A range of factors are boosting the complexity of biopharmaceutical supply chains and making it increasingly difficult for manufacturers to maintain a steady, reliable supply of therapies.  Over the past couple of months, we’ve been publishing this series of articles to explore the situation and hopefully to provide some guidance that manufacturers can use to overcome their supply chain challenges.

In part 1, we introduced the economic and regulatory factors that are driving the current challenging supply chain environment.  In part 2, we began to explore potential solutions, focusing on “upstream” supply chain strategies that manufacturers can potentially use to manage complexity.  Upstream strategies are those that relate to the manufacturing and packaging steps in the value chain.

In this third and final installment, we discuss some high-level “downstream” strategies.  Here, “downstream” refers to all that happens with a packed and labeled product until delivery at the point of dispense. The strategies we outline below do not comprise an exhaustive list.  However, they do provide a solid starting point for enhancing supply chain security while also helping to mitigate costs and risks.

Supply Chain Distribution Strategy

One key factor to investigate early in the supply chain design process is the customer channel that’s to be served and the matching distribution model.  As with many things, this involves a tradeoff between control and complexity.

For example, if a product will be dispensed through the retail channel, then the company will be faced with a very widespread customer base that will likely order in small quantities or even single units. Depending on the prevalence of the indication and the price point of the product, retail pharmacies may or may not hold any stock of the product. That said, it’s likely that retail stocks will be relatively low and thus that particular customer channel will require frequent, fast, low-quantity shipments.

This creates a lot of complexity from a customer approval and order-to-cash point of view. A manufacturer launching its product across Europe will have to review, approve, and set up many thousands of retail customers which can put a strain on the company’s resources during launch. At the back end, the accounts receivable (AR) processes for all these small orders will be quite resource-intensive.

One strategy that a company could consider is the use of wholesalers. Aside from having the “right to be supplied” in some markets, wholesalers are typically very strong in the retail channel. They can offer a high service level, potentially delivering multiple times per day. For the manufacturer, this would limit the number of customers to be approved. Plus, wholesalers typically order in higher quantities, thus reducing the total number of transactions that the biopharma company must manage.

One potential downside of this strategy is that a manufacturer will likely have to contract with the wholesaler to get the in-market sales data for its product (something they would have direct line of sight to in the case of a direct sale to an end customer). As with any trade off, contracting one or multiple wholesalers by market will also take considerable resources from a company.

So how does this translate into a distribution strategy? Well, if a company’s customer base is limited to a handful in each market that would order infrequently (for example every two weeks) in larger quantities, then it may make more sense to have one central stock point in Europe. Within 48 to 72 hours, the company should be able to fulfill wholesaler demand across most of Europe which, considering wholesalers typically hold stock, should be acceptable.

But what if a company’s product is dispensed via a hospital channel and it may need to serve a thousand customers across Europe? In this case, it might be better to hold stock in several key markets or even in each market.  Hospitals will typically ask for delivery within 24 to 48 hours, which may be achievable from a central location.  However, that may not be the most cost-effective way nor give the company the optimum level of control from a temperature requirements perspective.

Another perspective involves parallel trade.  Selling in bulk to another actor in the supply chain will increase the chance that this actor may decide to distribute the product in another market. As we described in part 1, this makes demand more unpredictable and therefore increases a company’s supply risk. Selling direct to an end customer, hospital, or retail pharmacy may offer a company a better understanding of the in-market demand and enable it to spot demand anomalies earlier on so it can more quickly adjust supply to match.

Supply Management by Quota Allocation

When managing supply, it is imperative to limit volatility as much as possible. One way to achieve this could be to install a stock allocation system (also referred to as sales quotas). Stock allocation systems are designed to ensure that customers receive enough product to meet their actual demand without introducing volatility that can make supply chain management more difficult. For example, some customers may over-order by a large margin to “stock up” on a product before an announced price increase takes effect.  This can end up diverting too much product to those customers and cause supply shortages in other markets due to the inherent scarcity of product supply.  A stock allocation system is designed to control this.  

Cross-border trade, driven by different pricing across markets and/or exchange rate fluctuations, can also drive volatility in the supply chain. This is a legal practice, but it can be challenging for manufacturers to manage. Stock allocation systems may be able to help.

