1. Pharmaceutical Supply Chain
PRESENTED BY:
MRADUL GUPTA 213
VIPIN RAWAL 214
AAMIR BOMBAYWALA 215
PRATIKSHA 216
SHASHIKANT 149
SOMAN PANDA 163

2. Introduction
 The pharmaceutical industry can be defined as a complex of processes,
operations and organizations involved in the discovery, development and
manufacture of drugs and medications.
 Number of key players in the industry include:
 The large, research and development-based multinationals
 The large generic manufacturers, who produce out-of-patent ethical products
 Local manufacturing companies
 Contract manufacturers
 Drug discovery and biotechnology companies

3. The Pharmaceutical Industry
 The Pharmaceutical market will reach nearly $1100 billion by 2015
 India Pharmaceutical industry ranks 4th in production volume and 13th
in domestic consumption volume
 To meet customer service improvement and cost reduction
 Supply chain is highly crucial as it is time-sensitive

4. Drivers in the pharmaceutical industry
 Most important driver in the pharmaceutical industry is the time-to-market.
 Companies secure very significant returns in the early life of a successful
drug, before any competition.
 The competition-free life is shortening, typically from 5 to 1–2 years.
 This industry is subject to very stringent regulation.
 complex manufacturing processes
 Huge investment in R&D

5. Pharma Supply Chain Considerations
 End-user (patient) safety
 Anti-counterfeiting requirements
 Product integrity
 Quality assurance
 Fraud prevention and detection
 Electronic signature requirements
 Records access and retention requirements
 Product tracking
 Class 2 pharmaceuticals must carry unique identifiers at the item level
 ―Chain of custody‖ tracking from manufacturer to distributors and point-of-use
What business requirements differentiate pharmaceutical
SCM from other manufacturers?
Regulation!!

6. supply chain performance measures
 The stock levels in the whole chain (―pipeline stocks‖) typically amount to
30–90% of annual demand in quantity
 There are usually 4–24 weeks‘ worth of finished good stocks.
 Stock turns (defined as annual sales/average stock) are typically between
1 and 8.
 Supply chain cycle times (defined as elapsed time between material
entering as raw material and leaving as product) are often between 1000
and 8000 h.
 Material efficiencies (the amounts of product produced per unit amount
of total materials used) are 1–10%.

7. Key issues in the pharmaceutical
supply chain
 Uncertainty in the demands for existing drugs (due to competition,
uncertainty in the ability to extend the protected life through new
formulations, etc.)
 Uncertainty in the pipeline of new drugs—in particular, which ones will be
successful in trials, what sort of dosage and treatment regime will be
optimal.
 Capacity planning—long lead times to make capacity effective means
that decisions often need to be taken at times of high uncertainty.
Waiting for the uncertainties to be resolved might delay the time to
market by an unacceptable amount.

8. Key issues in the pharmaceutical
supply chain
 Network design—often tax implications take precedence over logistics
issues, these result in economic but potentially complicated supply chains
 Plant design—this tends to be very traditional, with no real change in
manufacturing technology for 50 years. There are significant opportunities
for intensified, continuous processing.

9. Components of the pharmaceutical
industry
 primary manufacturing
 secondary manufacturing
 market warehouses/distribution centres
 wholesalers; and
 retailers/hospitals.

10. Manufacturing strategies adopted
 Standardization of manufacturing processes
 Metrics
 Product process ―toolkits‖
 Managing network assets
 Grouping plants with standard equipment and processes geared to specific
product types (e.g., dry products, freeze-dried, parenteral)
 Redundant facilities (security, shifting of work between plants)
 Improved demand forecasting
 Global demand management center
 Centralized ownership of all forecasting tools and databases
 Judicious use of contract manufacturing (e.g., packaging)
 Joint planning between product launch team and SCM team at least 1 year
before NDA submission to FDA
 Cross-functional development, marketing, clinical, SCM and regulatory teams for
each product

11. The Current Supply Chain: US
 Five large drug wholesalers (―Big 5‖) dominate the business
 Many smaller wholesalers – partial product lines, regional players
 More than 6,500 licensed wholesalers in the U.S.
 Stock small target list of medications provided to a limited customer
set
 Secondary wholesalers
 Sell to other wholesalers
 Specialize in discounted products

12. Significant aspects of logistics in
pharma industry
 Logistics in pharma industry is very critical for providing the right medicine
to the right patient at the right time, place and dosage and most
importantly at the right price.
 Since business is highly competitive today, success largely depends upon
the efficiency of supply chain.
 Supply chain is very critical as it maintains the complex network
relationship between the organisations
 inventory control plays a significant role in pharma value chain as lots of
inventory exists in the supply chain.

