Supply Chain Pain - Pharmaceutical Technology

Latest Issue

Latest Issue
PharmTech Europe

Supply Chain Pain
Lessons from the earthquake in Japan show the vulnerability of the bio/pharma supply chain.

Pharmaceutical Technology
Volume 35, Issue 5, pp. 92-94

Inadequate supply-chain practices

The bio/pharmaceutical industry's lack of supply-chain sophistication spans the entire length of the chain, from input sourcing, through production and inventory management, to distribution. At the front end of the chain, we need only be reminded of the heparin disaster of a few years ago to appreciate the weaknesses in quality assurance and supplier management for key inputs. At the distribution end of the supply, the bio/pharmaceutical industry has been under attack regarding counterfeiting and security of supply. A recent article in Fortune magazine recounted last year's theft of $75 million of finished drug product from an Eli Lilly warehouse in Enfield, Connecticut (1). The article highlighted the lax security at the warehouse, including failure to monitor security cameras that could have caught the theft while it was taking place (1).

Supply-chain management weakness also can be seen in the way the industry manages its inventories. On average, the global bio/pharmaceutical companies turn their inventories a little more than twice a year. They typically have inventory on hand equivalent to about 180 days' worth of sale. By contrast, a best-practice consumer products firm, such as Procter and Gamble, turns its inventory about six times a year and has about 60 days' worth of inventory on hand. As global bio/pharmaceutical companies are trying to maximize their cash-on-hand to help them weather the patent cliff and take advantage of licensing and acquisition opportunities, keeping so much cash tied up in inventory is a real competitive disadvantage.

Opportunity for contract services

The supply-chain management challenges facing the bio/pharmaceutical industry represent a major opportunity for providers of contract services, especially those in manufacturing (i.e., contract manufacturing organizations [CMOs]) and packaging. Because of their critical position relative to both the upstream and downstream segments of the supply-chain, CMOs and packagers are well positioned to help bio/pharmaceutical companies manage their risk and squeeze cost and inventory out of the system.

We have seen isolated instances of contract services providers responding to supply-chain management opportunity (e.g., Patheon's recent efforts to promote its services as a backup source of supply and Almac's short-run packaging services). We've also seen some major providers of third-party logistics services (3PL), such as UPS, DHL and FedEx, make greater efforts to address the bio/pharmaceutical industry.

However, the big opportunity will come when service providers, especially CMOs, figure out how to increase the flexibility and responsiveness of their own operations. For instance, every day that a CMO can knock off the manufacturing schedule lock-in requirement from its traditional three months can save its bio/pharmaceutical company clients millions of dollars in cash tied up in inventory. Further, the internal process changes necessary to achieve those scheduling improvements are likely to deliver substantial cost savings and increased throughput. Given that most CMOs operate well below full capacity, such flexibility should be attainable.

CMOs have traditionally focused on additions to processing technologies, equipment and gain-to-gain incremental volume. Given the supply-chain challenges facing the bio/pharmaceutical industry, a focus on operations excellence in the context of supply-chain management is likely to yield greater performance for both the client and CMO and yield market share gains going forward.

Jim Miller is president of PharmSource Information Services, Inc., and publisher of Bio/Pharmaceutical Outsourcing Report, tel. 703.383.4903, fax 703.383.4905,


1. K. Eban, Fortune, Mar. 31, 2011,, accessed Apr. 11, 2010.


blog comments powered by Disqus
LCGC E-mail Newsletters

Subscribe: Click to learn more about the newsletter
| Weekly
| Monthly
| Weekly

FDASIA was signed into law two years ago. Where has the most progress been made in implementation?
Reducing drug shortages
Breakthrough designations
Protecting the supply chain
Expedited reviews of drug submissions
More stakeholder involvement
Reducing drug shortages
Breakthrough designations
Protecting the supply chain
Expedited reviews of drug submissions
More stakeholder involvement
View Results
Eric Langerr Outsourcing Outlook Eric LangerTargeting Different Off-Shore Destinations
Cynthia Challener, PhD Ingredients Insider Cynthia ChallenerAsymmetric Synthesis Continues to Advance
Jill Wechsler Regulatory Watch Jill Wechsler Data Integrity Key to GMP Compliance
Sean Milmo European Regulatory WatchSean MilmoExtending the Scope of Pharmacovigilance Comes at a Price
From Generics to Supergenerics
CMOs and the Track-and-Trace Race: Are You Engaged Yet?
Ebola Outbreak Raises Ethical Issues
Better Comms Means a Fitter Future for Pharma, Part 2: Realizing the Benefits of Unified Communications
Better Comms Means a Fitter Future for Pharma, Part 1: Challenges and Changes
Source: Pharmaceutical Technology,
Click here