility Defined

SCV is a complex issue that involves people, processes, technology and information flow [10]. In order to discuss the characteristics of SCV, we should first understand what the SCV is.

Different people have different definitions for SCV, it is usually a terminology that has been used a lot among supply chain consultants. Basically, it re-fers to increase communication among the different nodes in the supply chain. This enables a company to better understand what is going on throughout the supply chain. Another definition of SCV provided by John Fontanella [11] from logistics perspective, he argued that SCV is the transparent view of time, place, status and content. Noha Tohamy [12] defined SCV as the ability to access or view relevant data or informa-tion as it related to logistics and the supply chain. This definition came from an IT perspective, it emphasises an organisation’s ability to collect and analyse dis-tributed data, generate specific recommendations, and match insights to strategy. We summarised the defi-nitions of SCV from different perspectives in Table 2.

After analysis of the above definitions of SCV, we address SCV from nature of supply chain profes-sional’s work which is finally decision making. SCV is the capability of accessing and providing the latest relevant information/knowledge to relevant partners for collaborative decision making in a supply chain.

We argued that SCV was related to collaborative decision making between the partners in a supply chain. Supply chain management is actually a col-laborative decision making process involving pro-curement and supplier decisions including supplier selection, outsourcing decisions, procurement policies etc., production decisions such as selecting manu-facturing sites, capacity allocations etc., distribution decisions including channels, distribution and retail locations, transportation issues etc., and information support decisions. SCV provides a means for support of such decision making. David F Ross argues modern supply chain management in terms of tactical and strategic management philosophy [10]. Therefore, there are two perspectives for SCV: tactical and stra-tegic perspectives which will be discussed in detailed as follows.

The tactical SCV focuses on transactions as it offers visibility to the flow of materials, available capacity and resources within the supply chain. For many companies the first challenge is gaining internal visibility [2]. Companies with intra-company sales involving great distances and cross-border transac-tions involving many hand-offs, experience high frustration trying to obtain accurate timely informa-tion [3,5]. The technical difficulties often are exac-erbated by the lack of traditional leverage one party has over a supply chain to ensure compliance. Supply chains have multiple members; compliance is most often accomplished through cooperation and col-laboration [4,6-7]. Supply chains with a low degree of collaboration further complicate the goal of achieving internal visibility. There are huge data such as RFID data generated in operational processes with a supply chain. The challenge here is how to identify and col-lect actionable information and provide to supply chain professionals.


236

Table 2. Definitions for SCV.

Definition Perspective Source Supply chain visibility is the transparent view of time, place, status and content. Logistics John Fontanella

[11] Supply chain visibility is the ability to access or view relevant data or informa-tion as it relates to logistics and the supply chain.

IT, ability to access information

Noha Tohamy [12]

Many supply chains suffer from limited visibility. What this means is that a particular entity in the network is not aware of the status of upstream and downstream operations of the levels and flow of inventory as it progresses through the chain.

Operations and in-ventory manage-

ment

Professor Martin Christopher, Cran-field School of Management [15]

Supply chain visibility is viewed as the degree to which supply chain partners have on-hand information related to demand and supply for planning and control management.

IT, demand and supply

Hsiao- Lan Wei et al [9]

Supply chain visibility implies that data on inward-moving inventory, work-in-progress, outward bound products, logistics, warehousing, and all other activities that lead up to customer demand is available to members on the supply chain. Supply chain partners have the ability to foresee the movement of in-ventory, goods, and customer demand, and this enables them to plan ahead and function as part of a well-orchestrated effort. Unforeseeable events such as transit delays in ports, if visible, allow timely remedial action and will finally impact customer satisfaction.

IT, business data, ability, event

Frost & Sullivan [16]

The extent to which actors within a supply chain have access to or share infor-mation which they consider as key or useful to their operations and which they consider will be of mutual benefit.

IT- information sharing

M. Barratt [1]

Supply chain visibility is supply chain’s 'next frontier,' providing the real-time, micro-level view needed to perform the critical functions of monitor, notify, simulate, control and measure. This capability will become increasingly im-portant as supply chains evolve into linked networks, and move from a single enterprise controlling multiple processes to multiple enterprises that control a single process, distributed across trading partners.