As part of Good Distribution Practices (GDP), wholesale distributors–which can refer to anyone holding a Wholesale Distribution Authorization (WDA)–must ensure that a sufficient amount of product reaches the customers within a satisfactory time-period. One way to achieve this is to truly understand the patient-driven demand, exclude inventory stocking effects, and be able to recognize any other abnormalities. This doesn’t come for free though, and it requires an Integrated Business Planning approach to align teams within the business. These typically include Finance, Supply Chain, Marketing, and other operational departments.

It is sometimes argued that stock allocation systems are a root cause of supply availability issues. While we do not agree with this statement, we do acknowledge that it is essential for each pharmaceutical company to be able to ensure supply in all cases, and especially in medical emergencies. For that reason, various safety nets should be implemented.

Some of these safety nets can include:

• Maintaining safety stocks in various strategic locations or dedicated emergency stocks, especially for critical medications – Sometimes, these emergency stocks are legally required
• Using late-stage customization to enable rapid response to shortages – For example, this could include adding final labels at the latest possible stage so that stocks originally intended for one market can be easily diverted to other market(s) that are experiencing shortages
• Building safety margins into the stock allocation quotas mentioned above

These safety nets are typically implemented in collaboration between the manufacturers, their third-party logistics service providers, and local wholesalers or distributors. Even though the EU is one jurisdiction, local or country-specific regulations are common, and it takes time and effort to implement this properly in all member states.

Product Life Cycle Management

The topic of product life cycle management can be looked at from an upstream as well as a downstream perspective. For example, a company will often need to closely manage a product’s SKU mix throughout its life cycle, which requires—and can help facilitate—a strong understanding of demand patterns and trends. There will often be competing factors for managers to consider, as medical and commercial personnel will typically argue for more SKUs (to make things more convenient for prescribers and patients) while supply chain leaders are usually seeking to minimize SKU’s (to reduce complexity). 

As a product moves through its life cycle, the optimum balance can shift from one side of the scale to the other. A common—but not universal—pattern can involve fewer available SKUs as a therapy comes on the market, followed by a proliferation of SKUs as it matures, and finally a contraction in available SKUs as it nears the end of its life cycle. It’s important to remember that every product has its own market situation and requirements, though.

The following illustrates some of the factors that decision-makers must juggle when optimizing the number of SKUs. Consider a medication that requires a gradual buildup in dosing for the patient’s body to get used to it. A company has a few options regarding SKUs. It could:

• Offer small “starter” packs that get a patient started on therapy, then transition them to the regular dosage form afterward.
• Create one—or multiple—strengths that make it convenient for patients to “double up” and increase their dose appropriately.
• Introduce a titration pack with multiple strengths to support the process for the patient

It’s easy to imagine that each option could have its own effects on demand fluctuations between SKUs as the market matures.

One potential challenge with introducing multiple strengths in a market may be that—depending on a company’s pricing strategy—some cannibalization can occur. For example, patients may be instructed to double up on a lower dose versus transferring to a higher dose. This can make it difficult to predict the demand for the lower dose vs. the higher dose. In this case, the result could be over-supply and ultimately wasted product in the higher dose form. Similar situations can occur when a higher dose has a different indication approved or vice versa if a lower dose, for example, has been approved for pediatric use.

Minimizing the number of available SKUs will lead to higher demand (and higher inventories) on a per-SKU basis. Consequently, that lowers complexity and reduces the risk of stock-outs. However, one should be careful to ensure that medical compliance remains possible with the SKUs available. In addition, there can be commercial reasons to broaden the SKU portfolio, such as a pediatric SKU to increase the intellectual property rights by 6 months via the Supplementary Protection Certificate (SPC).

In any case, decisions around SKUs should be endorsed cross-functionally with a pivotal role for Supply Chain in connecting the dots. Throughout the product life cycle, it makes sense for supply chain leaders to coordinate with their commercial and medical colleagues to understand what’s happening in the market and act accordingly. They should revisit the topic of SKU rationalization on a regular basis to ensure the most appropriate combination is available on the market.

