For most companies in the pharmaceutical sector, the market provided comfortable conditions for many years, yielding high profitability and continuous growth in sales volume.
Among the factors shaping the current situation of European drug manufacturers, besides globalization, the most important are the intensification of competition in the sector, the progressive individualization of demand, the consolidation of production and distribution, the increase in the number and dosage forms of drugs, the shortening of product lifespans relative to their development cycles, the ineffectively curbed growth of “parallel markets,” the increasing pressure from governments (and other buyers) to reduce drug prices, and the lack of harmonization of regulations regarding the production, distribution, and registration of drugs in Europe. These conditions effectively reduce profits and thus limit the development opportunities of pharmaceutical companies; when confronted with the fact that they still consider the differentiation of their product range, and especially the introduction of new products, as the main source of market success, this may lead to a significant weakening of their competitive position. Perhaps this is why more and more pharmaceutical companies are looking for new (“beyond-the-product”) solutions that increase their market attractiveness. Such opportunities are undoubtedly provided by properly modeled cooperation within the supply chain!
Characteristics of the drug supply chain
The supply chain of pharmaceutical sector companies consists of raw material suppliers, potential logistics service providers,
drug manufacturers, distributors (pharmaceutical wholesalers, manufacturer distribution centers, medical service warehouses), retailers (pharmacies, drugstores), medical institutions (hospitals, clinics, medical centers), and end recipients, i.e., patients. Due to the social nature of the products it carries, activities within the pharmaceutical supply chain are subject to strict legal regulations. Furthermore, national governments are significant buyers of drugs (as part of reimbursement schemes), which strengthens their position in the pharmaceutical supply chain. The specificity of the drug supply chain is also linked to the fact that it is often difficult to clearly define who the end customer is. The person who consumes the drugs is not always the one who buys them. The buyer is not always the payer, and the payer may have no influence on the choice of product.
Contrary to the trend prevailing in other sectors of tightening cooperation between individual links in supply chains, most existing drug supply chains are characterized by a low degree of integration. Particularly noticeable is the lack of accurate information, the flow of which in a traditional chain is limited to the contact points of its individual links. There, also due to mistrust and constant rivalry between partners, distortions occur. An unfavorable image of the pharmaceutical supply chain is further created by conditions typical for it, such as: outdated sales volume data (purchased from market research firms), periodic deliveries, high inventory levels, a broad and often clinically selected assortment, top-down price setting or distribution methods, and inconsistent ICT technologies. The consequence of these features, given the previously mentioned market changes, is a worrying
increase in costs and inventory for all entities forming the chain, a level of customer service that remains too low relative to expectations, as well as disruptions in the flow of goods, information, and cash, and ultimately a reduction in the competitiveness of the entire supply chain.
Despite the high degree of complexity of activities related to managing the pharmaceutical supply chain, in order to maintain or even increase current profits, the entities forming it should take an interest in its improvement.
The role of ECR in the pharmaceutical supply chain
One of the most popular concepts for improving supply chains today is ECR (Efficient Customer Response), which the author defines as a supply chain management strategy consisting of synchronized supply and demand management with the involvement of supporting technologies, in order to increase the competitiveness of the entire supply chain.
The article comes from the journal “Logistyka” 2002/6.