Wynn Bailey, PwC US

The pharmaceutical industry is experiencing major upheavals, as PwC US has noted in earlier papers in our 

. Many companies have responded by focusing on discovering, developing and marketing medicines more efficiently; but to date they’ve invested less effort in reconfiguring their manufacturing and distribution operations. Yet the supply chain is just as important; it’s the link between the laboratory and the marketplace. 

One of the most important drivers of supply chain transformation will be greater collaboration among the various parties involved in healthcare provision—with efficiency and effectiveness as its aim. At present, there are multiple distinct supply chains for designing, manufacturing and distributing pharmaceuticals, medical devices, medical products, and for providing healthcare services (including laboratory work and pathology). Integrating these supply chains so that all the upstream and downstream partners can see the full picture ultimately will enable them to plan ahead more accurately and manage demand more cost-effectively. 

Creating integrated healthcare products and services supply chains will not be easy. But one of the main tools used to manage healthcare quality could prove invaluable here: Healthcare providers in many parts of the world are developing defined-care pathways to standardize the treatment of patients with the same illnesses and thus improve outcomes. This will ultimately result in the creation of defined healthcare packages for various care pathways. 

With access to each roadmap for each illness, and data on the incidence of each illness in a given population, pharma companies and medical device manufacturers will be better able to predict demand for their products much more accurately. They will also be able to define a supply pathway for each product, depending on whether it’s a one-off treatment (such as a prophylactic vaccine, gene therapy or anti-infective) or a recurring treatment for a chronic condition, which must be supplied on an ongoing basis. 

There is potential for collaboration in other areas, too. Most pharma companies manufacture and distribute their own products, for example, but this reduces asset utilization rates and drives up distribution costs, as well as causing unnecessary environmental damage. Conversely, sharing manufacturing and distribution resources would be much more economical. A few pharma companies have started experimenting with ‘shared services,’ primarily to support joint product development initiatives. However, the vast majority of companies still build, own and operate their own supply chain infrastructure. 

Some companies may choose to establish joint ventures, while others turn to third parties. And the contract manufacturing sector is expanding very rapidly. In fact, market research firm BCC Research estimates that the bulk- and dosage-form drugs segment will be worth about $73 billion by 2014, more than double the $36 billion it was worth in 2007. 

Other industries have also demonstrated the benefits of managing distribution collectively. And increasing demand for biologics has stimulated the development of specialist logistics providers capable of handling physically sensitive pharmaceutical freight. Many provide specialized service where each shipment is transported in temperature- and humidity-controlled conditions, monitored from a dedicated call center using Web-based tracking and reporting, and delivered directly to the customer’s door. 

Moreover, some of the most sophisticated third-party logistics (3PL) providers — i.e., companies that offer freight management and warehousing – are expanding into supply chain management and coordination services. And it is arguably these fourth-party logistics (4PL) providers, as they are known, that can deliver the greatest improvements. Consider the telecommunications industry: When one telecommunications manufacturer turned to a 4PL to manage the supply chain for its e-business networking division, for example, its supply chain costs fell from 5.8% to 5.1% of revenues within two years in that division. In other words, the contract manufacturing and logistics industries are both maturing and, by 2020, some of the biggest providers will offer integrated supply chain services allowing pharma companies to share resources and capitalize on economies of scale throughout the value chain. 

In short, the pharmaceutical supply chain needs a radical overhaul, but not all companies will adopt identical models, or achieve the same goals. We predict that it will undergo three key changes over the next decade: 

It will fragment, with different models for different product types and patient segments; 

It will become a means of market differentiation and source of economic value; 

It will become a two-way street, with information flowing upstream to drive the downstream flow of products and services. 

Wynn is a Partner in the Pharmaceuticals & Life Sciences Advisory practice of PwC US, based in Chicago. Prior to joining PwC, Wynn led the US Healthcare & Life Sciences practice of A.T. Kearney. His earlier career includes time with the US Senate Special Committee on Aging, ICF Inc., and APM Inc. The full 2020 report can be accessed at www.pwc.com/pharma2020supplychain.

	© 2011 PwC. All rights reserved. “PwC” and “PwC US” refer to PricewaterhouseCoopers LLP, a Delaware limited liability partnership, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity. This document is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. 

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