Market growth, costs, and regulations, and drive pharmaceutical companies to find new ways to mitigate risk in the cold chain.
A growing global middle class, longer supply chains, and the launch of new, innovative healthcare products are putting more complex demands on the pharmaceutical industry’s high-stakes logistics environment. Factors such as new, temperature-sensitive biologics, increasing cold-chain regulations, and growing cost pressures require pharmaceutical executives to reconsider how they prioritize (cold) supply-chain decisions. Strategies such as breaking down silos, implementing a proactive intervention strategy, and refining best practices can help businesses not only protect cold-chain products, but also bottom lines and customer relationships.
High-stakes cold-chain environment
Four industry factors are increasing the stakes and the need for cold chain reinvention.
Unprecedented growth. Growth in volume of specialized products such as biologics that demand a cold chain environment and growth of demand for these products in emerging markets are impacting the cold chain. Worldwide, revenues from biologics, which accounted for 12% of all drug sales in 2005, are expected to grow to 23% by 2017 (1). Specialty drug spending in the United States is expected to quadruple from $87.1 billion in 2012 to $401.7 billion in 2020 (2). More global clinical trials are requiring stricter temperature regulations, further driving the need for innovative cold chains.
Not only are there more complex products, but the challenges of transporting them farther distances are getting more complicated. As companies expand to new geographic regions, they must keep temperature-sensitive products safe and compliant for longer journeys--often when in-market infrastructure is lacking and temperature fluctuations during transportation are extreme.
According to the 2014 UPS Pain in the (Supply) Chain survey, which surveys healthcare logistics decision makers on their top supply chain pain points and opportunities, 65% of global executives have used logistics and distribution partnerships to overcome challenges accessing global markets and new customer bases (2). Increasingly, healthcare companies are collaborating with third parties to address challenges from global market access to regulatory compliance and product protection.
Regulations. Increasing and more complex regulations globally, especially when factoring in additional categories of temperature requirements, such as controlled room temperature (CRT), make regulatory compliance a top pain point among healthcare executives. For the third consecutive year, UPS’s survey respondents cited regulatory compliance as the top supply chain issue. And 66% said the complicated regulatory environment was a top challenge to global expansion (2). Senior logistics executives polled by UPS reported an extremely low rate of success in addressing the challenge of regulatory compliance. Only 12% reported they were satisfied with their companies’ performance in this area (2).
Risk. Cold chain supply is becoming a riskier business. Factors ranging from longer supply chains and more sensitive products to limited infrastructure and extreme weather conditions are driving risk. At the same time, many healthcare executives don’t prioritize risk management in their supply chains. Only 26% of healthcare executives view supply-chain interruption as a top concern, according to the UPS survey (2). In the past five years, however, unexpected events, such as the 2011 Brazil flooding and earthquakes in China, have taken a toll on healthcare supply chains, particularly in the Asia-Pacific and Latin American regions.
Companies should put a sharper focus on contingency planning. Risk mitigation plans must look at factors such as whether companies have the protection methods in place for getting clinical trials shipments to far-flung regions, if they have factored CRT into their broader temperature-sensitive product protection plans, whether they have the right packaging and transportation solutions for all types of products, and if they have a means to intervene when temperature-sensitive shipments go off course.
Cost pressures. The recovering global economy and increasing number of generic products coming to market elevate industry cost pressures. Fifteen years ago, when the industry was largely producing branded high-value products, the cost of cold-chain monitoring and transportation services weren’t as much of a factor. Recently, between the patent cliff and the recession, cost has become a crucial part of the cold-chain discussion. Companies must work with their third-party logistics providers and other partners to determine how to keep cold chain costs down.
Even with cost-management concerns beginning to wane, regulatory reform and changing reimbursement models will keep cost at the forefront of supply chain issues. On the other hand, less concern may indicate executives are finding innovative ways to address cost management. But will these cost-saving measures produce long-term gains?
