Pharma Focus Asia
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Indian Pharma Companies Need Supply Chain Transformation

Unlocking growth

Kaushika Madhavan, Partner & Head, Strategic Operations Practice, AT Kearney India

Amit Saharia, Principal, AT Kearney, India

Abhishek Malhotra, Partner, AT Kearney, India

India’s pharmaceutical companies have a unique opportunity to lead global growth for years to come. However, there is a significant gap between the strategic vision and operational realities of the sector. Firms are facing challenges on multiple fronts in their supply chains. They need to overcome these hurdles to unlock their full potential.

India has emerged as one of the world’s fastest growing pharmaceutical markets over the past decade. The industry saw a growth of around 18 per cent per annum between 2005 and 2015, and now stands at US$30 billion. The generic drug sector expanded at an even faster pace of 22 per cent per annum during the same period and now accounts for 20 per cent share of global exports by volume.

The phenomenal growth is expected to continue in the coming years, with India’s pharmaceutical sector forecast to nearly double to US$55 billion by 2020. The generic drug sector is expected to capture 6 to 7 per cent of the US$760 billion generic drugs market by 2020. With India having the highest number of FDA approved drug manufacturing sites - second only to the US, these numbers seem achievable.

However, while India’s growth trajectory looks promising on the surface, it is evident that there is a significant gap between the strategic vision and operational realities of the sector. Indian pharmaceutical companies are facing a unique set of challenges that are creating significant pressure on them to transform their supply chains.

Simply put, a supply chain refers to the combination of organisations, people, activities, and resources that are involved in moving a product or service from a manufacturer to the customer. Indian pharmaceutical companies are facing hurdles on multiple fronts in their supply chains.

Key hurdles

As part of our efforts to assess the state of the pharma supply chain in India, which serves local and global markets, we conducted a study in collaboration with the Organisation of Pharmaceutical Producers of India (OPPI) and the Indian Pharmaceutical Association (IPA). As part of this study, we interviewed CEOs and supply chain executives in medium and large Indian pharma companies. The executives highlighted four key challenges they are facing.

Quality and regulatory issues: Quality continues to be a hot topic in the industry. With 600-700 FDA - approved sites in India, global regulatory agencies have been inspecting sites with increased regularity, with more than 800 issues identified by the US FDA over the past eight years. In 2015, ten companies were issued warning letters, a 25 per cent increase from 2014.

Quality issues have deepened and widened over time and an increasing number of these are occurring across the value chain. These range from issues at the procurement level over quality of raw materials, as well as at the manufacturing stage where plant shutdowns and inability to get necessary certifications have created unused capacity. Lack of quality control at the R&D stage has also led to more failures of trial batches, causing delays in product launches.

Product proliferation: Indian pharmaceutical companies are expanding their portfolio at a fast pace. This has been driven in part by new product development, new dosage forms, enhanced formulations, and changes in packaging and labelling to cater to new markets. Indian players launch anywhere from 15 to 30 products / SKUs a year.

Several underlying factors have contributed to this including changing demographics which has seen the rise of non-communicable diseases such as diabetes, chronic pain and cardio vascular problems in India. Increased competition, which fuels the need to constantly innovate and varying regulatory requirements across multiple markets are the other key driving factors.

This fast-paced product proliferation has several implications for the supply chain, including higher manufacturing and distribution costs, more inventory, and a larger supplier base.

Supply chain fragmentation: India’s supply chain network is very complex making it even tougher to manage properly. Companies manage over 15,000 raw materials across over 10,000 facilities clustered around zones spread over five to six states and that’s before we move down the chain to distribution. The sheer number of players at each stage with varying requirements, lack of clear categorisation, lack of proximity to the manufacturer, and differing degrees of quality standards are clear challenges.
As a result, production schedule changes are becoming more common because of poor supplier service levels, further affecting the ability of the supply chain to make and deliver on time.

With two thirds of the global pharma industry being outsourced, decentralised R&D-where companies use multiple third party centres at different stages of development-creates a convolution of technology and data transfer, lengthening timelines for regulatory approval, increasing costs to deal with discrepancies, and reducing plant utilisation.

Infrastructure gaps: India has had a long-term struggle with improving its infrastructure. Less than five per cent of roads are highways, the railway system is simply inadequate, and the airways are underutilised. There are also gaps in storage and power supply.

In terms of storage, the lack of a robust cold chain network to support the supply chain represents a significant gap in today’s pharma infrastructure. Drugs have varying storage requirements to ensure that potency is maintained throughout their shelf life. Moving specialty products and vaccines requires continuous monitoring at all stages of the value chain. However, companies are still unable to ensure a product is stored at the required conditions throughout its transition.

