Medicines and healthcare are synonymous globally. As treatments become more innovative, to address unmet clinical needs, it is important that there is innovation in the pharma value chain as well.
In order that patients receive the right medicine, at the right time and the right place, there is a need for a complex value chain. The full set of activities that occur prior to a patient receiving a medicine, constitute the pharmaceutical value chain. This value would differ within markets and also between markets.
Components of a Pharma Value Chain
The pharma value chain involves three major components:
Manufacturing of the medicine – Starting from the initial research and development, to obtaining the mandatory regulatory approvals, to the final commercialization phase, are part of this stage.
Distribution to the dispensing point – Post manufacturing, the transportation of the pharmaceutical product to the end – retailer or dispensing doctor – constitutes the next phase the value chain. How complex this stage would be depending largely on manufacturer’s location, the need for import or special handling, and the location of the user.
Dispensing to the end user – At this stage, it becomes critical that the patient is administered the correct medicine dosage and form, in a manner and time-frame that is convenient.
According to the World Health Organization (WHO) and Health Action International (HAI), the following six key components contribute to the price build-up of medicines:
Manufacturer Selling Price – This is the net cost of procuring medicines from the manufacturers, including all discounts, rebates or other reductions in price.
Cost, Insurance, Freight and Import Tariffs – This component is the cost of importing finished products into the country.
Importer Margin – This component is applied by the importer.
Distributor Margin – This margin is charged by wholesalers and sub-wholesalers to compensate for their expenses incurred to store and, thereafter, transport the medicine to the point of sale.
Retailer Margin – This is the final step of the distribution chain. Here the retailer adds their margin while dispensing medicines to the patients.
Taxes – This is the final component that contributes to the cost build-up and may include both national and regional taxes.
Understanding the Challenges
Lack of Coordination – Lack of coordination in the supply chain has been identified as the primary cause affecting nearly every other aspect of the value chain directly or indirectly.
Inventory Management – With these traditional systems, each link in the supply chain is supported by its own systems, which very often are not compatible with each other. This drastically lowers the visibility that is so crucial to efficient inventory management.
Human Resource Dependency – The large dependence, of the entire value chain, on human intervention, lowers its efficiency.
Shipment Visibility – Managing increasingly complex supply chains and operational challenges of a huge number of suppliers makes the task of monitoring the entire supply chain very difficult.
Collaboration concerns – Efficient collaboration in this global industry is critical to overcome the lack of transparency, mistrust and unreliable data sharing among its many agencies.
Putting patients first – In the case of clinical trials, patients tend to leave the trial even due to the slightest delays or perceived inconveniences. Moreover, they can potentially be put at risk if products are damaged during transit.
Market place awareness – In the current global situation where pharma supply chains are operating across geographical, economic and political boundaries, creating awareness among the various stakeholders, of the unique challenges confronting them in every location, is very crucial.
Temperature control – Due to the complex nature of the supply chains, pharmaceutical products are likely to be exposed to a wide range of temperature extremes during their journey. This requires real-time monitoring of the entire supply chain from end to end.
Maintaining standards – The success and effectiveness of a pharmaceutical supply chain lies in its compliance with worldwide regulations. Data integration, therefore, plays a vital role in such an environment.
Disparity of Data Sources – All pharmaceutical companies face the daunting task of integrating data stored in different silos and accessed via different platforms.
Organizations need to collaborate using systems that are equipped with reliable information throughout the supply chain. Integration of data from all sources in the value chain holds the key to efficiency and value addition. A cloud-based supply chain management platform would offer visibility to all companies, regardless of size.