Pharmaceutical Distribution Shuffle

December 27, 2016

By: Brian HudockPartner, Tompkins International

As the number of mergers, acquisitions, division exchanges, and general realignment of pharmaceutical focus continues to evolve globally, who is managing the supply chain integration?  Whether you are internal or using 3PL’s in markets, new products and product line consolidation takes time, coordination, and customer management.   Not to mention space, packaging testing, and DC reconfiguration.  In many cases, the easy way out is to maintain separate pick, pack, and ship operations by division/product line.  However, this is costly and does not generate long-term market value.

Consolidation, if done correctly reduces product handling, shipping containers, and order processing costs.  Why is it not being done or being done so poorly, currently?   In some cases, new product lines/divisions are not compatible due to temperature, hazardous levels, cross contamination, or customer base and need to be distinct.  However, in many cases, it is just easier to set-up a stand-alone grouping and come back to it later to insure all shipments are made on-time.  This costs space, labor, order processing, packaging, and most significantly freight costs.  A focus to integrate quickly and completely should be the goal of every pharmaceutical supply chain leader.   At one time being 100% accurate and in compliance was the standard, today 100% accurate, compliant, and cost effective are mandatory. 

How do you achieve efficient consolidation quickly and with minimal risk?

1. Build flexibility into IT systems – New products are new SKUs not UFOs. If it fits into an existing environmental shipping profile, consolidate it into the customer service profile/order entry system immediately.  The excuse of multiple ERP’s and order entry systems is an IT conversion that should be standardized.  Full acquisitions/mergers take longer than product line acquisitions but even separate ERPs can be consolidated in good OMS/WMS packages until a single ERP is in place.
2. Distribution Centers – (in-house or outsourced) must have capacity for growth. If it does not fit, a strategy to expand the facility, relocate to a larger facility, or add facilities needs to be developed.  Pick faces in pharmaceutical are generally not the constraint, inventory levels drive capacity.  3PL operations provide flexibility, but at a cost.  Internal operations provide cost control.
3. In-sourcing or Outsourcing – As market consolidation drives order size change, is it time for you to change strategies. The wholesale market has driven many manufactures to utilize 3PL’s for case and pallet level distribution.  However, the benefit of direct distribution to the end customer has a price and every 3PL/wholesaler touch reduces margins/profitability.  Is it time to look at your consolidated products and re-evaluate in-house options to best service the market and reduce costs?
4. Customer Incentives – Order-to-Cash value fulfilling large orders to major customers and wholesalers made perfect sense 10 years ago, today returns, expired product and market touch points are different, particularly on a global market by market basis.