India’s cold chain market is fragmented itself with more than 3,500 companies. Most are in dire need of both connectivity and technology. These gaps are not only a hurdle to the sector’s growth, but also pose a threat to patients who receive poorly handled drugs.

Unlocking growth

Given these challenges, Indian companies need to design a supply chain that is more adaptive, flexible and responsive to the changes. This can be done by focusing their efforts on four dimensions:

Reducing complexity:

India’s pharma supply chain is crippled with end-to-end complexity. Reducing this complexity can unleash an array of benefits. Efforts should be focused on these top three priorities for immediate, actionable results:

• Consolidating and optimising the network as a whole, supporting seamless communications across suppliers, manufacturers, distributors, and customers
• Tailoring visibility of supply chains, segmenting consumer needs, product types, product attributes, and markets. This will be crucial to improve efficiency
• Handling the portfolio’s complexity both upstream (R&D portfolio proliferation) and downstream (product SKU proliferation), which will optimise capacity and resources upstream and kill underperforming SKUs, resulting in immediate cost cutting.

Creating agility and visibility:

In addition to changing patient needs and shifting disease patterns, the global market is experiencing more frequent drug shortages and communicable disease outbreaks. It is vital that pharma companies are ready to react to such market changes if they want to be best in class performers.

Ensuring that the supply chain is integrated with Sales and Operations Planning (S&OP) processes and commercial strategies will enable pharmaceutical companies to move from a ‘planning for convenience’ model to a ‘planning for market’ model.

Based on our experience, companies see a 10 to 20 per cent increase in service levels (from the current average of about 60 per cent) simply by streamlining their S&OP processes, which typically leads to a 1 to 2 per cent increase in the top-line.

Building robust quality and compliance system:

There is an immediate need for quality processes to be tightened. It is imperative to have a strong quality organisation with visibility and oversight across all practices in the supply chain, both internal and external. A few leading companies have paved the way in taking structured initiatives to boost their quality standards, receiving positive affirmation from global regulatory bodies such as the FDA.

The following five internal initiatives can have a sizeable impact on quality systems:

• Developing understandable, executable, and compliant standard operating procedures, supported with regular compliance training
• Enforcing a ‘quality culture’ from senior leadership, targeting the message across the organisation with supporting documentation of practices that can be followed by all
• Establishing data integrity organisation with data integrity officer lead
• Conducting routine internal audits by both global and local audit and compliance committees.
• Implementing technologically advanced systems across network to  reduce manual error: lab information management systems and document management systems.

Using tech across supply chain:

Technology remains one of the most important areas for pharmaceutical companies to focus on. One immediate result of using technology is greater transparency, which leads to better decision making. Technology can be used to integrate all functions across the network, increase visibility of products across the value chain, and automate processes to improve the supply chain’s responsiveness and reliability.

External factors

A transformation of the supply chain in India’s pharma industry is in immediate need. However, a total revamp cannot be done in isolation. There are some things beyond the control of the industry that can only be overcome by strong collaboration with government and industry bodies.

The recent conversations between government and industry to combat India’s dependence on China for Active Pharmaceutical Ingredients (API) are a great example of such ollaboration.

For the India pharma industry to realise its full potential the government and industry need to work together to eliminate external factors by enforcing regulatory standards and ensuring overall improvements to the pharma ecosystem and the country’s infrastructure.

This will create the right conditions for India’s pharma sector to transform its supply chain and support the industry as it grows.

Whether the prescription is heeded is another question.

-- Issue 26 --

Author Bio

Kaushika Madhavan

Kaushika Madhavan has over 19 years of experience in consulting and across industry. He has assisted clients across multiple sectors including Pharmaceutical and Healthcare. His areas of expertise include Strategy Formulation & Articulation, Business Planning as well as Supply Chain Design & Management, among others.

Amit Saharia

Amit Saharia has 13 years of global management consulting experience with top tier strategy firms spanning private as well as public sector clients. He has advised leading global companies across multiple sectors including Pharmaceutical and Healthcare. He has deep business understanding and strategic operations experience in end-to-end value chain functions.

Abhishek Malhotra

Abhishek Malhotra is a Partner with AT Kearney and a member of the Consumer Industries & Retail Products Practice. Abhishek is an experienced management consultant and has worked with many leading companies and organizations to help them address their toughest business challenges. Abhishek has an MBA from Indian Institute of Management (IIM) Ahmedabad and Bachelors in Electronics Engineering from Punjab Engineering College (PEC) Chandigarh.

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