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Pharmaceutical supply chain plays catch-up

Using sales and geographic data, the supply chain sustainability management solution allows McKesson to model different scenarios for its distribution network, supply planning, inventory positioning, vehicle routing and sustainability management. For example, according to IBM, McKesson could use the system to determine the value of storing pharmaceuticals that need to be kept cold, such as insulin and vaccines, in a central refrigeration facility. They could calculate the inventory cost and the potential reduction in carbon emissions against the option of keeping such products in all its warehouses. The system can suggest options for increased efficiency with minimal environmental impact.

Jim Kalina, a client executive at IBM, says McKesson executives can use the scenario-modeling tool at many levels to examine the impact of their decisions. McKesson can now "model what is best in terms of carbon footprint," he says. "They can move suppliers to different supply chain models for different portions of their product line. They can see the costs down to the SKU. They have solid visibility into their costs."

Cost pressures and the increasing focus on clinical outcomes are forcing drug company supply chain executives to be more nimble and show value for money, PwC's Bailey says. The health reform effort's focus on clinical outcomes for patient populations means that products will not be as standalone as they once were. "They will be asked to combine product offerings with data and supplemental services, some of which they own, some of which they don't," Bailey says. "The days when the job was just not to screw up and not run out of product are over." 

Simulating the changes

Since 2003, GS1 Healthcare, a nonprofit industry standards group, has been working on pharmaceutical supply chain issues, particularly tracking the chain of custody. "This is an order of magnitude change for the pharmaceutical manufacturers," says Bob Celeste, director of healthcare for GS1 US. "It's not enough to say you have five bottles of a certain drug, you have to know which five. It requires changes for everyone in the supply chain."

GS1 Healthcare's Secure Supply Chain Task Force has set up a software simulation to help companies visualize how information flows through the entire supply chain, with 17 different types of trading partners represented, including generic manufacturers, brand name manufacturers, wholesalers, as well as hospital and retail pharmacies. "We modeled the behavior and how they react to information and move an item in the new climate," Celeste says.

Similar to a game like SimCity, each player is making policy decisions on receiving and shipping and what level of information to expose at each step, he explains, and the simulation shows how wholesalers and pharmacies react.

"If a manufacturer makes a certain policy decision, you run the model in half an hour and it simulates months of activity, and you see things end up in quarantine and shipped back to the manufacturer," Celeste says. "This will help save time and effort for those in the industry as they do the actual work. We are producing guidelines for technology providers such as SAP (sap.com), Oracle (oracle.com) and IBM (ibm.com) on how to set up systems and what information can be standardized on."

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