Executive Briefings

Maximizing A Shrinking Margin In 2016?

Analyst Insight: In 2015, I predicted that the healthcare industry was finally sharpening its focus on profitability and efficiency. While I was writing this Walgreens moved on Rite-Aid and further consolidated the retail pharmacy market, but more importantly strengthened their negotiating leverage on price breaks. If the cost of the supply chain from sourcing to production to distribution was not a priority, it just became critical to profit margins and customer service. - Brian Hudock, Partner, Tompkins International

Maximizing A Shrinking Margin In 2016?

Like most other industry supply chain leaders, those in the pharmaceutical industry will complete their transition from departments to the executive boardroom, but with added quality, compliance and regulatory oversight, across all segments of the healthcare market from medical device to bio-tech.

The question is how lean and efficient can you make your organization?

Transformation of the supply chain starts with the understanding of where costs originate followed by understanding the true flow of materials from sourcing decisions to customer usage of the product. In healthcare, risk and product security must always be vetted to insure product traceability and integrity at every step.

The focus will continue to be on control and key spend areas, including:

key supplier relationships, inventory management, transportation, warehousing and distribution, and track-and-trace compliance.

In order to achieve this, supply chain leadership will focus on key supplier relationships and improving forecast accuracy, inventory levels from raw materials through finished products in the entire supply chain, reducing expedited shipping to control critical moves, leveraging third-party partners for distribution capacity and core competency, as well as leveraging their compliance systems.

Key Supplier Relationships: Accurate forecasts drive a high percentage of obsolete APIs and raw materials; historically the value of lost production or missed sales hid this waste. As materials become more specialized and more costly and sell margins erode, this makes sourcing a critical part of supply chain management and improvement targets.

Inventory Management: Building on key supplier relationships, the improved planning from forecasting and tighter supplier integration will facilitate lower stock levels and more rapid response to changes, also allowing for long-term reduction in finished product levels. In the short term, improved “market level inventory” visibility will become critical to minimize field expiration of product, returns and overproduction based upon “internal DC only” visibility to global inventory levels.

Transportation: Dedicated partners for delivery who can provide secure, time-sensitive movement around the globe have been a focus for years. In 2016, mode selection and “expedite” usage will continue to be challenged as forecasting and planning variability is reduced.

Warehouse and Distribution: 3PL partners have proven their ability to manage many business functions and meet compliance demands across healthcare segments. This trend to outsource non-core competencies will continue, but with better 3PL competition in the market, cost pressures and service demands on 3PLs will increase.

Track-and-Trace Compliance: Many will turn to 3PLs to gain the required expertise and systems on the warehouse and distribution side. Full integration with manufacturing and co-manufactures is critical to address. This will be a focus of those lagging in 2016 as the probability of additional extensions is fading.

The Outlook

The ability to balance internal tools, infrastructure, build supplier and customer trust/ relationships, and leverage external 3PL organizations to build local and global networks that can adapt quickly, will accelerate for everyone this year. What you learn in 2016 and the foundation you establish will likely determine if you plan for change or if you react to daily challenges while moving forward.

Like most other industry supply chain leaders, those in the pharmaceutical industry will complete their transition from departments to the executive boardroom, but with added quality, compliance and regulatory oversight, across all segments of the healthcare market from medical device to bio-tech.

The question is how lean and efficient can you make your organization?

Transformation of the supply chain starts with the understanding of where costs originate followed by understanding the true flow of materials from sourcing decisions to customer usage of the product. In healthcare, risk and product security must always be vetted to insure product traceability and integrity at every step.

The focus will continue to be on control and key spend areas, including:

key supplier relationships, inventory management, transportation, warehousing and distribution, and track-and-trace compliance.

In order to achieve this, supply chain leadership will focus on key supplier relationships and improving forecast accuracy, inventory levels from raw materials through finished products in the entire supply chain, reducing expedited shipping to control critical moves, leveraging third-party partners for distribution capacity and core competency, as well as leveraging their compliance systems.

Key Supplier Relationships: Accurate forecasts drive a high percentage of obsolete APIs and raw materials; historically the value of lost production or missed sales hid this waste. As materials become more specialized and more costly and sell margins erode, this makes sourcing a critical part of supply chain management and improvement targets.

Inventory Management: Building on key supplier relationships, the improved planning from forecasting and tighter supplier integration will facilitate lower stock levels and more rapid response to changes, also allowing for long-term reduction in finished product levels. In the short term, improved “market level inventory” visibility will become critical to minimize field expiration of product, returns and overproduction based upon “internal DC only” visibility to global inventory levels.

Transportation: Dedicated partners for delivery who can provide secure, time-sensitive movement around the globe have been a focus for years. In 2016, mode selection and “expedite” usage will continue to be challenged as forecasting and planning variability is reduced.

Warehouse and Distribution: 3PL partners have proven their ability to manage many business functions and meet compliance demands across healthcare segments. This trend to outsource non-core competencies will continue, but with better 3PL competition in the market, cost pressures and service demands on 3PLs will increase.

Track-and-Trace Compliance: Many will turn to 3PLs to gain the required expertise and systems on the warehouse and distribution side. Full integration with manufacturing and co-manufactures is critical to address. This will be a focus of those lagging in 2016 as the probability of additional extensions is fading.

The Outlook

The ability to balance internal tools, infrastructure, build supplier and customer trust/ relationships, and leverage external 3PL organizations to build local and global networks that can adapt quickly, will accelerate for everyone this year. What you learn in 2016 and the foundation you establish will likely determine if you plan for change or if you react to daily challenges while moving forward.

Maximizing A Shrinking Margin In 2016?