Supply Chain Practices of Pharmaceutical Industry

Published by MBA Skool Team, Published on October 16, 2014

Pharmaceutical industry belongs to a very complex segment considering its dynamic market situation. Various restrictions such as regulations, compliances, expiry, and one machine per medicine type lead to a very complex supply chain requirement. However in this highly critical world of pharmaceuticals, innovation is needed not only in R&D but also in business models. Considering that product innovation is not a cheese cake in pharmaceutical industry, the only way company can excel in market is through process innovation where supply chain plays a major role.

Market share and margins are declining due to increased competitions from generics, price pressures, shortened new drug exclusivity periods, mergers acquisitions, escalating R&D cost. In an attempt to preserve market share the company that address cost and efficiency structures within their supply chain will be best pioneered to meet the expectations of the market.

Image Courtesy:, nattavut

In this paper, we focused on the analysis of the current practices of pharmaceutical supply chain. We have also explored the likely changes in the industry in the next coming years.

The pharmaceutical industry is facing an era of transformation from the supply chain to the distribution channel. Supply Chain is stressed by SKU proliferation, lower margins and demand variability. Expiring patents and heightened competitions have curbed the top line potential of branded pharmaceutical business units. The only way to compete in this industry is to make supply chain effective, transparent and agile.

In order to overcome the complexity and hardship of the industry, pharmaceutical companies are achieving excellence by focusing on these five supply chain areas:



•Customer management

•Forecast and planning


Global economic growth is generating new demand for affordable and effective healthcare from emerging economies like India and china.

The industry’s current supply chain model would not be able to meet the demand of coming future. Therefore companies in this industry are required to look for new capabilities and new ways of working together.

Critical capabilities of Pharma supply chain:

•Segmentation: to better match supply chain capabilities with the requirements of specific market, product and customers

•Agility to reduce costs and increase flexibility through fast, responsive and safe manufacturing and logistic practices

•Alignment to enable fast and accurate data exchange across the value chain by the use of the global standards

•Measurement and benchmarking to enable the continuous improvement through a clear understanding of the real supply chain cost and capabilities

•Collaboration to capture the benefits of the high performance supply chain beyond company borders and across the complete value chain\

In today’s scenario, the companies are still working in silos, for effective implementation of the above mentioned capabilities, an integrated and holistic cross functional effort is needed to transform the supply chain.

Supply chain of FMCG is far more capable than in pharma industry. Following this pharmaceutical industry can make dramatic improvements by cutting manufacturing lead times and by reducing inventory levels across the value chain.

Currently the industry suffers from the lack of systematic way of identifying the expired, damaged, theft products in the supply chain. To reduce unnecessary cost and ensure patient safety and also improve the forecasting, a common global data standard is needed to be implemented as with the increase in demand of generics from emerging markets to developed countries the need to ensure the information transparency across the supply chain has arisen.


Most organization can split their business into two half pure generics and branded generics/ formulations.

A generic drug follow a different supply chain, and is sold as a molecule to a large scale distributor or pharma chain while branded drug is a complete product and is given a different brand name and is sold through warehouse- Stockist- chemist route. In other words, generic drug is a B2B market while branded drug is a B2C market.

In a standard average setup, the SKU varieties can vary from 4000-5000. Monthly volumes will be around 2000 SKUs with volumes of close to 50000 packs per SKU or 100 Mn units. There are 3 different dosage forms (liquid, tablets, lotion). 700 SKU per dosage will be needed to form line and thus in a month of 25 working days it will be 28 changeovers, that roughly means more than one changeover per day.

With this level of variety the real challenge is to align manufacturing times, material capacities and manufacturing yield with the deliveries. On time In full is the real challenge.

Above all, what extra problem lies here is of licensing and regulations. Now the question is how the Pharma industry is dealing with it. There are two parts in the overall supply chain coordination and planning and these are Master planning of resources and scheduling. Typically the demand forecast comes in 2-3 months prior to the start of the actual manufacturing cycle. Based on this forecast and the available capacities, the material requirement planning is done and it also projects the capacity shortfall. In most companies this done by ERP package such as SAP or other software. Inputs such as inventory requirement are then taken from the ERP software which can vary from month to month. The output is a firm plan which is forwarded to the procurement team, along with the expected delivery dates, considering the testing times. When that particular month is reached the next step scheduling comes into action. So, how much has to be made in next one week say, day wise is based on previous month’s production shortfalls, and when, looking at the available material release .

Master planning of the resources helps the planner to look at broader perspective while scheduling enables him to look at the micro level. For eg, in master planning a capacity constraint in manufacturing tablet can be determined 3 months ahead while in scheduling each and every stage of the tablet production breakup will be provided i.e. how much time each product will take for the processing in each stage and overall system. With such efficiency the industry has realized the importance of ERP in pharma production.

However with such a degree of automation, the problem is not solved yet. The abrupt changing behavior of markets and government norms, quality issues, material availability, unexpected breakdowns, or even the new artworks to be developed on the packs for a certain market. The fast and responsive supply chain which could handle such changes is the key requirement. Here the planner needs to quickly navigate the issue and re plan to ensure that the value loss to the market and the sales loss is minimum. This can also be handled by continuous up gradation. This up gradation may be in terms of reduced cycle time of processes through vendor reliability for lesser inventories to be maintained in the chain or may be a more cost effective formulation. Third could be to analyze planned vs actuals and translate these deviations into inputs and plan better for the future.


The key will be to look at process rather than looking at complexities. Eliminating Non value added (NVA) activities. Instead of worrying about the big shot problem solved, pharma professional need to look at minor process changes which will not only help them to solve their current crisis but also would be beneficial for the long term.

There is a need for a clear model of collaboration and communication within a channel as today it is the fragmented system of participants. Data integration would be a key in future so that retailers would have single integrated “on demand” model. Such model would also enhance the forecasting.

Future model of Supply chain

Source: Future Trends in Pharmaceutical and Biotech Distribution by SCRC

For slow growth and industry pressures, pharmaceutical companies must leverage demand chain thinking and cloud enabled solutions to become more flexible, agile and able to share data in real time with partners.

This article has been authored by Pratibha Pal from IIMK







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