If ever an industry were undergoing explosive change, it's the pharmaceutical industry. One could even call the change "unprecedented," says Paul Papas, partner and Americas Life Sciences leader, IBM Global Business Services. High levels of patent expiration among pharmaceutical companies are impacting their top-line growth, which is then driving a whole series of additional events, he points out. Among them: more mergers and acquisitions to augment the product pipeline, changes to fundamental operating models, increasing globalization and a growing emphasis on partnering. Additionally, "if the top line isn't growing, it makes sense to try to rationalize your cost basis to deliver your bottom line," Papas points out.
Add to that changing compliance demands in sales and marketing, manufacturing, and research and development, as well as a shifting client base, and really, pharmaceutical manufacturers -- and the supply chains in which they operate -- have little choice except to change and adapt to the volatile environment in which they operate. Indeed, Papas says these forces impacting pharmaceutical manufacturers are consistent with findings from IBM's most recent global CEO study. Some 79% of life sciences CEOs in that survey anticipate significant change over the next three years.
That change is already happening. For example, at pharmaceutical giant Pfizer, Anthony J. Maddaluna is overseeing a massive overhaul of the company's manufacturing and supply network worldwide. Just how large? Maddaluna, who is vice president of Pfizer Global Manufacturing (PGM) Strategy and Supply Network Transformation, points out that PGM supplies more than 500 products and 22,000 stock-keeping units (SKUs) for the New York-based global giant. Like Papas, he describes the changes in the pharmaceutical industry as unprecedented in his 34 years of experience working in the industry. Until a few years ago there wasn't the globalization of competition that exists today, he says. And during his lengthy industry tenure, Maddaluna has watched manufacturing and delivery processes change and grow more sophisticated. He doesn't expect that to change.
"It yields a different end product and may also necessitate the development of technologies we don't even have now in our manufacturing plants," Maddaluna states.
Meeting Change with Change
Pfizer is meeting those changes with changes of its own. For example, where it once was geographically segmented, PGM is now moving to segmentation by customer type. Integrating lean thinking and actions throughout its manufacturing facilities, as well as revamping business processes, is on PGM's plate. On a more public stage, the pharmaceutical firm is whittling down its internal network of manufacturing sites and increasing its outsourcing options. PGM's target by the end of 2009 is to have an internal network of 43 plants operating from a one-time internal network of 100 plants. Some facilities have closed entirely; others have been sold outright or sold to a partner with trailing supply agreements.
The goal of the transformation? "For the longest time -- and I think it's been the model for most pharmaceutical companies -- it was always you sell what you make, you make what you sell,'" Maddaluna says. "What we're doing now is an active transformation to become a globally competitive supply network. So, even though our name [PGM] says manufacturing,' it's sort of a vestige of our name. We're really a supply organization. We'll be a very competitive make or buy' network. Our mission is to provide Pfizer with an innovative and powerful competitive advantage. That is the end goal."
By the same token, the right business mix for Pfizer means that key plants remain part of PGM's internal network. Among the factors that influence whether a plant remains an internal facility is whether it's involved in the co-development and launch of new products. It's also important that PGM retains its expertise in process capabilities and the expertise to improve those processes. "That's an important reason to have plants," Maddaluna says.
He points out that relatively recent large mergers (with Warner-Lambert in 2000 and Pharmacia in 2003) had the added effect of immediately adding a wealth of manufacturing facilities to the Pfizer name. "It's the issue of putting together three different, major pharmaceutical companies that all had very good independent strategies, but when you put them together, it doesn't quite mix. So you have to look at this now as the new company and what makes sense from a supply standpoint," he says.
For Pfizer, from a supply standpoint, appropriate outsourcing makes sense. "One of the biggest things that outsourcing does is give you supply chain flexibility," Maddaluna explains. "If you have a network of internal plants that are configured for a certain product type and you can't fully load those plants to the right capacity, then you're going to have an internal cost disadvantage. And somebody has to pay for those plants, whether they're running one unit or they're running a million units. So what we're trying to look at is the [right] mix for our business."
In fact, many pharmaceutical firms are taking that same approach, according to Global Industry Analysts. The market research firm estimates that the global market for pharmaceutical contract manufacturing, estimated at $20.4 billion for 2008, will exceed $31 billion by 2012. Furthermore, the United States is the single largest market for pharmaceutical contract manufacturing, with projected revenues of $12.8 billion in 2012.
Increased partnering along the supply chain adds a level of complexity to that chain. Pfizer, which is no stranger to contract manufacturing, is very stringent when looking at partnering arrangements, Maddaluna says. "We don't partner with just anybody," he says. "We take the right steps with our partners to make sure they are aligned with what we do. And we take a hands-on approach; we're in there with our partners, we look at them every which way, including the quality aspects, science, finances, environmental health and safety, and work practices. All of that is important to us and we expect our partners to meet our standards."
What he also expects is the continued dynamism of the industry, which means that what constitutes the right mix of internal plants and external partners also remains dynamic. Even if PGM reaches what it believes is a manageable level of internal plants and a "core" supply network, "there's always going to be inputs," Maddaluna says. "Pfizer's business may change. We may do an acquisition. We may acquire a product that requires special manufacturing. This is also the plus of having an agile network that's flexible. And when you have internal plants you tend to be less flexible than when you're partnering with external partners. So having that right mix actually helps us as the environment changes around us."
Improving Supply Chain Integrity
Among the many challenges facing the pharmaceutical supply chain is that of supply chain security. "It's probably the biggest single issue in our industry today," says Jorge Rodriguez, vice president of operations and compliance officer at pharmaceutical distributor Novis Pharmaceuticals. While a safe, secure supply chain has always been important, "it wasn't necessarily on the forefront three or four years ago," Rodriguez says. How times change.
While security may be paramount now, there exists no uniform national regulation. Instead, differing state regulations mean pharmaceutical firms aren't necessarily all in agreement about what constitutes the right approach to take in securing their supply chains. "We [Novis] came to a conclusion and moved forward in that direction," Rodriguez says.
Novis Pharmaceuticals is bolstering its own efforts to improve security and patient safety with the introduction in December of a prototype version of RxID, an inventory tracking system to enhance drug product traceability and extend that protection to its customers. It's one component of Novis Pharmaceuticals' general patient safety initiative, Rodriguez says. Integral to that is an e-pedigree solution from SupplyScape coupled with an internal serialization solution, all integrated within the company's SAP ERP solution. "We're always looking for ways to improve patient safety," he notes.
The introduction of the fully functional prototype will be followed by a pilot program with selected customers. The testing phase is projected to last about six months or so, Rodriguez estimates, with a full rollout of the system slated for June or July 2009 as an option for Novis Pharmaceutical customers. The SupplyScape e-pedigree solution will allow participating customers to check the pedigree of their products via a Web portal.
