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HOME Champions of Change - the Role of Big Pharma

WHY BIG PHARMA MUST TAKE THE LEAD

The pharma logistics sector is increasingly vociferous in its demand for change. But the momentum for change is very unlikely to come from practising logistics suppliers. There is too much fear, too much inbred inertia and too much vested interest in the status quo for them to precipitate action and, in any case, upstream suppliers lack the clout, the vision, the objectivity and the momentum to drive real change.

The fact is that wholesale pharma-logistics reform is not going to take place without forceful client leadership. The customer is king and the Big Pharma king must be prepared to wield its power.

SUPPLY AND DEMAND

In 1776 Adam Smith in his “Wealth of Nations” articulated the law of supply and demand, a concept further developed by successive economists such as Alfred Marshall and David Ricardo. Competitive markets such as pharma-logistics work, like all others, through the automatic interaction of market "supply and demand."

The law of supply and demand is all about the satisfaction of needs and the efficient allocation of resources, processes that tend to be driven by Smith’s ‘invisible hand’, the rational process which brings suppliers and consumers into a natural state of equilibrium. Marshall compared the supply and demand sides to the two blades of a pair of scissors - you need both blades to effect a cutting action.

In more recent times the law of supply and demand has been further refined by contemporary intellectuals such as Harvard Professor Michael Porter who suggested that 'demanding customers' are the key source of competitive advantage. In particular, Porter argued, companies innovate in order to satisfy their customers.

Pharma-logistics is hardly exempt from this most basic law of economics. In today's economy the logistics sector reacts to the needs of the pharma client by satisfactorily fulfilling the latter’ needs through the competitive process. The Pharma company, in turn is reacting to the needs of the ultimate consumer.

And there is no doubt whatsoever that this customer satisfaction imperative is as relevant in today’ demand-led economy as it ever was. A satisfied client is a loyal client. And a satisfied, loyal client is the foundation for any win-win strategic relationship with a supplier.

CLIENT COMPLACENCY VS  SUPPLIER RELUCTANCE

However, having said that, if the pharma client of today expects the logistics market to meet its increasingly sophisticated expectations it can’ afford to stand idly aside and assume that Smith's market forces will look after them and protect their interests. Logistics suppliers need to be continuously and vigorously exposed to the explicit coercion of demanding customers if they are ever going to be motivated into paying more than lip service to real grass roots reform.

This is because when the forces of the market are combined with the forces of human nature it creates in suppliers a powerful propensity to provide the absolute minimum you can get away with.

This is a hard, uncomfortable economic fact because, in a ‘dog-eat-dog’ buyer’s market, this is the only way that dependant suppliers can hope to stay competitive and survive.

MARKET ALIENATION

And there are other reasons why logistics suppliers operators might prefer sitting on the fence to pushing for reform. They can risk alienating key sections of the market if they speak out for changes that might affect other parties. For example, whern a pharma client is not supportive of collaborative working, then it is hardly likely to go out of its way to favour the services of a supplier that is actively promoting it.

The situation is even further complicated for those logistics players who occupy a dominant position in the market. Why promote further integration when a high proportion of the business is going to come their way anyway? Again it’s back to the perception that integration is some kind of ‘them and us’ conspiracy.

Similarly, the existence of demand buoyancy in the pharma market can sometimes act as a barrier to supply-driven reform. What incentive is there for a logistics supplier to stray from its traditional comfort zone when it has all the work it can reasonably handle? Why take any risks with new delivery methods when, with a bit of luck, it can turn a reasonable profit without having to  invest in relation-building initiatives or expensive collaboration tools?

Furthermore, in an industry characterised by short-termism, it stretches credulity that more than a handful of logistics suppliers, will have the vision and courage necessary for the longer view. Furthermore, in an industry characterised by short-termism, it stretches credulity that more than a handful of logistics suppliers, will have the vision and courage necessary for the longer view.

BIG PHARMA HOLDS THE KEY

That leaves the Big Pharma client. Yet despite having the most to gain, many pharma shippers are not seriously interested in testing new collaboration models.

Often, any plans for a more integrated approach to optimising value fizzles out on the acceptance of the lowest bid, a procurement habit that is reiterated throughout the supply chain.

While the client may feel satisfied because it manages to extract low costs on a job-by-job basis, most are simply not aware of how much of their money is being wasted in the logistics process or, even when they are aware of the waste, they often don’t know how to address the problem.

It’ a situation that is exacerbated by the ingrained silo-mentality and mutual isolation of fragmented supply-chain parties. Hard-pressed suppliers are hardly incentivised to blow the whistle on extraneous inefficiencies when faced with the unremitting pressures of fulfilling their own contractual and regulatory obligations.

THE BOTTOM LINE

The bottom line is that major pharma shippers, especially those with transcontinental manufacturing and marketing interests, have it within their grasp to extract huge ‘orders-of-magnitude’ value improvements if they are prepared to adopt collaborative delivery models that stretch down to the industry’s roots.

But if Big Pharma remains disinclined to exert its power and influence over its logistics networks to create more  integrated distribution solutions then, quite simply, they will continue to get the logistics performance they deserve. Exactly that.

The message is clear: if today’ pharma manufacturers want better standards of carriage, better standards of compliancy, better standards of service, better standards of cost control, better standards of safety and better standards of predictability then they need to accept that the changes required are not just possible, not even probable, but absolutely inevitable.