Like the world in which it plays such a central role, the healthcare and pharmaceutical industries are evolving rapidly. In the case of pharma, the big players are really changing the way they do business.
“You have to recognize that the pharmaceutical industry is changing dramatically,” says Robert Martichenko, CEO of LeanCor Supply Chain Group. “The big pharma companies were extremely high-margin on products that were under patent. Now, with [many pharmaceuticals] coming off patent and going generic, a lot of pharma companies don’t [go generic] with them. Some even stop manufacturing it.
“The new product pipeline for big pharma companies is not robust; they’re not replacing off-patent products with another high-profit item. The industry never focused on operating costs because their margins were so high. The money went into research and new products. Now they’re saying, ‘Wow, we better focus on operating costs. It’s the only way to maintain margins that shareholders are accustomed to. OK, what do we do?’ They did a deep dive for the first time. They were finding an incredible amount of inefficiencies, especially in inventory. It was so cash rich, inventory was never [viewed as] an evil.”
But now, big pharma executives are looking at all the inventory in the supply chain, along with the cash tied up with it, not to mention the waste. Obsolescence is added to transportation and warehousing costs.
Martichenko suggest that having a true end-to-end supply chain is most important in solving this issue. Pharma, like many industries, has to concentrate on operational excellence. It is one of the last industries, he says, to do so.
“The work we did and organizations are doing is end-to-end work,” he explains. “Start at the doctor’s office, the hospital, Walgreen’s and CVS to understand consumption. What are their needs and what does pharma need to do to meet them? Pharma questions all the nodes [distribution points], inventory, batch sizes to connect with consumption so large inventory will last. You need the proper lead time to have the freshest product in the hands of your customers.
“Pharma companies have really smart people working there; smart supply chain people, too. But the focus was product introductions and new product development. Now the focus is end-to-end operational excellence, strong fill rate, on-time delivery and inventory fulfillment with the most nodes and the least inventory. It’s the entire timeline from the customer back to the manufacturer.”
Before the industry began to change, there was little emphasis on MRO (Maintenance, Repair and Operations) or the reverse supply chain. That often led to increased waste.
One of the most common areas of waste is, of course, excess inventory. What if the product has been in the warehouse for 30 days and additional product comes in? Until the original is shipped, it all sits. “You could actually have 120 days of product on hand,” Martichenko says. “You have four nodes between factory and customer: Factory to DC, then DC to the wholesaler, then wholesaler to the distributor and then finally to the hospital, doctor or pharmacy [customer].”
Track & Trace
As pharmaceuticals move along the supply chain, security is an obvious issue. The U.S. pharma supply chain is the safest in the world, but because it’s also the largest, it’s clearly a target for counterfeiters, drug diverters and others of that ilk, says Brian Daleiden, VP Marketing, TraceLink, Inc.
“Incidents over the last decade, such as the diversion of the cancer drug Avastin from other countries into the U.S. created a sense of urgency by the industry and by the lawmakers to further improve the protections in the supply chain.”
The answer: The creation and passage of the Drug Supply Chain Security Act (DSCSA) in 2013. It establishes, for the first time, the foundation of a national requirement for tracking and tracing of drug products across the supply chain from pharmaceutical manufacturer to pharmacy dispenser. The regulation phases in starting on Jan. 1, 2015, and culminates in November 2023 with the requirement for unit-level tracing of all drug products across all changes of ownership using an interoperable electronic system. The result is enhanced patient safety as industry stakeholders, the FDA and other Federal and State officials work together to protect the U.S. drug supply against counterfeits, diversion, quality issues and other threats to product integrity.
The Act also helps unify track and trace regulations, says Daleiden. “There was a desire in the pharmaceutical industry to cleanup what has been known as the patchwork of state-level track and trace regulations. Prior to DSCSA there were a couple of dozen state-level pedigree requirements that followed varying rules, increasing costs for the industry and creating loopholes in the U.S. supply chain that counterfeiters and diverters could exploit. So the pharma industry got together with the FDA and lawmakers to devise a single national track and trace standard.”
DSCSA focuses on two key elements: the ability to uniquely identify the drug product and the ability to trace or identify where a drug product has been throughout the supply chain—what changes in ownership have occurred. There are different threats that come into the medicine supply chain and if you have a way of interrogating product integrity and a way of interrogating the chain of custody of a drug product you can use those two elements to significantly improve product security in the supply chain, Daleiden adds.
At the Core
There are three core regulatory requirements to the DSCSA: Tracing, Verification and Serialization.
- Tracing requires that the traceability of drug products across all changes of ownership back to the pharmaceutical manufacturer through the generation, provision and receipt of Transaction History (TH), Transaction Information (TI) and Transaction Statement (TS) compliance documentation for each drug product.
- Verification requires that supply chain participants have systems and processes in place that allow FDA or Federal or state officials to question or interrogate stored compliance documentation about the products and their related sales transaction histories to support investigations on suspect products (counterfeit, diverted, stolen, part of fraudulent transactions, etc.) or recalled products.
- Serialization is a requirement to uniquely identify, or serialize, drug products at the unique package and sealed homogeneous case level for originally manufactured and repackaged product.
“DSCSA is being implemented in a phased in approach,” explains TraceLink’s Daleiden. “Lawmakers were very aware that DSCSA would impact tens of thousands of manufacturers, wholesale distributors, pharmacies and other pharmaceutical supply chain participants with widely diverse business processes and technical infrastructures. So, DSCSA regulatory requirements are incrementally rolled out, with different timelines for various features of the law and for different segments of the supply chain (manufacturer, repackager, wholesale distributor, pharmacy dispenser).”
Here’s a brief summary of the three-phase implementation:
Phase 1: Jan. 1, 2015, Tracing and verification regulation. Trace drug product changes of ownership from manufacturer to dispenser at the unique lot or batch level. Respond to requests for information or verification queries about drug products and their related supply chain transactions to support suspect product investigations, illegitimate product incident management and recalled product issues. Archive TH, TI, TS compliance documentation for six years past transaction date.
Phase 2: 2017-2020, Serialization and enhanced verification. Place barcodes and unique serial numbers on all drug products produced by a manufacturer or repackager at the saleable package and sealed homogeneous case level. Supply chain participants may only buy or sell drug products that have been so serialized according to a phased-in date. Verification regulations during this time are also enhanced to require the verification of the Standardized Numerical Identifier, or the National Drug Code (NDC) and serial number, by participants across the supply chain.
Phase 3: 2023, Unit-level drug product traceability. Combine supply chain traceability and serialized product capabilities to establish unit-level pharmaceutical traceability across the supply chain using an interoperable electronic system.
LeanCor’s Martichenko, concludes, “Pharma is a positive industry and going at it the right way. They’re taking that smartness and taking their passion doing things the right way and taking it to the supply chain. I think it’s very promising.