Pharmaceutical supply chains: key issues and strategies for optimisation

Supply chain optimisation is now a major research theme in process operations and management. A great deal of research has been undertaken on facility location and design, inventory and distribution planning, capacity and production planning and detailed scheduling. Only a small proportion of this work directly addresses the issues faced in the pharmaceutical sector. On the other hand, this sector is very much ready for and in need of sophisticated supply chain optimisation techniques. At the supply chain design stage, a particular problem faced by this industry is the need to balance future capacity with anticipated demands in the face of the very significant uncertainty that arises out of clinical trials and competitor activity. Efficient capacity utilisation plans and robust infrastructure investment decisions will be important as regulatory pressures increase and margins are eroded. The ability to locate nodes of the supply chain in tax havens and optimise trading and transfer price structures results in interesting degrees of freedom in the supply chain design problem. Prior even to capacity planning comes the problem of pipeline and testing planning, where the selection of products for development and the scheduling of the development tasks requires a careful management of risk and potential rewards. At the operation stage, it is often difficult to ensure responsiveness. Most pharmaceutical products involve primary active ingredient production (often multi-stage chemical synthesis or bioprocess) and secondary (formulation) production. Both of the stages are characterised by low manufacturing velocities and are hampered by the need for quality assurance activities at several points. It is not unusual for the overall supply chain cycle time to be 300 days. In this environment, supply chain debottlenecking and decoupling strategies together with co-ordinated inventory management are crucial for quick responses to changing market trends. A good understanding of what actually drives the supply chain dynamics is also required. As often as not, erratic dynamics are introduced by business processes rather than by external demand, and may be eliminated by the re-design of internal business processes or supplier/customer relationships. This paper will consider important issues in supply chain design and operation drawn from the literature and from our collaborative research projects in this area. The main features of the problems will be reviewed as will the literature to date. Some strategies for solution will be identified, as will some future research needs.