perils of non cot rolled open ended supply chain whitepaper

8/8/2019 Perils of Non Cot Rolled Open Ended Supply Chain Whitepaper

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Pharma: Secure Supply Chain. Secured Brand – A Bilcare viewpoint, Version 1.0, Jan 2010 2

Introduction

The Indian pharma sector is currently the 4th

largest in the Asia Pacific geography, behindJapan, China and South Korea. The industryis expected to grow at an average CAGR of

14% to more than $40 Billion by 2013.(1)

The Indian pharma industry is highlyfragmented, with around 20000 registeredmanufacturing sites and 250 pharmacompanies holding more than 70% of themarket and the Top 10 players holdingabout 17%. The Majority of pharmaproduction is with contract manufacturers orloan licensees for cost benefits.

(2)

Institutional sales constitute about 18% ofthe pharma sales while the sales through

the regular distribution channel are about82%.(1)

The regular distribution channel consists ofabout 80 to 100 thousand stockists andmore than 550 thousand retailers. A typicaldrug manufacturer may connect with about30 CFAs, 500 to 5000 stockists and about200K Retailers.

The supply chain is very open with limitedbrand owner control over the activities withinthe supply chain. This presents multiplechallenges to the brand owner.

Challenges 1. Product overruns at the contract

manufacturer (CM):- The contractmanufacturers can typicallymanufacture 8-10% extra drugscompared to the batch sizes agreedwith the brand owner as percontract. This is referred to as the“product overrun” by the contractmanufacturer. This is currentlypossible for the contract

manufacturer since there is nosystemic way for the brand owner totrack the manufacturing activities atthe outsourced location. Thecontract manufacturer getsconsiderably higher margins byselling this product overrun directlyto the distribution channel,compared to what the brand owner

offers as a transfer price. Thisresults in loss of direct sales for thebrand owner.

2. Drug diversions by institutions:- Institutional sales in an Indiancontext include sales to governmenthospitals, the military and privatehospitals. Traditionally, the militaryis mandated to buy the drug stocksthrough tenders in quantities twiceas large as the projected demandfor those drugs for the followingyear. Pharma companies arerequired to sell the drugs toinstitutions at discounted prices. Thesurplus available at the institutionsis at times pushed to regularchannels by leveraging the pricediscounts. This results in lost sales

for the brand owner’s product through the regular distributionchannel. This loss is estimated atabout 20-30% of the institutionalsales.

3. Drug diversions withindistribution channel:- Pharmacompanies run geography-focusedpromotional offers as part of theirmarketing strategies, estimated atabout 5-7% of the sales in theregular distribution channel. The

promotional products are routedthrough the regular distributionchannel to the retailers/patients.Within the distribution channel, thereis no mechanism for the brandowner to ensure that thesepromotional products reach theintended parties. The stockists canclaim the discounts for routing theseproducts to the intended parties anddivert them to other geographies,where the product may be pricedhigher intentionally by the brand

owner. This results in a payout tostockists against false claims, lostsales at higher price in unintendedgeographies and ineffectivepromotional strategies.

4. Recirculation of expiredproducts:- Ideally, expired drugsare supposed to be routed back tothe drug destruction facilities



Pharma: Secure Supply Chain. Secured Brand – A Bilcare viewpoint, Version 1.0, Jan 2010 3

approved by the brand ownerthrough a reverse supply chain.While the reverse route is defined inprinciple for the regular distributionchannel, no mechanism currentlyexists to track the return of expireddrugs and the actual destruction bythe destruction agency. There is alack of drive from brand owners forfunding this activity since they don’tview this as a value adding activity,having already booked the saleswhen the product left the forwardingagent’s facilities in the forwardsupply chain.

The institutional sales even lack aspecific returns route, since theseare mostly executed as tenderedsales.

In this way, an opportunity arises forthe counterfeiters to recycle andrepackage the expired drugs andpush them back into the distributionchannel. While this results in lostsales for the original product, as wellas a loss of brand value in turn forthe brand owner, there is an evenmore serious consequence forpatients who may be administeredthese drugs, resulting in ineffectiveor at times fatal medication.

While there are significant efforts beingmade by the pharma industry to addressthese counterfeits from illegal sources, veryfew steps have been taken to address theunauthorized activities of legal supply chainpartner. This may partly be because thebrand owners do not realize the extent of thepotential sales loss and the impact this hason the brand recognition within the supplychain.

The combined effect of all such

unauthorized activities could be a loss ofanywhere between 15-20% of net sales forthe brand owner.

There are lots of packaging innovations thathave entered the market in the past decade,claiming to solve the pharma companies’counterfeiting problems. To a certain extent,these solutions will provide the brand ownerwith track and trace capabilities.

However, the counterfeiters have proven tobe smarter and faster than most of thesesolutions and the majority of packaginginnovations frequently lack one key featurefor assessing the origin of the productconclusively; the ability to authenticate theproduct in the market. The effectiveness ofthe solution is thereby drastically reduced,rendering the brand owner’s investment significantly less effective.

Necessary solution features

For preventing product overruns, drugdiversions and recycling of expired drugs, aneffective solution needs to provide the brandowner with the following capabilities:-

a. A systemic lock at the outsourcedmanufacturing locations to controlproduct overrun scenarios, so thatall drug production gets recognizedas the brand owner’s sales.

b. The ability to closely trackunauthorized activities and providealerts and reports for the brandowners to take corrective andpreventive action.

c. The ability to plug the recycledexpired product from getting into thedistribution channel.

d. Engender confidence in theauthenticity of the product in themarket place.

Bilcare’s secure supply chain managementsolution for pharma scores where othertechnology solutions fail. Using its uniquecombination of nonClonable™ securetechnology and an accompanyingauthentication mechanism, it provides afoolproof solution to key business problems,with the core value proposition of assuringproduct authenticity in the field, ablysupported by a four- dimensional track andtrace solution.

perils of non cot rolled open ended supply chain whitepaper

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