IT- real time, mi-cro-level view

AMR[13]

SCV is not only important to tactical decision making in a supply chain, but also has profound stra-tegic implications for strategic decision making for the entire organisation. From a strategic perspective, attention falls on resource networks. SCV enables evaluation and reshaping of the resource network more in line with changing business environments. SCV is attained by technological and organisational means. Technological means in this paper refers to the of supply chain collaboration solutions that have en-abled tightly integrated supply chains. Organisational means refers to various collaborative business proc-esses where the supply chain parties agree on such cooperation and where the traditional firm boundaries do not hinder the setting of targets or, for example, collaboratively developed demand forecasts requires new ways to share responsibilities among supply chain partners. As a result, manufacturing companies are developing their capabilities to build better visi-bility into customers’ processes and into actual products and their usage. Overall, the strategic per-spective focuses on establishing cooperative partner-ing relationships and collective decision-making practices amongst supply chain players.

SCV help supply chain professionals in intelli-gence stage of collaborative decision making in a supply chain. Tactical SCV provides input informa-tion to tactical decision making and Strategic SCV for

strategic decision making. SCV as a concept can be approached from many

viewpoints related to excellence in supply chain management [1, 9]. Firstly, SCV enables improve-ments of internal efficiency of operations and cus-tomer value. Secondly, it can be achieved by organ-isational reform and the latest IT technologies. Lastly, it has tactical and strategic elements impacting the transactions throughout the supply chain and the structure of the resource network. The main research gap is related to this multifaceted nature of SCV. Most researches on this topic have mainly focused on transaction excellence in order to create demand or material flow visibility. Some other researches pro-vided analysis of possibility of SCV benefits for dif-ferent supply chain members. Even though SCV has been discussed from many viewpoints, there are still few studies that describe the different viewpoints from decision making perspective as well as the po-tential linkages between them.

4.2 Local Industry Vertical – Pharmaceu-tical Supply Chain

4.2.1 Pharmaceutical Supply Chain

The pharmaceutical supply chain management not only emphasises regulatory compliance and safety of products, but also include leveraging information to be more responsive to the needs of consumers.


237

The unique nature of the supply chain for phar-maceuticals makes managing complex information for supply chain effectiveness challenging, but clearly the rewards for doing so are significant. A typical Phar-maceutical supply chain is shown in Fig 1. It consists of one or more of the following players:

a) Manufacturer and/or contract manufacturer b) Wholesaler; c) Pharmacy; and d) Consumer.

Manufacturer

Manufacturer

ContractManufacturer

Wholesaler

Primary Wholesaler

SecondaryWholesaler

Pharmacy

Drag Stores

Other

Clinic

Hospital

Consumer

Supply Chain Visibility

Inventory

Business Transaction Data (EDI)

Business Transaction Data (EDI)

Demand

Track & Trace

Recall Notification

Chain of CustodyAuthentication

Logistics

Fig. 1. A typical pharmaceutical supply chain.

The contract manufacturer is responsible for the production of the active ingredients. This normally involves either several chemical synthesis and sepa-ration stages to build up the complex molecules in-volved, or fermentation and product recovery and purification in the case of biochemical processes. The manufacturer is concerned with taking the active ingredient produced at the primary site and adding “excipient” inert materials along with further proc-essing and packaging to produce the final products, usually in SKU form. For example, a product that is sold in pill form would undergo:

a) granulation: with addition of all the excipient materials;

b) compression: forming the pills; c) coating; d) quality control; and e) packaging Wholesalers play a significant role in this sector.

They tend to be large and few. In Singapore, there are 6 main wholesalers, Zuellig Pharma, Pan-Mayan, DKSH, IDS, Delfi and DHA which dominate the market.

A pharmaceutical supply chain can be set up to accommodate cost effective and efficient visibility to the supply chain. The above diagram is based on the assumption that manufacturers, wholesalers, phar-macy, logistics and hospitals establish their own item level data management capabilities to provide visi-

bility to demand, inventory, logistics, and custody, etc.

A local pharmaceutical value stream map is shown in Fig. 2. The value stream is driven by main wholesalers such as Zuellig Pharma, Pan-Malayan, DKSH, IDS, Delfi, and DHA. Zuellig Pharma is the leading wholesaler with 60% of local market share.

DHADelfi

IDS

Hospital

Clinic

Pharma

Store

ZuelligPharmaOffice

DKSH

Manufacturer

ZuelligPharma

ZuelligPharma

WHI

I

Pan-Malayan

2 days

Consumer

Daily Sales Order (EDI, Fax, Phone)Demand Forecast

Order

DO

SSG RDC

NDC

PriceConfirm

GKS, Pfizer,… SGH,NUH,AH, …

Decoupling pt

the 2 weeks inventory level for Hospital - target to

reduce to 6 days

Fig. 2. A top level of local pharmaceutical value stream map.

4.2.2 Key Challenges for Pharmaceutical Sup-ply Chains

There are many challenges unique to pharma-ceutical supply chain management. Indeed, facing the prospect of managing a chain of pharmacies can seem to be a daunting task on first examination.