Remaining Shelf Life

One trend that we observe is that remaining shelf-life requirements are increasing.  Remaining shelf life requirements dictate the minimum time required between the delivery and expiration date, normally described in months or as a percentage of the product’s maximum shelf life.  Although it makes sense on an individual level to aim for the highest possible overall shelf life, it is counterproductive on a macro level, as it could lead to premature scrapping of perfectly good product.

Another issue is that the industry typically uses planning systems that cannot distinguish between the various customer types.  For example, a patient that needs an urgent product for treatment tomorrow has different shelf-life needs than a large distributor that is serving many different individual countries over the next few months.

There are various technical mitigations in place that are too detailed for this short document, but one obvious mitigation, which is sometimes overlooked, is to negotiate lower required remaining shelf-life once the need arises (for example, in situations of unexpected supply shortages due to unforeseen issues). This calls for good coordination between the supply chain team, commercial leaders, the purchasing customers, and often local Health Authorities.

Final Take-Aways

As we conclude this 3-part series on building reliable and affordable supply chains in the EU, several key takeaways are worth emphasizing:

• When seeking opportunities to manage complexity and risk—and control costs—be sure to consider all components of the supply chain, both upstream and downstream.  It’s very likely that a combination of strategies across the full spectrum will be the key to success.
• To work well, the strategies that a company uses must fit with the product’s profile, market requirements, and pricing, as well as the company’s level of maturity and capacity for implementing them.
• Be flexible and willing to shift from one strategy to another as new insights are gathered and as the product moves through life cycle periods.
• Determining the optimum level of control for your company is critical.  A virtual manufacturing and supply chain may limit options on the one hand but can also offer opportunities on the other.
• Maintain a solid data infrastructure.  To maintain a secure and reliable supply, ongoing and sound data analysis—combined with agility in leveraging the data to make decisions—is key.

AIM will continue to develop information and resources useful to biopharma supply chain professionals.  Check our LinkedIn page or the Insights section of our website to see our latest publications.

Note: To connect with AIM to discuss strategic and operational issues related to biopharma supply chains, please click here.

Ensuring a safe and reliable supply of needed therapies is critically important, but the rising cost and complexity of managing supply chains in Europe has biopharma companies straining to handle the pressure.  In part 1 of this 3-part series, we introduced the economic and regulatory factors that are driving the situation.

The major economic factors include Europe’s aging population, rising healthcare costs, and the impacts of parallel distribution.  The regulatory factors include the EU Falsified Medicines Directive, growing requirements regarding out-of-stock (OOS) reporting, the increasing mandatory application of digital ordering, and various green policies.

These factors combined push up inventory levels and increase supply chain complexity while also requiring biopharma companies to invest more in tracking and reporting technologies, Sales and Operations Planning (S&OP) / Integrated Business Planning (IBP) processes, and additional supply chain infrastructure components.  As a result, biopharma companies face rising costs and eroding profit margins. These factors also create additional barriers to potential new entrants.

The remainder of this series will outline some strategies that biopharma companies can use to manage this complexity.  Part 2 focuses on “upstream” supply chain strategies while part 3 will focus on “downstream” strategies.  For our purposes here, “upstream” refers to the manufacturing and packaging steps in the value chain, while “downstream” refers to all that happens when transferring a packaged and labeled product to the point of dispensing it to a patient.

In this paper, we discuss a range of potential upstream strategies.  This list is not intended to be fully comprehensive. However, we think it represents a robust range of ideas for helping mitigate complexity, cost, and risk.

Manufacturing Strategies

To Outsource…or Not?

A company must plan its approaches to manufacturing and packaging—as well as risk mitigation in those areas—very early.  This is true regardless of whether the company plans to manufacture in-house or rely on outsourcing.  Obviously, creating in-house manufacturing is a time-consuming, complex, and lengthy process.  However, the same is true for outsourcing.  Identifying, evaluating, selecting, contracting, qualifying, and ramping up a contract manufacturing organization (CMO) takes a lot of time and effort. 

Moreover, once choices are made, they will be essentially fixed for a number of years.  Manufacturing and packaging steps must be included in the regulatory dossier submission process, and making changes can result in dossier approval delays, launch delays, or supply issues after launch.

