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INTEGRATION - THE BUSINESS CASE

What are the benefits of an integrated pharma-logistics chain?

The potential payback from using Integrated Logistics Networks is well documented in other industries. For example, in the construction industry, cost savings of as much as 40% have been claimed against implementation costs of just 1%.

Many other industries have reported similar gains, notably the automotive, petrochem, electronics, retailing and aerospace industries. Even companies in ‘traditional’ industries such as steel have taken significant steps to realign their supply chains to secure their position in tomorrow’s first division.




















RESULT AND REWARD

The potential benefits of being part of an integrated pharma-logistics chain are manifold and include:

BETTER BUSINESS

In age of increasing production and distribution complexities, the phrase "companies don't compete, supply chains compete" has never been truer. As global competition intensifies, a company's competitive position in the market increasingly depends on its supply chain provisions and expertise. This why a fully Integrated Logistics Network can confer a huge competitive advantage on all its participants. Bring part of a secure, strategically-integrated, logistics chain is a powerful incentive for customers to commit to doing business with you.

REDUCED RISK, HIGHER PROFIT

Joint buyer-supplier cost reduction through joint problem-solving and solutions development is a sure route to significantly enhanced performance.

The identification and elimination of non-value-adding activities is much easier when you are operating as part of an agile, closely-aligned network of suppliers. An Integrated Logistics Network collectively seeks out the sources of unnecessary cost and risk and then works as a team to eliminate and apportion them, thus reducing outlay and increasing profits. In traditional methods the costs (and risks) are simply passed on others.

With early supplier involvement (ESI) and a value-engineering approach, it should easily be possible to find continuous supplier cost reductions such as those habitually achieved in the car industry where year-on-year cost savings of 4% have been routinely achieved. However, to achieve the same cost savings by simply slashing a supplier's margin could have a negative, even disastrous, effect on that supplier’ ability to perform and might affect its very survival.

By adopting true collaborative working with its attendant incentives and reward sharing, logistics partners can secure the work-flow, cash-flow and sustainable levels of profitability that will enable them to invest in training, plant, product development and project management to the benefit of the entire network.

STABLE LONG-TERM SUPPLIER RELATIONSHIPS FOR GREATER EFFICIENCIES

By working with integration-accredited supply partners that are committed to best-value outcomes, a shipper can realise

In many cases, the creation of an Integrated Logistics Network will permit a substantial rationalisation in the number of logistics suppliers. This results in a commensurate reduction in the associated supplier costs and an opportunity to leverage spending to greater effect. In addition, suppliers will be in a position to offer meaningful discounts in return for a guaranteed volume and continuity of work.

REDUCED COSTS AND TIME FOR PREPARING RFPs

Relying on endless rounds of RFQ/RFP invitations is very inefficient on both sides. It takes a lot of resource to rigorously analyse incoming bids and the cost of preparing these bids can be an expensive and time-consuming exercise for suppliers. For suppliers, the costs relating to suppliers having to continually price and bid for work. can be a significant overhead and the cost of all their unsuccessful bids has to be factored into the relatively few successful ones, increasing the price to the customer with no gain in value.

However, with an Integrated Logistics Network there is not only significant potential to reduce or eliminate bidding costs there is also scope to reduce 'back office' transactional and administration costs and to eliminate paperwork. In this way, for example, the electronics giant IBM managed to shave more than $6bn from its global supply chain costs.

BETTER QUALITY AND CONTINUOUS IMPROVEMENT

There are considerable benefits of using the combined experience and expertise of the entire supply chain from the outset. Manufacturers of thermal packaging and pharma-specialised 3PLs, for example, between them harbour a wealth of practical experience and technologies that can readily be harnessed to address specific logistical problems.

Working up-front with suppliers in this way can substantially reduce costs without the need to squeeze the vendor to the point that it leads to performance shortfalls, quality problems, zero innovation and minimal technical support.

Furthermore, the gains from integrated working are not one-off events and will be a recurring feature in the form of continuously improving products, processes and relationships.

INFORMATION VISIBILITY AND KNOWLEDGE SHARING

A lack of supply chain transparency is frequently cited as a major barrier to efficiency in the pharma cool chain. However, reduced demand variability and optimised resource utilisation from the sharing of demand data and demand forecasts between network partners are examples of how savings can be achieved from smart information exchange.

Traditional 'them and us' commercial relationships see information as proprietary knowledge and opposing parties use it as a bargaining chip in win-lose negotiations. Indeed the presence of unilateral communications is one of the most obvious manifestations of a dysfunctional supply chain.

However, by opening up communications and sharing information, an integrated pharma cool chain can generate huge across-the-board efficiencies. Why shouldn't a pharma shipper have direct access to the airline carrying its products? Why can't temperature data be shared simultaneously? Why isn't there more ópen-book' accounting? The answer to these questions rests in overcoming the lack of trust, the extent of commercial protectionism and the outmoded contractual relationships which characterise today’ pharma cool chain.

Note that data is only of value once it has been interpreted and translated into meaningful information that can be used to facilitate decision-making and trigger actions. An integrated logistics network can be trained, motivated and incentivised to make the necessary interventions and directly address any disruptions at the appropriate times.

SUSTAINABLE OUTCOMES AND REDUCED WASTE

Wastage, in both material and human terms, is endemic to many industry sectors and pharma-logistics is no exception. For example, much pharma packaging and protective material ends up damaged, lost, surplus to requirement, or otherwise unusable. Great, maybe, for a packaging supplier's business in the short-term, but a terrible indictment of logistics efficiency.