238

One of the challenges faced by pharmaceutical supply chain management involves drug ordering for multiple locations. Of course, pharmaceutical supply chain management desires to order in bulk. Thus, wherever possible, pharmacy chain management wants to order for all stores in the entire chain or purchasing groups at one time. But, each store will have its own set of unique needs and requirements. The end result is that the chain management is faced with a very challenging task.

Personnel issues are also extremely important to and for pharmaceutical supply chain management. There is a shortage of qualified pharmacy personnel in Singapore. Thus, the management of the chain has to work hard to properly allocate its human resources throughout the stores included in the chain.

Government regulations and compliance is a sticky and complex issue for pharmaceutical supply chain management. There can be many legal re-quirements to be adept at understanding and ensuring compliance with the applicable statutes and regula-tions in all of the jurisdictions where the pharmacy chain operates an outlet or store.

A preliminary set of unique key issues associated with this supply chain are summarised based on lit-erature review as follows: • Multiple categories of medicines • Statutory requirements for track and trace capa-

bilities (e-Pedigree) • Highly regulated environment requiring exten-

sive data collection and information exchange to ensure chain of custody and monitoring of vari-ous controls

• Management of product expiry – for safety, error prevention, reassignment, safe disposal

• Cold chain required for temperature controlled product movement

• Globalisation and outsourcing • Complex demand patterns

o Predictable pattern for mid-life cycle prod-ucts

o Highly unpredictable for new introductions o Low volume high mix spread over a large

area needing quick response for • Controlled products (prescription drugs –

branded or generics) requiring a high level of constant management

• Varying regulations across global markets • Drug recall management • Elimination of counterfeits • Deal with data accuracy and related problems • Highly inefficient order management • Lack of process standardisation in purchasing,

inventory management, etc. • Lack of collaboration across players

4.2.3 Visibility Needs for local Pharmaceutical Supply Chains

In order to understand the above issues better in

local context, we conduct industry visits to talk to some key companies directly. Based on our discus-sions and surveys with the pharmaceutical industry, the following needs have been identified: 1) Inventory Visibility

a) Inventory visibility is the most important re-quirement for local pharmaceutical supply chain. Currently, most local hospitals keep inventory for 14 days for common drugs which cost about $4 million. How to reduce the in-ventory level is a concern of them. Is possible to reduce inventory from 14 days to 6 days? As for distributors/wholesalers, they don’t have enough visibility to the inventory status of hospitals to shorten replenishment cycles.

b) Currently, most hospitals do not have facility to mange inventory of drugs in wards. Most of times of nurses spent in handling inventory. How to better manage such inventory to reduce the efforts of nurses is another requirement.

c) Real-time inventory tracking and trace for controlled drugs is also required.

d) Visibility to sample drugs is required. Cur-rently, there is no system to manage the sample drugs.

e) Visibility to price change is a problem for wholesalers as they are informed the changes of prices in very short notice.

f) Expired date tracking g) Chain of custody

2) Demand Visibility a) As for wholesalers, they want to know the

demand from agency customers. Currently, the demands are not visible and they have to do forecast based on historical data such as the consumption pattern for the past 6 months. The current practice can not eliminate the Bullwhip effect. A mechanism to provide visibility of demand is needed by the wholesalers. How to discover and monitor the consumption patterns is another challenge for them.

b) As for principles (i.e. manufactures), they re-quire wholesalers to provide demand forecasts.

3) Regulation and Compliance Visibility

5 CONCLUSION

In this paper, we have conducted technical lit-erature review for SCV to understand it better from multi-perspectives.

A specific industry vertical, Pharmaceutical Supply Chain, has identified. The visibility needs for the industry have been identified. This paper has contributed to an understanding SCV by analysing various definitions of the visibility from different perspectives. It also provided technical insights to SCV for pharmaceutical industries. It will help con-duct further research on pharmaceutical SCV and lead to numerous business benefits, improving customer service and reducing operation expenses for local pharmaceutical companies.


239

As a follow-up of the research presented in this paper, a potential initiative for improving visibility to inventory based on Kanban to reduce inventory cost by at least 50% is current kicking off in collaboration with a local company.

6 INDUSTRIAL SIGNIFICANCE

According to figures released by the Singapore Economic Development Board (EDB), the Singapore pharmaceuticals industry did exceptionally well in 2006 contributing to 91% of the total output by the Biomedical Sciences (BMS) industry, which reached S$23 billion. This translated into S$20.93 billion in pharmaceutical output, up from S$15.85 billion in 2005, a 32% rise. The BMS industry’s overall output saw a record 30.2% jump from 2005, or a four-fold increase from the year 2000. The strong performance helped pushed BMS up to become the third largest contributor to manufacturing after chemicals and electronics. BMS valued-added (VA) grew strongly by 47% over 2005 while employment rose by 3.9% to reach 10,571.