13. Advantages
 Excellent supply chain management can yield
- 25-50% reduction in total supply chain costs
- 25-60% reduction in inventory holding
- 25-80% increase in forecast accuracy
- 30-50% improvement in order fulfilment cycle time
-20% increase in after tax free cash flows

14. Issues & Challenges
 Managing perishable products
 Degradation of medicines as they move along the supply chain
which results in allowing substandard products to be dispensed
 Maintaining temperature control
 More focus is give on R&D
 No control once pharmaceuticals are docked to wholesalers
 Shipping of expiry products

15. Issues & Challenges
 Crisis Management
 In case of epidemic break out, global demand for certain medicines
overshoots the demand suddenly
 Product withdrawal during sales due to side effects and expiry

16. Issues & Challenges
 Little Incentive for Reducing Inventory
- Ethical requirement of providing medicines
- Out of stock situations are unacceptable
- Patent Lifespan is low
- Exceptionally long cycle times,huge inventory
 Counterfeit Drugs & Security
- High price of drugs worldwide
- Easy to fake prescription drug labeling

17. Issues & Challenges
 Out-dated Manufacturing Sites
- Reluctant Govt bodies to approve any changes fearing product quality
 Parallel Trade
- Cross trading across borders
- Black market transactions-developing nations
- No track of drugs coming in and going out

18. Issues & Challenges
 Controlling wide supply chain with huge stock keeping units becomes
very difficult
 Training and Education cost to the stakeholders is high
 Integration of domestic and international business Eg: Nicholas Piramal
India Ltd
 Bringing a consensus manufacturing, sales marketing and distribution
department to agree on a forecast

19. Conclusion
 Logistics has emerged as an important element in the
pharmaceutical industry as it becomes greater part of total costs
 Value chain perspective of managing process innovation through
capacity and production planning is equally important
 Emerging technologies like RFID can mitigate many of these issues

20. Source - End-User Safety Considerations 20
 Foremost of all the considerations in the pharma supply chain
 Are the materials provided by our suppliers safe?
 Are the products manufactured by our company safe?
 Are all the products being manufactured reaching the distributors?
 Are any of our products being adulterated or counterfeited?
 The supply chain begins with the material supplied for product
manufacture
 Key ingredients need to be covered by Supply Agreements
 Price, Source, Quantity, Quality, Delivery
 Quality Agreements
 Defined Specification Control, Change Control, Complain Resolution
 Pre-purchase Usability Tests
 Toxicity Requirements
 Know where starter materials are manufactured
 Know who tests it and how
Define the
Material
Qualify the
Material
Approved
Vendor List
Qualify the
Vendor
Monitor the
Vendor
MajorProblems?
DelisttheVendor
AudittheSupplyChain
Source Make Deliver Buy
 Foremost of all the considerations in the pharma supply chain
 Are the materials provided by our suppliers safe?
 Are the products manufactured by our company safe?
 Are all the products being manufactured reaching the distributors?
 Are any of our products being adulterated or counterfeited?
 The supply chain begins with the material supplied for product
manufacture
 Key ingredients need to be covered by Supply Agreements
 Price, Source, Quantity, Quality, Delivery
 Quality Agreements
 Defined Specification Control, Change Control, Complain Resolution
 Pre-purchase Usability Tests
 Toxicity Requirements
 Know where starter materials are manufactured
 Know who tests it and how

21. Source - Supplier Materials 21
 Biologic suppliers
 Chemicals
 Farm products (plants, eggs, animals, animal by-products)
 Laboratory animals
 Growth media, cell cultures
 Pathogens
 Proteins
 Test organisms
 Non-biologic suppliers
 Equipment
 Computers, software
 Databases (e.g., target molecules, DNA sequences)
 Clinical trial supplies
 Clinical trial subject population information
What materials/resources do pharmaceutical suppliers provide?
Source Make Deliver Buy

