India’s pharmaceutical supply chain and the way ahead
03 Aug 2017
The Indian pharmaceutical market is the third largest in terms of volume and thirteenth largest in terms of value.
The Indian pharma industry is expected to grow over 15% per annum between 2015 and 2020.
The industry is expected to outperform the global pharma industry which is set to grow at an annual rate of 5% between the same duration. India holds an important position in the pharmaceutical sector. India has also maintained its lead over China in the pharmaceutical exports. India’s biotechnology industry which comprises of drug intermediates, bio pharmaceuticals, bio industry and bio informatics is expected to grow at an average growth rate of around 30% a year.
The supply chain is an important aspect of this industry. With an efficient and consistent supply chain, the industry can reach new markets and ensure the availability of the drugs at the right time. The supply chain in a chemical and pharma industry is similar to that of any other industry. A typical pharma industry supply chain is shown below:
Courtesy: Market Realist
Because the pharma and chemical industry has a direct impact on the people, industry manufacturers are very strict about ensuring the safety and the quality of drugs available at each level of the supply chain. Many companies purchase the drug intermediates from other companies in the industry. Once this is received, they make the final drug at a manufacturing unit. The manufacturing companies need to maintain quality of the drugs manufactured by them. These are then distributed to warehouses, wholesalers, retailers and at hospitals.
Pharmaceutical companies with a large turnover lay significant importance to the supply chain management.
This is because a minor variation could disrupt the entire supply chain. Logistics in the industry is important for two reasons- product sensitivity and on time delivery. In India, the chemicals and pharma are transported by road and air, but mainly by road. The lead time depends on the distance, but it is usually three days from a stockist to the company warehouse. The temperature sensitive drugs are transported using the active and passive temperature controlling devices. The supply chain costs depend heavily on the type of product. Specialized cold chain requirements can increase the cost significantly.
The Indian Pharmaceutical companies face four challenges across the supply chains. These include:
- Quality and regulatory issues: With greater scrutiny coming from global agencies, quality is the main issue in the pharmaceutical industry. Quality issues have widened over time and are not restricted towards the production process; it also has an impact on the supply chain of a company. A supply chain is disrupted due to a variation in quality, the procurement of raw materials, lack of availability of resources and production delays. Further, post market issues such as complaints, rejects, and product failures are having a direct impact on the supply chain.
- Product Proliferation: Indian players launch about 30 new products every year. New product development, changes in packaging and enhanced formulations help in the expansion of a product portfolio. These have several implications on the supply chain, which includes higher manufacturing costs, more inventories and a larger supplier base. The entire supply chain will have to be altered with new launches and an increased demand for the drug.
- Supply Chain Fragmentation: India’s pharmaceutical supply chain is complex and poses concerns about the safety and product quality at some point. With a large number of players at every stage and an increase in competition, the lack of integration across the network has had an impact on the products as they move. There are more than 15,000 raw materials managed by a company, from the supplier, the raw materials move to the manufacturers. Post production, the same is moved to the central warehouses and the export agents. The exports go to more than 200 destinations. From the central warehouses, the drugs move to distributers, consumers, semi wholesalers, hospitals and retailers. There are more than 65,000 stockists and about 5, 50,000 pharmacists. It is expected that the number of vendors throughout the supply chain will double due to the increase in exports. Any change in the production schedule will affect the supply chain and make it difficult to deliver on time. Further, large companies have multiple manufacturing facilities and this increases the complexity of transportation. It not only affects the inventory levels but also increases the supply chain costs. The pharma companies lose control over the supply chain beyond the distributer which creates a lack of visibility in terms of the movement of their goods.
- Infrastructure gaps: India faces many gaps across the infrastructure which includes transportation, power, storage and supply. The highways handle a huge amount of traffic which makes it difficult for the supply chain to work without an interruption. Companies lose visibility and control on the movement of the goods. To overcome the external infrastructure constraints, the pressure for timely delivery is important.
The way ahead
India can gain significant share in the global market with the right changes in the supply chain movement. The supply chain needs a revision and the use of latest technologies will help increase the efficiency and allow collaboration between parties involved in the healthcare sector.
Reducing complexity across the supply chain will benefit the increasing demand of the goods at a domestic and international level.
With companies venturing into specialized products, they need a tailored view of the supply chains. Adoption of segmentation will significantly benefit the companies in the industry. The complexity in the supply chain should be handled upstream as well as downstream. With a significant reduction in the supply chain costs, the companies can expect an immediate impact on the overall flexibility of the processes.
In addition to the changing market dynamics, the industry has had a significant impact from the implementation of GST. To react to the changes and to achieve the best in class performance, the companies need to have a well-established supply chain operating model which is integrated with their processes and their commercial strategies. The industry can adopt the latest technology and ensure that IT helps them make the most of the available resources. With a range of inbound and outbound logistics, the IT will make it easier to sync and keep a record of the movement of the goods. Large players across the industry have initiated efforts to streamline their processes with the value chain. When all the players in the industry have an efficient and well laid out supply chain, the goods will reach on time and the demand can be easily met. The companies will have to revamp the supply chain model in order to realize their full potential. Now is the time for pharma to be prepared for a bright future, the ones that lead the way, will gain a competitive edge.
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