Drugs Shortage and Supply Chain – Asrar Qureshi’s Blog Post #1029

Drugs Shortage and Supply Chain – Asrar Qureshi’s Blog Post #1029

Dear Colleagues! This is Asrar Qureshi’s Blog Post #1029 for Pharma Veterans. Pharma Veterans Blogs are published by Asrar Qureshi on its dedicated site https://pharmaveterans.com. Please email to aq.pharmaveterans@gmail.com for publishing our contributions here.

Credit: Alexander Israb

Credit: Chanaka

Credit: Mikail Nilov

Preamble

Supply chain is the major stakeholder in the availability or otherwise of the drugs in the market. It is because supply chain integrates the elements which result in availability of products in the market. Therefore, the credit and discredit both go to them.

Let us examine the elements of supply chain individually to understand their role and impact, and then see how it may be improved.

Material Planning and Procurement Planning

Material planning is the first step. In some organizations, planning is an elaborate affair where several people work. In many other organizations, the system is rudimentary and simply based on pattern of purchase rather than requirement. 

The process, if done properly, should run like this:

• Marketing/sales gives forecast for at least next three months at least. First month forecast is fixed while next two months may be varied by 15-20%. Some pharma companies work with six months forecast, however, in today’s volatile times, it may not be practical.

• Material planning team shall convert demand into multiples of standard batch sizes because materials are calculated based on standard batches. The calculation shall be done for all materials, actives, inactives, excipients, primary packaging, secondary packaging, all. 

• The calculated materials will form the primary document for procurement.

• Procurement planning shall enter the materials already in warehouse, materials in transit, and materials on order if any. Subtracting these from the primary demand shall finalize requirement for purchase. 

• Procurement, in the next step, converts final requirement into procurement quantities to be ordered. These are based on container/pack sizes of suppliers, 

• They may also consult finance to discuss payment plan and may adjust procurement document. Economies of scale, alignment of all components, vendors status, outstanding status etc. shall also be applied to make the final procurement quantities.

• The final document shall be approved by the concerned authority to start the procurement process. 

Procurement

• Inquiries shall be floated to several vendors asking for best price quotes along with best possible terms.

• Received quotations shall be compiled in a comparative statement and presented to concerned authority for approval of vendor and final review of quantity.

• Pharma companies do not change sources of active materials and excipients as these are standardized by production. Change of source will require additional documentation and may affect the quality of final product. 

Contribution of planning and procurement to shortages can occur if the orders are not placed on time, orders are not tracked and followed, or reliable suppliers are not engaged, or planned quantities are reduced arbitrarily to save money or late clearing of shipments from port/airport etc. It may be noted that procurement can contribute to drugs shortage significantly. 

Inventory Management

Inventory cost is among the biggest, if not the biggest, cost in a manufacturing organization. Inventory management, therefore, requires careful handling. There are several methods for inventory management which can be utilized for better management.

Japanese invented and perfected the JIT – Just In Time inventory management, which meant working with zero inventory. Whatever is to be used today shall be delivered in time today. Car assembly lines and several other industries adopted it successfully. However, for quality and regulatory considerations, this cannot be applied to pharma industry in Pakistan.

JIT requires precision in forecasting, excellent vendor management, and highly reliable logistics. None of this is available here. Pharma companies must keep extra stock to cater for delays that are rampant. This is usually called ‘safety stock’. Safety stock applies to raw materials and finished products. Safety stock for various items may range from 15 to 60 days, so we can imagine why so much money goes into inventory. 

Inefficient inventory management seriously contributes to drugs shortage.

Warehousing

A critical part of inventory management is availability of storage space which is linked to warehouses.

Warehouses are neither built nor maintained on scientific basis in most companies. Inadequate or inappropriate warehousing is a bottleneck for the entire supply chain, from materials to finished products. Very few companies have built warehouses with future consideration, they are all suffering due to space shortage and high cost of additional rented spaces.

Pharma warehousing comes under the ambit of regulators who would compare it against GSP – Good Storage Practices guidelines. In the interest of business and compliance, warehousing needs urgent attention.

Production Quality and Capacity

Most pharma companies install production equipment which is either procured locally or imported from China. Quality of machines produced here is inconsistent and more importantly these are never delivered on time and there is no after sales service package. The vendor supplies the equipment and feels himself free from all future liabilities.

Equipment imported from China will have quality that will be directly proportionate to the cost. China manufactures several grades of products, variable cost and variable quality. That said, they are still better than local manufacturers.

Production capacity is usually seen in two parameters: installed capacity, and functional capacity. Depending upon the quality of equipment, the functional capacity may be from 60% to 80% of installed capacity for local and Chinese equipment. In my observation, under capacity lines are mostly installed, which means that the machines reach 100% utilization very quickly and then the cycle of over time and shortages start. The major reasons for under capacity installation is poor future planning and financial considerations. What is not considered is that the business shall always depend upon production quantity and quality. It is the foundation for any manufacturing industry. 

Production constraints are a major contributor to drugs shortage. 

 Sum Up and Solutions

The pharma industry in Pakistan is growing at an astounding pace. Billions of rupees worth of business is added every year to the already large market. However, the investment in supply chain as an integrated activity is still dismal. This is hurting business and causing undue stress.

Talking about solutions, first, it is high time to employ qualified supply chain professionals rather than relying on long standing underqualified people who happen to have trust of the management. Second, technology should be used for planning, executing, tracking, receiving, and dispatching goods. Third, all stakeholders should be trained and compelled to do more accurate planning. Four, appropriate investment be done in supply chain where needed. Another important point about investment is to keep investing small amount for incremental improvement rather than waiting for system to choke and cost hugely. Five, supply chain be given the importance that is due to it, rather than making it a punching bag for finance and marketing.

Concluded.

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