22. Source - Supplier Strategies 22
 Single source materials
 Reduced supplier management issues
 Facilitates relationship-building
 Risk of supply issues in the event of
 Supplier raw materials disruption
 Supplier production issues
 Supplier delivery issues
 Higher supplier power (Porter)
 Multi-source materials
 Improved pricing and competition
 Minimizes risk of supplier issues
 Higher vendor management costs
Source Make Deliver Buy

23. Make – Clinical Trial SCM 23
 Requirement to manage the supplies involved in supporting
clinical trials
 Trial medications/‖drug kits‖
 Multiple locations
 Multiple investigators
 Data collection/reporting devices (e.g., PDA‘s, cell phones, remote sensors)
 Need to coordinate delivery of supplies to sites that are actively recruiting and
enrolling patients
 Flexibility
 Speed of delivery
 Consideration of special packaging and handling requirements (e.g., cold shipping)
 Clinical supply teams typically use the performance of older trials to understand how
much material is required in a new study and to determine their supply chain
requirements
 Variability in the number of patients enrolled, number of investigators, geographic
distribution of trials will create larger variability in inventory and distribution of drug kits
Source Make Deliver Buy

24. Make – Clinical Trial SCM
Important Considerations 24
 Drug kit pack types
 How many different types of drug kits are needed?
 Supply logistics
 Local depots vs. centralized supply
 Need for import licenses for specific countries can delay shipments from
central depots to local depots
 Subject enrollment
 Some study centers may need to recruit patients very quickly and begin
trials within a day or a week while others may require months
 Medication management
 Randomization of medication administration may trigger resupply at
variable intervals, requiring safety stock
 Monte-Carlo simulation being used to optimize supply chain for large
(1,000 patient) studies
Source Make Deliver Buy

25. Make - Manufacturing (Commercialization)
SCM Strategies 25
 Standardization of manufacturing processes
 Terminology
 Metrics
 Product process ―toolkits‖
 Managing network assets
 Grouping plants with standard equipment and processes geared to specific product types
(e.g., dry products, freeze-dried, parenteral)
 Redundant facilities (security, shifting of work between plants)
 Improved demand forecasting
 Global demand management center
 Centralized ownership of all forecasting tools and databases
 Use of ERP web-enabled global planning capabilities
 Judicious use of contract manufacturing (e.g., packaging)
 Joint planning between product launch team and SCM team at least 1 year before
NDA submission to FDA
 Cross-functional development, marketing, clinical, SCM and regulatory teams for each
product
Source Make Deliver Buy

26. Distribute – The Current Supply Chain 26
 Five large drug wholesalers (―Big 5‖) dominate the business
 McKesson
 Bergen-Brunswig
 Cardinal
 AmeriSource
 Bindley-Western
 90% of the market
 Many smaller wholesalers – partial product lines, regional players
 More than 6,500 licensed wholesalers in the U.S.
 Stock small target list of medications provided to a limited customer set
 Secondary wholesalers
 Sell to other wholesalers
 Specialize in discounted products
Source Make Deliver Buy

27. Distribute – The Current Supply Chain Models 27
 Three principal models of distributing drugs today
Source Make Deliver Buy
Model 1
Model 2
Model 3
Manufacturer
Manufacturer
Manufacturer
Retailer
Retailer
Retailer
Repackager
Wholesaler
Wholesaler
Wholesaler
Repackager
Other Sources of Drugs
(foreign, private mfrs)
“Secondary Market” – Major source of counterfeit drugs

28. Distribute – The Drug Counterfeiting Problem 28
 A complex, organized crime activity with multiple distributed players –
secondary wholesalers a principal mechanism
 The World Health Organization estimates that 5-10% of all
pharmaceuticals are counterfeit
 35% in Third-World countries
 U.S. Customs and Canadian Border Patrol inspected 1,153 shipments of
drugs into the U.S.
 88% contained unapproved, counterfeit or harmful goods
 China is considered by U.S. Customs to be the worst offender in exporting
counterfeits
 More than 200,000 bottles of counterfeit Lipitor have been found in the
U.S. in the past 3 years
 The total economic impact is estimated at $1 billion - $12 billion
 Low risk of being caught or punished
Source Make Deliver Buy
Source: FDA Consumer Magazine, March-April 2005

