Pharmaceutical industry shows progress with demand-driven model; more work to be done

By adopting B2B technologies such as EDI, the pharmaceutical industry is making significant progress toward enabling a demand-driven model. In many cases, inventory has decreased both at the manufacturer and wholesale levels. “Manufacturers no longer find themselves out of stock because a wholesaler has ordered too much, so they are able to manage production more effectively, as well as ...


By adopting B2B technologies such as EDI, the pharmaceutical industry is making significant progress toward enabling a demand-driven model. In many cases, inventory has decreased both at the manufacturer and wholesale levels.

“Manufacturers no longer find themselves out of stock because a wholesaler has ordered too much, so they are able to manage production more effectively, as well as their own inventory of finished goods,” observes Adam J. Fein, Ph.D, founder, and president of Philadelphia-based Pembroke Consulting , and author of Facing the Forces of Change: Lead the Way in the Supply Chain (available through the National Association of Wholesaler-Distributors).

At the same time, pharmacies themselves are still experiencing frequent out-of-stocks, according to research conducted by Jim Wilson, RPh, MBA, and president of Wilson Health Information , New Hope, Pa. “Many times the consumer goes to get a prescription filled, and the pharmacy either doesn't have the full amount in stock, so they get a partial fill and they have to come back later—or they don't have it in stock at all,” he says.

Much of this is attributed to a lack of visibility.

“Right now, the customers of the wholesalers—that is, the retail pharmacies—have become so large and consolidated that they are able to do their own distribution,” Fein notes. Because of this, the only window manufacturers usually have into demand at the retail level is through warehouses. “Any of the product that goes from the 14 warehouses to the 6,000 stores—which is about 80 percent to 85 percent of the product that CVS buys—isn't visible to the manufacturer beyond the warehouse,” Fein illustrates.

This pattern is being repeated with other large retail operations.

Hussain Mooraj, a director of life sciences at Boston-based AMR Research , emphasizes that pharmaceutical manufacturers must compile downstream data from a number of different resources to obtain a complete picture. Typically, life sciences companies use third-party data to understand and forecast demand. The problem is it's not always timely.

“Usually, if you take the monthly data from third-party sources, it has a one-month lag time, and by the time you process it and use that information in your operations, it's anywhere from five to six weeks old,” says Mooraj.

The challenge that members of the health-care supply chain face is the business objectives of the different players are not aligned. This is made worse by what Mooraj dubs “the unfortunate lack of trust” that exists between them.

“The manufacturers don't trust the distributors. There is marginal trust between the distributors and the retail pharmacies and the health-care providers themselves,” says Mooraj. “As the demand-driven transformation amongst manufacturing companies matures and gathers momentum, distributors must move from being reactive in their thinking, processes, and technology to a more collaborative model.”

By sharing demand-based information with their suppliers—and with the pharmacies sharing demand-based information with manufacturers and distributors—claims Mooraj, manufacturers could supply product more reliably and better plan for new product launches.

To gain a better view into demand, Mooraj encourages pharmaceutical manufacturers to follow the example set by the consumer packaged goods industries.

“Let's take a page from the retail and CPG industries: In the past, the retailers were always reticent to share data with their suppliers,” Mooraj recalls. “They soon realized—and Wal-Mart led the way with retailing—that sharing data with their suppliers provides benefits for themselves.”

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