Cost Management Biggest Supply Chain Pain Point for Pharma

January 14, 2016

Written by Alexa Cheater. This post originally appeared on Kinaxis’ industry blog, the 21st century Supply Chain. 

Half of organizations playing in the healthcare and life sciences space are feeling the pain of managing overall supply chain costs. At least according to the eighth annual UPS Pain in the Chain Survey. While this survey swings on the logistics end of the supply chain pendulum, there are some good takeaways for those involved in all other areas of supply chain management as well.

Compiling results from more than 400 healthcare logistics executives across 16 countries, the results show rapid business growth is the major stumbling block in controlling costs for pharmaceutical supply chains, with 56% of respondents admitting they struggled with it in 2015. Following closely behind are fluctuating fuel costs (55%) and fluctuating raw materials costs (49%). Other pain points included aging IT systems (38%) and lack of visibility (38%). From a supply chain planning perspective, we see the pain of growth, coupled with a lack of visibility and aging IT systems as a significant cost and operations performance hurdle as well for the companies we deal with.

Strategies employed by those who claim success in managing costs include forming logistics and distribution partnerships (57%), leveraging optimization analysis (55%), pursuing vested logistics and distribution partnerships (52%), and making an IT investment (51%). This is another prime example of how people, process and technology can come together to achieve positive results.

The formation of partnerships is at its simplest, a collaboration between groups of people to attain mutual benefit. Leveraging supply chain optimization analysis is a form of process — a way to evaluate your current position and course correct if and when necessary. The technology, well that’s really the linchpin holding everything together. The right supply chain management solution can provide the ideal foundation to allow people and process to come together harmoniously. Of course, the wrong solution can create an even larger set of roadblocks.

The survey also identified several key areas where respondents feel there’s additional opportunity for cost savings: optimizing transportation costs (68%), better inventory visibility (60%), consolidation of transportation providers (60%), IT investment (57%), and consolidating existing product supply chains (55%).

What was particularly surprising was the high percentage of logistics decision makers who felt contingency planning wasn’t an important factor in managing their supply chain. A whopping 60%. Yet in the same breath, those same decision makers admitted their supply chains have been affected by unplanned events in the past three to five years – by as much as 6% of their total supply chain for each respondent. Seems like a bit of a paradox to me.

While some of the biggest issues in managing a healthcare-related supply chain were identified, so were the biggest successes. Three-quarters of those surveyed felt they had made strides in product security in 2015, compared to just 55% who felt the same way in 2014. Regulatory compliance, product damage and spoilage, and managing logistics, warehousing, and transportation costs also all saw gains over last year’s numbers. That’s pretty impressive given the increasing complexities in the industry’s supply chain.

More temperature-sensitive products, track-and-trace regulations, declining reimbursements, and faster delivery requirements, are all increasing demands being placed on the industry. Companies need to be able to manage all that, while ensuring continued product quality and accuracy. That could be a very tough pill to swallow without the right strategies and systems in place.

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