29. Distribute – Types of Counterfeit Drugs 29
 Identical copies
 Least common
 Made with same ingredients, formulas and packaging but not by the same
manufacturer
 Look-alikes:
 High-quality packaging and labeling; very convincing appearance
 Little or no active ingredients
 Rejects:
 Drugs rejected for quality reasons by the manufacturer
 Re-labels:
 Authentic drugs that have passed their expiration dates
 Distributed by foreign sources
Source Make Deliver Buy

30. Distribute – Supply Chain Security 30
 FDA Counterfeit Drug Task Force created July, 2003
 "FDA will not rest until we have strong protections in each link of the drug supply chain
... ." Mark McClellan, Former FDA Commissioner
 Increased number of counterfeit drug investigations
 Average of 5/year through late 1990‘s
 Now averaging 20/year
 Most recent cases involved fake Lipitor and Procrit
 Recent support for new technologies to ensure drug ―pedigrees‖
 RFID tagging of all prescription and OTC drug items by 2007
 Authentication technologies (color-shifting inks, invisible bar codes
 Tougher criminal penalties
 10 years in prison for counterfeiting the drug label
 3 years in prison for counterfeiting the drug
 Increased demands on pharma companies for scrutiny of business partners
Source Make Deliver Buy
Source: FDA Report, ―Combating Counterfeit Drugs‖, February 18, 2004

31. Distribute – Pharmaceutical Pedigree 31
 Pedigrees track product flow from regulated entity to regulated entity
 Major concerns are how (electronic or otherwise) and cost
Source Make Deliver Buy
Source: FDA Report, ―Combating Counterfeit Drugs‖, February 18, 2004
Pharmaceutical
Manufacturer
Distributors Providers
1,500 (Top 30 = 80%) 100 (Top 3 = 85%) 100,000+
80%
20%
2-3%
Simplified US Pharmaceutical Supply Chain

32. Distribute – Pharmaceutical Pedigree 32
 Some states are not waiting for a national solution
 Florida has enacted a Pharmaceutical ―Pedigree Papers‖ law that goes into
full effect in 2006
 A paper pedigree must be maintained through the entire supply chain back
to the manufacturer
 Eleven states are using the Florida statute as the template for proposed
legislation
 Required information includes: product identity, lot number, quantity and
distribution or pharmacy licensure for each change of possession
 Estimates on the distribution side alone indicate that pick efficiency will be
reduced by 85%
Source Make Deliver Buy
Source: FDA Report, ―Combating Counterfeit Drugs‖, February 18, 2004
A paper solution will be very costly to the industry

33. Distribute – Product Diversion 33
 The diversion of licit drugs for illicit purposes
 99% price differential between price charged by manufacturer to wholesaler
and price charged to the retailers
 Prescription drugs account for 30% of the U.S drug abuse problem – 6.2
million people over 12 years of age (2002)
 Common methods of diversion
 Theft of drugs from the manufacturing plant
 Theft of drugs in transit from plants to distributors
 Theft of drugs from distributors warehouses
 Call-ins of fake prescriptions to pharmacies
 Forged prescriptions, ―doctor shopping‖
 Health care professionals (doctors, nurses, hospitals, pharmacists)
 Most commonly diverted products
 Vicodin, Lortab, Lorcet, Norco, Tylenol #3, Diazepam, Xanax, Stadol (NS), Valium,
Phenergan with codein, Tussionex, OxyContin, Ultram, Ultracet, Soma
Source Make Deliver Buy
Source: Task Force on Drug Diversion Through Institutional Outlets, Council of State Governments

34. Distribute – Product Diversion 34
Source Make Deliver Buy
Source: National Drug Intelligence Center
Number of emergency-room treatments for opiates other than heroin

35. Distribute – Product Diversion 35
Source Make Deliver Buy
Source: National Drug Intelligence Center
Thefts of pharmaceuticals from pharmacies, manufacturers, distributors, manufacturers and
importers/exporters in dosage units; 2000 - 2003
Drug 2000 2001 2002 2003
Codeine 569,425 1,223,205 596,972 622,132
Dilaudid 37,531 22,647 23,072 41,668
Lorcet 100,548 540,997 126,451 360,115
Lortab 686,197 451,091 340,325 738,584
OxyContin 260,688 519,597 587,168 464,312
Percocet 421,063 127,525 193,085 278,581
Percodan 14,646 12,704 9,151 34,102
Ritalin 117,408 123,720 74,541 67,751
Valium 171,883 176,280 145,070 146,683
Total 2,379,389 3,197,766 2,095,835 2,753,928

