Mass-market pharma may build profit making supply chains

By Nick Taylor

- Last updated on GMT

Related tags: Pharmacology

Mass-market drug manufacturers can turn a fixed cost into a service-providing revenue generator by investing in an agile supply chain, says PwC.

Cost-cutting is one, increasingly popular, tactic as pharmaceutical companies adjust to the new operating environment, but investing is another option. Through strategic investments companies can turn supply chains from fixed costs into revenue generating, and profitable, business units.

Turning the supply chain from a cost centre into a profit centre has several advantages, not least that it encourages greater commercial discipline and makes additional cash to fund the development of new skills​”, says a report by PricewaterhouseCoopers (PwC).

In this model revenues are generated by providing supply chain services. Making supply chains profitable will require investment in an agile, economic manufacturing and distribution network.

The profit-centred supply chain needs to invest in improving its manufacturing base with better, more flexible facilities, higher levels of automation and Quality by Design engineering​”, says PwC.

Investment must be accompanied by adoption of “a fundamentally different mindset​”. Selling a service is different from working with in-house units and companies must learn the expectations, attitudes and terminology of their prospective clients.

A number of big pharma companies have, to some extent, begun this process by restructuring research and development operations into independent units. Each of these units is allocated a budget and has the power to make sourcing decisions.

Revenue generating supply chains would compete for business from these in-house units and other companies. As such, companies must have “rigorousgovernance​” to ensure internal and external clients are treated fairly, and must also be aware in-house units can use other suppliers.

The low-cost option

An alternative to the profit-centre model is to build a lean, low-cost manufacturing and distribution network drawing on best practices of consumer products industries, says PwC. Successful adoption of the low-cost model requires a rigorous look at outgoings across the business.

If the development and manufacturing functions work closely together, the manufacturing function can advise on any issues that have implications for production and develop a supply chain as early as possible​”, says PwC.

Decisions made during development, such as dosage form, can have an impact of the cost of producing and distributing the finished product. Factors affecting cost of goods sold should be considered when deciding which products to advance through the developmental pipeline.

Information – the currency of the future

Whichever path pharmaceutical companies take they will have to be bold, differentiate themselves and make good use of information, which PwC describes as “the currency of the future​”.

The most successful pharma companies will be those that seize the initiative and start building agile, efficient supply chains – either virtual or physical – to support this vision​”, PwC concludes.

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