Determining what to keep in-house vs. external is not always easy to do.  Such decisions require leaders to explore capabilities, conduct analyses, build business cases, and shepherd their decisions through vetting with executive leaders and even the Board of Directors in some cases.

Building in-house capabilities requires high up-front investments and potentially involves a long learning curve, but it allows the company to keep control over its technology / intellectual property and the manufacturing capacity of the asset.  Outsourcing can offer more flexibility, faster ramp-up, and a lower financial burden, but it makes the company fully dependent on its external vendor(s).  It also requires intensive and ongoing vendor management once things are up and running. 

Single-Sourcing vs. Multi-Sourcing

Apart from the outsourcing question, the next question is whether to use single sourcing or dual (or even triple) sourcing approaches.  Single sourcing, although the “leanest” and easiest to set up, also means a single potential point of failure with limited opportunities for back-up.

On the other hand, it’s more likely to afford the company better volume leverage, a faster learning curve, and the chance to build better partnerships. Dual/multiple sourcing allows for better risk mitigation, cost negotiation leverage, and higher available capacity for demand surges.

The Need for Understanding Risk and Business Continuity Planning

When planning for manufacturing and packaging, leaders must make well-informed decisions, with a strong understanding of the potential implications of their choices.  It’s always advisable to perform a thorough risk assessment, weighing in on best and worst case scenarios.  Ultimately, any decisions should be backed up with a strong business continuity plan (BCP).

A good BCP should allow a manufacturer to understand and manage risk across the full manufacturing and packaging chain at any time. BCPs might include elements such as capacity reservation, inventory policies, dual sourcing, options to extend capacity (e.g. by increasing production shift hours), set up of back-up vessels, mixers, lines, etc., and also well-informed location choices (e.g. one CMO in Europe and one in the US).

Finally, for Europe, the Manufacturing & Importation Authorization (MIA) strategy must be well thought through. This is essential to fulfilling GMP requirements. A MIA can be obtained by biopharma companies but can also be outsourced (which is often the case with start-up companies) to a CMO. Outsourcing, however, limits the ability to change if a second  source is sought and also increases the dependency on the CMO.

De-Bottlenecking Strategies

Another method for ensuring a secure supply is to address bottlenecks in the process. Here, we highlight three ways to “de-bottleneck” upstream:

1. Decoupling manufacturing from packaging
2. Applying a kind of “takt time” concept
3. Optimizing batch-sizes for packaging runs

Decoupling Manufacturing from Packaging

When we refer to “decoupling manufacturing from packaging,” we basically mean two things:

1. Having different entities or work centers manufacturing active pharmaceutical ingredients (API) and/or bulk drug product (DP)—whether in-house or via a C(D)MO—vs. performing labeling, packaging, and serialization operations
2. Splitting the manufacturing step from the packaging step; For example, a company may produce tablets in bulk and then store them in inventory before placing them in bottles or blister packs followed by packaging them in cartons and applying labeling and serialization, which would make them country-specific.

API and bulk DP manufacturing processes are heavily governed by GMP, often involving long lead times and resulting in batches that bring fairly long forward demand coverage. Process hiccups are somewhat common, resulting in deviations and delays, hence schedule adherence is always a big challenge.

Labeling, packaging, and serialization are not as strictly governed by GMP, more distinct, and organized per stock keeping unit (SKU).  They can be planned on short notice and—once set up—are easily repeatable.  Unlike DP and manufacturing, they don’t typically come with many deviations and corrective and preventive actions (CAPAs).  This allows for more agility and can result in specific and smaller batches for certain markets or groups of markets. Furthermore, rework is fairly easy to organize.  Ideally, packaging runs are automated, but rework can be set up semi-automated or even fully manual.

Hence, this final step in the manufacturing process is where a company can gain flexibility for reacting to changing market dynamics.  Of course, that assumes that the prior steps resulted in sufficient stocks of base material (in particular API and DP bulk stocks).

Applying a “Takt Time” Concept

The “takt time” concept basically sets the pace and rhythm of a manufacturing process and aligns it with customer demand. As a metric, it represents the amount of time “budgeted” to manufacture each part—in this case an SKU—such as producing one part every x seconds. It is typically applied in discrete manufacturing environments, of which drug packaging is an example.

