Moving from the blockbuster to the niche business model, the pharmaceutical supply chain results in a complex portfolio, leading insufficient use of resources and limiting companies’ ability to respond quickly to change the market dynamics.
Along with the level of materials, the enterprise witness the increasing complexities. For the pharmaceutical supply chain companies, it generally shows up with the manufacturing, supply chain management, information and workflow and some of the quality functions.
We can summarize the symptoms,
- Often changeover in the small batches for addressing the unique product variations.
- From the tailoring of the complex manufacturing processes to project specification and especially for the biologics. All having the long and entailed global supply chain for each of the product with vast different manufacturing trails/ supplier network.
- Difficulty in forecasting demand
- Manual processes are for allocating and forecasting demands, for managing inventories and planning
- Bounded Master data management ability which leads to the inability of capturing the material attributes, batch characteristics and regulatory requirement within the existing system.
- It makes it difficult to make decisions when there is a lack of end-to-end visibility across the supply chain.
- Difficulty in maintaining the ancestry and traceability.
- Complying with country-specific regulatory requirements is getting difficult.
Traditional operational approaches can become illogical when the product stream is more complex. This results in, most of the pharmaceutical distributors’ company is closely examining their portfolios for finding the way for reduction of the complexity and along with the waste, costs and inventory levels. Today we will be seeing the comprehensive approach that targets both large and tail-end products for rationalization.
Although the complexity reduction which is also preferred to know as Stock Keeping Unit[SKU] reductions used widely in the industries like consumer products and retails. This the relatively new concept for all the pharma industrial companies.
“ Effective complexity management can turn into a competitive advantage.”
Remember to do the following things
- Look forward to the area where complexity is driving excess costs but not its fair share of value. Recognize that the complexity in and itself is not bad every time.
- Do understand the true cost of the complexity and value of it. It may happen that you require the revisiting the existing standard cost allocation for the transparency in the actual impact of complexity.
- Acknowledge that the complexity is an enterprise-wide issue and not the functional one. Complexity is structure through the way you market, innovate, sell, procure, plan, and supply. The cross-functional discussion needs to open up the new levels against it of the performance.
Areas to Focus
Beginning the complexity reduction program requires you to focus on particular areas. Which are those areas?
Rationalizing Redundant Products
The first area to focus on for the reduction of complexity target mediums to the large SKUs which do not directly satisfy a unique customer requirement. Reduction in the redundant product can offer you significant cost savings, especially for the larger products that probably consumes more resources. Additionally, It doesn’t have any impact on the sales level demand shifts to remaining products that yet meets the customer requirements.
Reduction of the Smaller and Low Profitable Products and Product Groups
Rationalizing the product at the tail end allows relocating the critical resources to more profitable products and new product launch. Some of the pharma companies have already stepped in and have partially implemented this approach and gained surprising results. This step promises to gain improvement in demand forecast accuracy, production write-offs, asset utilization, replenishment lead times.
Always creating the new product is not the way for success and growth. Because this can often result in a large, highly customized product portfolio. This can also result in higher production, distribution, and other organizational costs. On the other hand, not all complexities are bad. Realize that while examining the portfolio, you need to understand and be able to distinguish between “adding values” product and “destroying values” product.
The complexity fingerprint enables the transparency that catches management’s attention. It leads towards the focus and prioritizes the problematic areas.
Ensure the Right Areas are Targetted
During the complexity reduction programme, there are always some risks to rationalize in the wrong areas. This can also include cutting too deeply into the revenue stream, discontinuing the key products or destroying important customer relationships. The companies can avoid this. The best way to avoid is conduction of frequent product reviews with the customer.
Moreover, it is not important to focus on the remaining of the tail-end SKUs. This can often result in insignificant changes to the inventory, gross margins, share market, changeovers, and distribution complexity. Additionally, any cost saving resulting from the tail end product, for that rationalization is a short term I believe. Its because the tail end portfolio always replaces itself over time.
The beneficiaries of any successful complexity reduction are felt over the whole organization. It’s probably important not to reduce the majority of the complexities within a single brand. Online retailer data studies suggest that the brand with the higher market shares, higher price level, and more frequent promotions turns to gain the share when the effective SKU- reduction processes are in the right place. Moreover, the research also found that a drastic reduction of SKUs within the same brand can have a negative impact on the company’s performance. With this, the small market share is less likely to gain benefits of the complexity reduction.
These are some key points and symptoms that every pharmaceutical distributors can apply to their company. The pharmaceutical supply chain companies have probably started implementing the steps and procedures that can help them improve. These are just some of the points that the pharmaceutical distributors can apply. The list goes on while making subjective research.
Get your pharma supply chain company improved with these today’s procedures.