The level of BMS manufacturing fixed asset in-vestment commitments increased in 2006 to S$901 million, up from S$859.5 million in the previous year. Industry estimates have put new pharmaceutical plant and expansion investments over the next three to five years at about US$3.5 billion. They include those by Lonza, Abbott, GSK Biologicals, Merck, Scher-ing-Plough and Pfizer. A recent study by Pricewater-houseCoopers (PwC) has found that Singapore is one of the favourite countries in Asia for pharmaceutical manufacturing investments. Singapore has established itself as the most competitive and trusted site for pharmaceutical bulk actives and secondary manufac-turing. EDB has targeted Singapore’s BMS sector to reach S$25 billion in manufacturing output and 15,000 jobs by 2015.

Base on Singapore Pharmaceuticals & Healthcare Report Q1 2008 by Research And Markets [8], Sin-gapore’s US$600 million pharmaceutical market is small in regional terms because of its city-sized population. But because of its well-developed econ-omy, per capita spending is high, making it a draw to almost all the multinationals. Accordingly, the coun-try ranks as the fourth most attractive Asia Pacific market in the completely overhauled Business Envi-ronment Rankings, ahead of larger peers such as Taiwan and Malaysia.

The study presented in this paper provided tech-nical insights to SCV for local pharmaceutical indus-tries. The findings of the stud will help us conduct further research on pharmaceutical SCV to lead to numerous business benefits including improving customer service and reducing operation expenses for local pharmaceutical companies.

REFERENCES [1] M. Barratt and A. Oke, “Antecedents of supply chain

visibility in retail supply chains: A resource-based theory perspective”, J. Operations Management, vol. 25, pp. 1217-1233, 2007.

[2] R. Schoenthaler, “Creating real-time supply chain visibility - Even in aftermarket sales and service, transparency is crucial”, Electronic Business, vol. 29, pp. 12-12, 2003.

[3] R. Lamming, N. Caldwell, W. Phillips, and D. Harrison, “Sharing Sensitive Information in Supply Relationships: The Flaws in One-way Open-book Negotiation and the Need for Transparency”, European Management Journal, vol. 23, pp. 554-563, 2005.

[4] A. Paulraj, A.A. Lado, and I.J. Chen, “Inter-organizational communication as a relational competency: Antecedents and performance outcomes in collaborative buyer-supplier relationships”, J. Operations Management, vol. 26, pp. 45-64, 2008.

[5] D.Q. Yao, H. Kurata, and S.K. Mukhopadhyay, “Incentives to reliable order fulfillment for an Internet drop-shipping supply chain”, Int. J. Production Economics, vol. 113, pp. 324-334, 2008.

[6] K. Bailey and M. Francis, “Managing information flows for improved value chain performance”, Int. J. Production Economics, vol. 111, pp. 2-12, 2008.

[7] C. Zhang and C. Zhang, “Design and simulation of demand information sharing in a supply chain”, Simulation Modelling Practice and Theory, vol. 15, pp. 32-46, 2007.

[8] http://www.researchandmarkets.com/reports/591788/ singapore_phamaceuticals_and_healthcare_report.

[9] H.S. Wei, and E.T.G. Wang, “Creating Strategic Value from Supply Chain Visibility - the Dynamic Capabilities View”, Proc. 40th Hawaii Int. Conf. System Sci., Hawaii, USA, 3-6 January 2007, p. 7.

[10] D.F. Rose, Introduction to e-Supply Chain Management: Engaging Technology to Build Market-Winning Business Partnerships, ST. Lucie Press, 2003.

[11] J. Fontanella, “The Supply Chain Management Market Sizing Report, 2006-2011”, AMR Research, 2007.

[12] N. Tohamy, L.M. Orlov, L. Herbert, “Supply Chain Visibility Defined”, Forrester Research, 24 April 2003.

[13] http://www.ciber.com/ces/supplychain/index.cfm?id= es-supplychain-visibility [14] B. Enslow, “Global Supply Chain Benchmark Report:

Industry Priorties for Visibility, B2B Collaboration, Trade Conplianc, and Risk Management,” Aberdeen, 2006.

[15] http://www.isnrlondon.com/files/apts_risto_talas_pre- sentation_1.pdf [16] http://www.frost.com/prod/servlet/market-insight-top. Pag?docid=10709461 [17] http://www.verisign.com/static/040033.pdf

understanding local pharmaceutical supply chain visibility · pdf fileunderstanding local...

Documents