A company can “tune” its packaging operation to market demand by (for example) creating a concept much like a bus schedule.  This involves mapping distinct SKUs across the available scheduling hours per packaging line, with regular timeslots that can be used, reserved, or remain flexible.  A key condition for success is to have a sufficient inventory of packaging components at all times. That’s a fairly low-cost investment, and ordering lead times for packaging components are relatively short (typically 4-6 weeks). 

Optimizing Batch Size

Optimizing the batch size for packaging runs can be achieved, for example, by combining smaller volume SKUs with larger volume SKUs, based on market forecast. This means that multi-market packs need to be created, which is allowed within the regulatory frameworks. A key element to watch is the available space on the artwork components, which is not unlimited.  There must be room to fit all the required languages or pictogram components as well as to fulfill serialization requirements.

Strengthen (or Develop) S&OP / IBP

An essential enabler to recognizing and mitigating potential supply chain challenges, especially in the mid- to long-term, is to have some form of a Sales and Operations Planning (S&OP) process in place.  In its most mature form, which few companies actually achieve, such a process is referred to as Integrated Business Planning (IBP).

Even though the process is not always liked—typically because it requires a significant level of commitment across functions—it can be key to driving the right executive, tactical, and operational decisions to prevent situations with short supply, whether due to unexpected high demand, manufacturing or distribution issues, or other unexpected disruptions.

Proper S&OP / IBP identifies upside / best case scenarios and downside / worst case scenarios and evaluates their likely respective impacts on the organization, supply chain, and so on.  Via a cross-functional process, planners document the desired expectations and outcomes, then develop action plans (complete with supporting business cases) for achieving their goals. 

This type of cross-functional planning provides a forcing function that drives leaders to think through possible scenarios ahead of time, be proactive about how to deal with them, stay focused on generating the desired results, and be more conscious of the trade-off decisions required.  It integrates perspectives related to product development, regulatory needs, commercial issues, technical operations, supply chain needs, and finance. 

In simple words, “to govern is to predict.” S&OP / IBP builds in preparation time, helping the organization to be proactive and ready to act, rather than reactive and always trying to play “catch-up.”

SKU Clustering and Artwork Exemptions

There are various packaging and SKU-related measures that could be used to ensure a more reliable supply.  A quite common approach is to create a single package design that can be used in multiple countries, thus reducing the total number of independent SKUs that the company must manage.  For example, one larger country could be combined with typically one or two smaller countries to ensure supply in each of the markets.

However, that solution might not be as simple as it seems, as there could be differing serialization, distribution, blue box, and other constraints that make it difficult to create packaging that satisfies the requirements of multiple countries.  A thorough analysis is needed to identify the best opportunities for clustering and working out the details.  Having the right combination of countries clustered will help to level out demand fluctuations in different markets.  As we will explore in part 3, it is essential to keep stock in the right places to ensure the company’s ability to leverage SKU clusters as much as possible.

Another strategy that can help limit the number of SKUs or increase cluster size could be to request exemptions to the labeling and package leaflet obligations based on Directive 2001/83/EC article 63.  Although there are limited formal regulations to fall back on, companies may request translation exemptions or ask to omit part of the information on the artwork.

For example, an English or German language package could be made available in the Czech Republic, provided the relevant authorities approve and certain local measures are taken to safeguard the safety of the product.  This may involve providing the package leaflet in the local language separately.  Especially in early access, ultra-low prevalence, or unforeseen stock-out situations, this could be a feasible solution to ensure supply.

A manufacturer should do the necessary work to understand its opportunities for clustering and for exemptions.  It should then develop a clear plan of action and request exemptions in a timely manner.  Both strategies can help reduce SKUs and complexity while serving to proactively smooth out supply issues.

Coming Next

In part 3, we will explore “downstream” strategies.  Specifically, we will offer some perspectives on topics such as

• Active SKU management
• Product life cycle management
• The potential to apply direct delivery models
• The introduction and management of supply allocation models

That’s a relatively extensive list.  The key to success for any company will likely be finding the right combination of upstream and downstream strategies.

Note: To connect with AIM to discuss strategic and operational issues related to biopharma supply chains, please click here.