36. Distribute – Institutional Diversion 36
 Manufacturers are not required to, and often do not, verify that a pharmacy is
actually servicing the population they claim to be servicing in order to receive a
discount
 ―Closed door‖ pharmacies (since they do not service walk-in patients), resell
discounted pharmaceuticals at a significant profit to secondary source
wholesalers who resell them at a significant profit to other secondary source
wholesalers, or even to primary wholesalers, who purchase them for less than
they can purchase the products from the manufacturers
 Experts have estimated that between 50% and 80% of ―closed door
pharmacies‖ are participating in these diversion schemes
 Inconsistent state laws prohibiting this practice, and Federal regulations have a
loophole that defines ―medical entity‖ in ways that allow this
 Federal requirement that a ―drug pedigree‖ be established and RFID may
address much of this form of diversion along with strengthened Federal and state
laws limiting resale of products by closed-door pharmacies
Source Make Deliver Buy
Source: Task Force on Drug Diversion Through Institutional Outlets

37. Distribute – Addressing Diversion 37
 DEA‘s Automated Reports and Consolidated Order System (ARCOS)
 Requires manufacturers to track specific drugs from plant to distributor and to ultimate
end-user
 DEA analyzes data and provides it to state agencies at no cost
 Looks for doctors and pharmacists who receive unusually large quantities of certain
drugs
 Controlled Substances Act
 Requires any medical professional, manufacturer or distributor who works with any of
the substances listed by the DEA to register with them
 Five schedules (I – V) of substances
 DEA authorized to prevent diversion of drugs identified under schedules II through V
 National All-Schedules Prescription Electronic Reporting (NASPER)
 Proposed national database of all patients consistent with HIPPA
 Practioners can access for all patients
 National monitoring of all Schedule II-IV drugs
Source Make Deliver Buy

38. Distribute – DEA Drug Schedules 38
Source Make Deliver Buy

39. Distribute – Continuous Replenishment 39
 What is it?
 Automated replenishment of pharmaceuticals driven by utilization
 Just-in-time inventory
 An end-to-end automated process for pharmaceutical procurement
 What‘s so different about distribution to pharmacies?
 Pharmaceutical products are dynamic (contract
pricing, brand/generic, package size)
 Product is used in a different unit of measure than acquired (unlike POS)
 Many products are interchangeable
 Product availability changes constantly
Source Make Deliver Buy
Source: Cardinal Health

40. Distribute – Continuous Replenishment 40
 Distributors are integral to this SCM concept:
 They perform order fulfillment
 Five core components
 Site-level perpetual inventory system
 Automated inventory replenishment engine
 Store level inventory management and reporting
 Central office inventory management and reporting
 Dispensing transaction Interface (non-HIPAA)
Source Make Deliver Buy
Source: Cardinal Health
Rx Data
Summary
Auto
Replenishment
Engine
Product
Sales
History
Store
Perpetual
Inventory
Communications
Interface
Pharmacy Mgmt & Reporting Central Mgmt & Reporting
Distributor
DC
Orders
Pharmacy
CIM
Shipments

41. Buy – The Retailers 41
 Pharmacy Group Purchasing Organizations (GPOs)
 Alliances of pharmacies, hospitals and other healthcare systems
 Leverage buying power to obtain manufacturer discounts
 Often turn to secondary distribution channels when manufacturers or major
distributors cannot supply critical drugs when needed
 Drugs often stockpiled by secondary distributors for economic reasons
 Drug markups can be 500 – 1,000% during shortages (e.g., a vial of flu vaccine
purchased by a wholesaler for $23.65 was resold to an end-user for $147 in 2003)
 Temperature-sensitive products, when diverted, are often not kept at the
appropriate temperatures
 Retailers attribute 48 percent of pharmaceutical inventory loss to employee theft
 Emerging requirements for secondary distributors to provide a drug pedigree that
can be tracked back to the original source (manufacturer)
 Clear ―chain of custody‖
 Cost of maintaining custodial information will fall on manufacturers
Source Make Deliver Buy

42. What the Pharmaceutical Industry Can Teach Us about
Supply Chain Security Best Practices
 Over the last few decades, increasing globalization and supply chain complexity have posed
risks to pharmaceutical safety, ultimately impacting businesses and, most importantly, patients
 Today, materials are procured from multiple countries, manufactured somewhere
else, potentially packaged in yet another country and distributed and sold globally
 To successfully protect against these risks, proactive supply chain security must deliver
actionable intelligence to mitigate those risks
 Once implemented, this decision-based approach, utilizing information delivered in real
time, allows for efficient business practices that not only protect a brand but also the many
partners and people connected to that brand.
 The lessons learned in both identifying risks and improving pharmaceutical supply chain security
can be applied as best practices for a variety of industries.

