This week's blog is by our colleague, Lee Feander, a Director specialising in Life Science Supply Chain, which recently appeared in Scrip. The blog looks into new distribution models for the life science industry, and the impact that these models may have for both patients and the future of the industry.
Innovative routes to market
Routes to market or distribution models are often overlooked as a source of competitive advantage for life science companies. This is partly because logistics costs are only a small proportion of the cost of goods sold.
Yet this is changing quickly. Trends such as patients acting as healthcare consumers, the dramatic shift towards biotechnology products and stretched healthcare budgets, are all forcing manufacturing executives to review their distribution models and identify new and innovative routes to market.
A recent Deloitte survey showed that executives of pharma companies agreed that direct to patient distribution models are a vital differentiator from competitors. However, only a third of pharma companies have implemented such models.1
From our experience, there are four key opportunities for life science companies to transform their distribution and route to market models.
- Incorporate innovative
Distribution partners can help deliver innovation across technology, commercial and operational areas, including:
- Technology - Online pharmacies, where permissible, offer patients improved access and convenience. While channel complexity can increase, there are real opportunities to enhance patient satisfaction and grow revenues by partnering with distribution providers to provide online prescription and other services.
- Commercial- Although many distribution partners offer 'order to cash services', additional advanced commercial arrangements such as benefits sharing with logistics partners are uncommon. They help to align objectives of life science companies and logistic partners.
- Operations - Some distribution providers offer postponement services, including assembly, and kitting. The benefits of configuring products closer to their final markets can be a differentiator, particularly for high frequency, fast response products.
- Target direct delivery
Until recently, direct deliveries have not been possible in countries that are traditionally wholesaler led. However, several specialised distribution providers that are integrated with pharmacies can now offer 'fee for service' models for direct delivery.
This has key benefits, particularly for companies shipping high value medicines. They can now maintain ownership to customer and minimise risks of unwanted trade flows, sometimes accounting for 5-10 per cent of revenues.
- Consolidate distribution
While there are good reasons to use several different providers – including to spread the distribution risk and to create a sense of local accountability – companies can make savings by consolidating distribution partners.
This is something we have seen the benefits with first-hand. For example, the distribution network of one life sciences firm had evolved over a number of years and was largely defined by local affiliates. It was complex with around 40 distributors and third party logistics (3PLs) across Europe operating cold-chain distribution. They subsequently reduced this to just two distributors, which yielded a 15 per cent cost reduction and increased revenues, by eliminating unwanted trade flows.
- Achieve end-to-end
Supply chain visibility is key for effective management and transparency, particularly for specialised medicines. Companies producing these medicines often have complex, third party manufacturing networks where a single command centre provided by 3PLs can be beneficial.
This single command centre is known as a 'control tower', and provides visibility, decision-making, and action, based on real-time data. Typically cloud based, these systems collect and aggregate orders, shipments and inventory levels. Simple systems focus on visibility, while advanced setups can provide predictive data, which highlight issues before they become serious problems.
The opportunity for pharma
Innovative routes to market have the ability to reduce complexity and fragmentation and lower distribution costs. They can also force companies to:
- look at whether they have sufficient supply chain data for reliable decision making;
- ensure their distribution networks are fully aligned to new products and their customer's requirements;
- build strategic – rather than just tactical – relationships with distribution providers.
Those life sciences businesses that step back and take a look at these routes have the chance to lead the way and reap in the benefits – both for themselves, and for the end-patient.
1. Life Sciences Supply Chain Benchmarking Survey, Deloitte, LogiPharma 2015
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