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Logistics Manager – Cost & Efficiency SummitBirmingham, 5th June 2014

Managing Global Freight Costs Whilst Maintaining Product Quality

Mark Edwards – Global Freight Manager - Actavis

What will we look at today?

• Pharma-specific challenges

• Increased regulation

• Cost reduction with product integrity

• Modal shift

• Summary

Spot the difference!

Spot the difference!

Pharma-specific challenges

• Increased counterfeiting activity has meant we have to have traceability to pack level

• Products manufactured in non-EEA countries have to be re-tested before they can be released to the EU market

• Products are difficult to transfer once you have the Marketing Authorisation – so supply chains are hard to change

• Even innocuous products (eg paracetamol) are targeted by thieves

Increased regulation

• Pharmaceutical transportation is carried out in accordance with “Good Distribution Practice” or GDP

• “Old” GDP was issued in 1992 and ran to 4 pages with only 1 small section relevant to transportation

• “New” GDP was issued in 2013 and ran to 14 double-column pages with a whole chapter dedicated to transportation

• This is EU regulation, other territories have their own set of guidelines

Cost reduction with product integrity

• Every pharma company has a “QP” – Qualified Person

• They are tasked with ensuring the quality of all products made and sold by the company

• They act independently of the company and cannot be pressured into making “commercial” decisions

• Their independence is enshrined in law and we have to satisfy them that shipments have moved in an acceptable manner

• So, the challenge is to reduce costs without risking or compromising quality

Modal shift

• Actavis decided that the only way we could achieve our financial aims whilst maintaining quality would be to shift transport modes

• A company-wide review ascertained the routes which would mostly lend themselves to this

• Freight partners were carefully scrutinised to ensure they were capable of meeting our requirements

• Freight activity was moved to one, central, control tower in order to standardise process

Modal characteristicsAir

• Typically used for inter-continental movements

• Primarily point-to-point operations but some hub and spoke systems

• Varying degree of “pharma” services offered by airlines

• Ground handling often of a poor quality

• Fast transit times

• Commensurately expensive

Modal characteristicsSea

• Typically used for inter-continental movements

• Primarily hub and spoke systems through “feeder” and “mother” vessels

• Slow transit times

• Commensurately less expensive

When to use sea freight

Transit time is less important

• India to Europe 22 to 24 days

• Air freight 1 week – sea freight 4 weeks

• Regular supply of larger volume products

• Sea freight container takes 23 to 24 pallets single-stacked

When to use sea freight

Enhanced security required

• Few parties are involved

• Containers can be loaded and sealed at your own site

• Containers stay sealed through to unloading destination

• Negotiable documentation

Benefits of sea freight

Cost

• Typically over 1000% lower than airfreight costs

• More secure mode of transport

• Air freight involves multiple hand offs & regular trans-shipment

• Air freight handling is a low-skill environment

Benefits of sea freight

Lower risk of temperature excursion

• Units are sealed throughout journey

• No physical handling of product

• Possibility to defer inventory

• Take advantage of the longer transit

• Use of the right Incoterm

Drawbacks of sea freight

Variable quality & availability of equipment

• Use containers preferably less than 3 years old

• Where these are not available, maximum age should be 5 years

• Communicate requirements in advance to ensure availability

Drawbacks of sea freight

Reliability of shipping schedules

• Partner with high quality forwarder and shipping line

• Construct reliable supply chain to take account of such factors

Temperature excursions

Equipment quality is the key factor

• Use containers MAXIMUM 5 years old

• Ensure containers are pre-conditioned to your required temperature

• Load and seal containers at your temperature-controlled warehouse

• Unload containers at your temperature-controlled warehouse

Roles and responsibilities

Shipping lines • Provision of equipment – container and ship

Freight forwarders

• Liaison with shipping line

• Customs & documentation services

You

• Liaison with your supplier / own factory

• Temperature information

• No different to current supply chain

Summary

Industries can learn from each other but remember that each has their own peculiarities

Regulations for all industries are typically tightened and increased rather than slackened or reduced

Sea freight is an excellent solution in the right circumstances

Have a full understanding of your current supply chain before making any changes

Finding the right freight forwarder is a critical success factor