43. Key Trends Driving the Need for Supply Chain Security
 83% of healthcare companies surveyed rank tapping into new global markets as a top strategy for the next three to five
years. Today, up to 40% of the drugs Americans take are manufactured outside the U.S., as well as up to 80% of the
active pharmaceutical ingredients in those drugs.
 This rapid expansion of the global market opens companies up to an exponential increase in the number of vulnerability
points, coupled with decreased visibility to them, due to insufficient supply chain information
 At any stage in this long, multi-faceted journey from raw source materials to finished products to consumers, products can
be contaminated from four primary risks:
 Intentional adulteration, due to contamination in the manufacturing, storage, or distribution process, or from ingredient
substitution for economic gain, is more prevalent with global supply chains.
 Cargo theft is up due to the sluggish economy and security measures that rely too heavily on expecting people to
consistently follow prescribed procedures. In the U.S. alone, cargo theft produces an annual loss of $35 billion and in 2011;
the average loss per incident in pharmaceuticals due to cargo theft was $585,000.
 Counterfeiting, which is fraudulently mislabeling a product in identity or source, is another significant risk to supply chain
security, as well as diversion of products from the intended authorized market to another.

44. Risks Have Serious Consequences
 In pharmaceuticals, the most serious consequences of these four primary risks are
those that impact patient safety.
 Adverse patient reactions can range from minor to as severe as death. Other
consequences include drug recalls, and – because drugs are tracked by lot and
not units – stolen drugs can compromise volumes that are multiples of the actual
drugs stolen.
 In general, businesses can also incur daunting costs, such as revenue loss, recall
costs, legal costs for damage to health or life and regulatory fines.
 Ultimately, complications in any supply chain impact a brand‘s reputation and
require time and investment to rebuild trust among customers, partners and
patients.
 So while the opportunity to tap into the global market can generate greater
revenue and efficiency, it‘s important to be mindful of these risks so that
appropriate security measures can be implemented to protect a business‘ supply
chain.

45. Move from a Reactive to a Proactive Security Program
 An organization can protect against these risks by implementing an end-to-end proactive
pharmaceutical supply chain security program that takes advantage of key advances in
technology including cloud-based services, location sensors and real-time intelligent
monitoring.
 For example, cloud-based services enable remote video audits to ensure compliance with
operational and regulatory standards.
 Advanced truck security and control solutions with location sensors combined with an onboard
system can detect trucks that are off route and remotely shut down a truck to prevent cargo
theft.
 There are also Physical Security Information Management solutions that automatically link
disparate monitoring devices like video, access control and equipment sensors to minimize the
risk of manual oversight and allows for real-time alerting.
 This type of technology correlates relevant information and incidents from multiple systems and
can apply corporate policy to enforce consistent actions across the enterprise.

46. Value Proposition of Proactive Supply Chain Security
 In addition to protecting people and assets, a proactive supply
chain security program provides the following benefits:
 Product traceability
 Early detection of derailed shipments
 Compliance with corporate and regulatory group standards
 Beyond these tactical rewards, proactive supply chain security
programs can help a business retain its customers and partners
and better protect its reputation. And in the case of
pharmaceuticals, it can save lives.

47. What’s Next?
 Industry supply chains beyond pharmaceuticals will continue to face
challenges with cargo theft, government regulations and import/export
security as market demands evolve.
 To stay ahead of these threats, businesses must stay in tune with
emerging technology, consumer and market trends, collaborating with
partners and peers and engaging in industry-wide associations to share
best practices, lessons learned and new ideas about the future of supply
chain security.
 Above all, organizations must utilize this developing technology to arm
their businesses against increasingly sophisticated criminals.