Furthermore, as cost pressures are causing earlier patient discharges, new models of care are emerging. The home healthcare market is expected to grow to $27 billion in 2016 (2), presenting an incredible opportunity but also a new set of supply-chain challenges. As evolving and new distribution models present challenges to the cold chain, the time to act is now.
Reinventing the cold chain
Reinvention is already happening in many areas. The pressure is on for healthcare companies to deliver on expectations of efficiency, safety, and customization. Focusing on several key areas will help healthcare companies adapt to emerging trends.
Integration. Overcoming silos within companies-and across the broader healthcare industry-can lead to greater innovation and efficiency in the cold chain and may ultimately lead to cost savings. Collaboration across divisions and tapping into industry expertise are crucial. In the past, companies have taken the traditional route of cost cutting, looking to procurement to identify ways to find savings across various areas of the supply chain. While this approach has generated some short-term gains, it is risky in the long-term because the need for integration and collaboration among all supply-chain parties is critical. The procurement approach alone can break some crucial links that make up the cold supply chain or may cause companies to overlook some opportunities for creativity and improvement that can be gained from a more integrated approach. It’s vital to look at the supply chain as a whole, evaluating needs and opportunities from end to end, to identify strategic opportunities for efficiency.
Intervention. The question is: what level of risk are companies willing to accept, and can you mitigate that risk? Technology has advanced to allow for real-time monitoring of shipments. But if a company cannot act upon the insights that data and technology reveal, it’s worthless. Alarmingly, just 25% of a typical company’s end-to-end supply chain is being assessed in any way for risk (3). Pharmaceutical companies have opportunities to implement product protection measures or contingency planning.
For example, proactive monitoring, intervention, and risk-management solutions cover products the value of the product and protects shippers against unforeseen delays, including weather-related issues. Intervention capabilities range from rerouting shipments that could go off course to re-icing shipments in danger of going outside their temperature range.
Innovation. Companies can leverage existing best practices, whether in packaging, product development, or transportation and apply them to healthcare products. Companies should consider a cold supply chain the same way they look at new product development-as an area that needs continual focus, research, and innovation-and investigate new innovations in temperature-sensitive packaging, transportation, and warehousing. Creative solutions for CRT transportation have emerged over the past 24 months, impacting both small-package transportation and freight forwarding. One example is an increased use of phase-change materials (PCM) in small-package passive packaging solutions. A growing range of PCMs can ensure temperature ranges that are increasingly precise for extended transit times. In the air-freight world, another innovation combines the use of active reefers (i.e., refrigerated containers) on the ground legs of transportation with pallet covers, customized thermal profiles, and electronic data loggers.
Where is the cold chain going? In the past, companies operated in silos by using several packaging vendors and procurement models to cut costs. The key to future success is integrating the knowledge of cold chain with the entire network, including packaging and intervention capabilities, and implementing holistic plans that allow for actual intervention, rather than just monitoring. Most importantly, companies should look at reinvention as an opportunity. This approach will better equip businesses for success in a high-stakes cold-chain marketplace.
1. EvaluatePharma, “World Preview 2013, Outlook to 2018: Returning to Growth,” June 2013.
2. UPS, “Seventh Annual Pain in the (Supply) Chain Survey,” www.pressroom.ups.com/pressroom/staticfiles/pdf/fact_sheets/UPS-PITC-Executive-Summary-North-America.pdf, accessed Jan. 5, 2015.
3. J. P. Dittmann, “Managing Risk in the Global Supply Chain: A Report by the Supply Chain Management Faculty at the University of Tennessee, Summer 2014,” www.upscapital.com/ManagingRiskInTheGlobalSupplyChain.pdf , accessed Jan. 5, 2015.
About the Author
Dirk Van Peteghem is marketing vice-president, healthcare logistics, UPS and Wanis Kabbaj is marketing director, healthcare strategy, UPS, firstname.lastname@example.org.
Article DetailsPharmaceutical Technology
Vol. 39, Issue 2
Citation: When referring to this article, please cite as D. Van Peteghem and W. Kabbaj, “Reinventing the Cold Chain in a High-Stakes Market,” Pharmaceutical Technology 39 (2) 2015.