Report: Supply chain efficiency can boost both top- and bottom-line results

Print 10 April 2015
Eric Palmer / FeircePharmaManufactoring

Pharma puts so much emphasis on top line that drugmakers give scant consideration to what their supply chains are costing them. But a new report suggests that making a supply chain more efficient is not only going to save costs, but it will also help drive greater sales.

The report from Frost & Sullivan on behalf of FedEx says that an efficient supply chain will keep product flowing, which will keep customers happy and loyal.

"When you can't show product differentiation you look at cost, efficiency and availability," Paul Higday, a vice president with Owens & Minor, says in the report from Frost & Sullivan. "If you have differentiated products, then having those things gives you a wider moat. If you have something everyone wants and it's always available and done in a cost effective manner, it's harder for a competitor to take away your market share without replicating those three things."

The report says that a top-level supply chain can make a big difference in a company's ability to cost-effectively deliver product through the different regulatory requirements in different countries, Pharmaceutical Processingreports.

According to a survey by the consulting firm, execs get it, with 78% of the 39 polled saying that an effective supply chain is extremely important to their ability to compete over the next decade. But having the will to invest in supply chain technologies is not always as easy.

Some drugmakers have made the supply chain key to their financial future. When Jeremy Levin, former CEO of Teva Pharmaceutical Industries ($TEVA), laid out his $2 billion cost-cutting plan before his departure in late 2013, much of it was tied to manufacturing cuts and improvements in supply chain.

Levin tasked Carlo De Notaristefani, president of global operations, with finding $1 billion in "efficiencies" in sourcing and manufacturing and said he expected supply chain and purchasing changes to deliver from $400 million to $700 million of the anticipated savings. Among the changes was a plan to significantly trim the number of suppliers it bought from, partnering with fewer which in exchange for more business would provide better prices. Levin was replaced by current Teva CEO Erez Vigodman, who has kept much of Levin's cost-cutting blueprint in place.

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