48. Case Study : Eli Lilly and Co.
 INTODUCTION:
 Eli Lilly and Company (Lilly) founded on May 10, 1876 is best known for its
widely popular antidepressants Prozac and Serafem
 Invest heavily in research and development to bring innovative drugs to the
market for areas with unmet market needs, such as cancer, diabetes, pain,
cardiovascular disorders, psychological problems
 Lilly's product portfolio consists mainly of patented drugs, commonly known
as Branded drugs
 Manufacturing Infrastructure:

49. Eli Lilly SCM Function
 The supply chain function falls under the purview of the manufacturing
division.
 Key Manufacturing Strategy and Supply Chain Organizational areas are
as follows:
 Strategy
 Strategic Facilities Planning and Sourcing (SFP)
 Supply Chain Management (SCM)
 Demand Management Center (DMC)
 Global Logistics
 Global Procurement
 Operational Standards for Supply Chain Excellence auditing (OSSCE)

50. Operational Objectives and Supply
Chain Network
 The main objective of the supply chain management
 Balance customer service level, cost, flexibility, and risk management to fit the marketplace
needs of each product by 'pulling the right levers.‗
 A distinguishing characteristic of the pharmaceutical supply chains is that its efficiency
and performance are constrained by the design decisions taken a few years before
the actual launch of the drug.

51. Supply Chain Design
 The key objective of the supply chain design phase is to manage the
inherent risks by designing robust supply chains.
 The biggest challenge at this stage arises due to the uncertainty resulting
from a long horizon of around 4 years.
 Deciding about the capacity requirements, additions, and sourcing poses
a significant challenge when the probability of success of a drug is only
20% -40%.
 Lilly uses an effective approach to address this problem in an objective
manner by following a 3 step process:
 Step 1 - Capacity Strategy and Sourcing - Global Capacity with Contingency
 Step 2 - Sourcing Optimization using quantitative analysis techniques
 Step 3 - Final decision: Can revenue be increased by using TPO?

52. Supply Chain Design
 Step 1: Capacity Strategy and Sourcing - Global Capacity with
Contingency
 The key idea is to find a portfolio of potential drugs that can be pooled
together to develop capacity targets.

53. Supply Chain Design
 Step 2: Sourcing optimization using quantitative analysis techniques:
 Goal: Maximize the value of manufacturing by selecting the best product mix
for Lilly Networks

54. Supply Chain Design
 Step 3: Final decision: Can revenue be increased by using TPO?
 Excellent pharmaceutical supply chain design implies optimized capital
investment and maximized revenue over the life of the product.
 Keeping this in mind, the viability of using a Third Party Operator (TPO) is
also considered before finalizing the capacity plan.
 The steps involved in this process are:
 manage capacity in standard technology networks
 source new products from robust and flexible sites
 utilize reliable TPOs for late lifecycle products

55. Supply Chain Operation
 The key objectives of this phase are to maintain 100% customer service level
and profit maximization.
 The main processes involved in this phase are shown:

56. Demand Management
 Demand Management: Supply chain operations are anchored by sales
and marketing commitment to forecast accuracy.
 Mission: To ensure a complete and accurate statement of demand exists
for all manufacturing plants.

57. Inventory Management
 Inventory Management:
 Pharmaceutical financial realities demand a revenue based approached
to API and finished stock inventories.
 Inventory targets developed from a supply chain perspective establish the
foundation for an operations plan that ensures 99% CSL in any given
circumstances

58. Supply Chain Planning
 Supply Chain Planning: Lilly runs several detailed multi layered centralized
planning processes to plan supply in order to match the forecasted demand.
 Planning Processes: In the first quarter of each year a Long-range business plan
covering the next five years is generated.
 Plan is based on the demand picture for new and existing products, the supply
picture, the capacity utilization targets for new and existing facilities, and
financial plans including expense budget and variance plans.
 A formal long-range capacity analysis is also run at this time, which is used as
the basis for a 5 year capital investment plan.
 A formal inventory plan is also established at this time based on the Global
S&OP (GS&OP) analysis.
 The various planning processes run in parallel

59. Supply Chain Planning
 Input data to this planning process include
 sales data in dollars and units,
 manufacturing finance figures (expenses, depreciation),
 COGS and variance,
 capital investment, production quantities
 Inventory in dollar and unit
 In addition to the long rage plan, a central plan is also generated for
each quarter during GS&OP.
 The horizon for this plan is typically from 6 months to 30 months, leaving
each site to do the detailed scheduling inside of 6 months.
 Inventory plans are developed one product at a time and the site
operational plans are built for many products

60. Supply Chain Planning