Labour duplication, labour overlap and poor labour productivity are other inefficiencies that are prevalent in fragmented supply chains. An integrated logistics chain, on the other hand, can be incentivised to reduce waste, synchronised to eliminate unnecessary manpower duplication and marshalled to stimulate end-to-end sustainability.

MORE AND FASTER INNOVATION

In practice, innovation in logistics has always been constrained by two factors. Firstly, the culture of cost-before-value has militated against innovation with a continuous pressure to reduce cost reducing the capacity to invest. Secondly, the tradition of conservatism within the industry and its attitude to risk has always tended to favour the status quo.

However, greater levels of innovation especially in the fields of standardization and modularity are needed if pharma logistics is to prosper and progress. Leveraging the ideas, expertise and resources of the entire logistics chain will invariably lead to innovative solutions and bring  substantial improvements in performance and meaningful reductions in costs. In some industries overall costs savings as high as 40% have been achieved simply by harnessing the early-stage expertise and capabilities of suppliers.

GREATER SPEED AND QUALITY OF DELIVERY

In January 2012, the U.S. Food and Drug Administration approved Kalydeco, the first drug to treat the underlying cause of cystic fibrosis, after just three months of review. It was one of the fastest approvals of a new medicine in the agency’ history. Similarly expedited approvals are under way for the treatments of Ebola and other pandemic threats. The transport of these life-saving drugs to the point of use is a critical part of the speed equation yet it is only after the product leaves the factory gate that many of the industry’ glaring inefficiencies creep in.

However, with an Integrated logistics network every aspect of the transportation process is analyzed and streamlined to eliminate redundancy of effort, minimise pipeline inventories and reduce cost. The net result of logistics supply chain integration is not only to reduce outlays but also to increase the speed and quality of delivery.

An integrated approach is a means of accelerating in-transit times by reducing paperwork, facilitating transfers, minimising downtimes, and eliminating duplication. The potential can be illustrated with the case of supermarket chain Sainsbury which not only managed to make store-construction cost savings of 35% through integrated working, but simultaneously reduced build times from 42 weeks to 15 weeks.

SHARED RISK AND SHARED REWARD

In an Integrated Logistics Network, all participating partners will share the risks and share the rewards. This contrasts with a traditional 'master-servant' supply-chain relationship where the rewards are retained and the risks are passed along the chain, usually coming to rest with the supply chain party least equipped, financially or operationally, to deal with it. This 'pass-the-parcel approach' to risk management has no place in an Integrated Logistics Network.

COOPERATION NOT CONFRONTATION

Claims and disputes are inevitable in business, but they are much less likely to arise in a relational system based around trust, mutual understanding and a ‘no blame’ collaborative environment. An integrated logistics network will have agreed dispute resolution procedures in place so that when problems do occur they can be resolved quickly and amicably, without permanent harm or resort to ruinously expensive litigation.

PRODUCT SAFETY, SECURITY AND CHAIN OF CUSTODY BENEFITS

Notwithstanding its exceptional regulatory oversight, the pharma-logistics sector remains beset by an unacceptable level of pharmaceutical spoilage during transportation. For example, one pharmaceutical supplier recently reported losses of nearly €40m as a direct result of inadmissible temperature excursions.

While most pharma manufacturers are coy about the extent of their losses, as GDP enforcement becomes more pervasive such losses are going to escalate unless concerted actions are taken. Collective and coordinated action throughout the entire pharma-logistics chain is the only sure way of bringing the necessary across-the-board pressures to bear on this intractable problem.  

Similarly, a programme of compliance with demanding serialisation and track & trace standards will be greatly facilitated when conducted within the framework of an Integrated Logistics Network in which an inherent level of mutual trust, visibility and accountability already exists.

QUICKER RESPONSES TO UNPREDICTABLE EVENTS

Consider this scenario: extremely complex, multi-party, supply chains are involved in the storage, handling and transportation of huge volumes of many thousands of different types of highly sensitive pharma products which have to be  transported using sophisticated equipment and procedures between multiple storage and processing locations in numerous countries and all under highly-regulated conditions and within strict time deadlines.

The pharma-logistics reality is even more tortuous than this simplified storyline which is why there is so much potential for accident, mishap and disaster when it comes to the distribution of pharmaceutical and biologic drugs. The majority of adverse events are random in nature, often taking place in remote, ‘low-control’ locations or during the 'no man's land' stages of shipment handovers. In addition to collectively addressing the sources of potential logistics disruption, the use of an IPLN can contribute to a faster, more synchronised reaction to such unforeseen incidents.

PROTECTION OF GOODWILL

In an age of people-power and instant communications, pharma companies need to protect, and exercise control over their, literally, priceless corporate reputations. The impact of a major logistics-related quality or safety incident, or series of incidents could exert devastating and possibly irreparable damage to a pharmaceutical company's name, its brand image, its market reputation, its corporate goodwill, its stakeholder relationships and its stock value.

An integrated logistics network, with its inherent risk-management provisions, is one approach to limiting the potential for damage to a company's intangible assets.  Such an integrated approach also enhances a shipper’s reputation within the industry as a progressive, innovative and trustworthy logistics customer.


The TEAM-UP Business Case for Shippers