How to Reduce Costs in the Pharmaceutical Supply Chain

Since the start of the COVID-19 pandemic, the global supply chain has been volatile.

The pharmaceutical industry was hit especially hard.

According to a recent article in FreightWaves, the three leading drug wholesalers control 90% of the pharmaceutical market.

That being said, from drug shortages to surging shipping costs - generic drug manufacturers faced obstacles that made it nearly impossible to compete with the larger drug wholesalers.

The key to allowing smaller drug companies to stay afloat in today’s market is to manage costs in the pharmaceutical supply chain, which involves increased visibility into all aspects of transportation management.

Read on to understand the importance of transportation spend management in navigating the current issues in the pharmaceutical supply chain.

As a global leader in transportation spend management, Trax empowers pharmaceutical companies of all sizes to remain competitive in the market by improving visibility into all aspects of transportation management.

Pharmaceutical Supply Chain

According to a report from the Kaiser Family Foundation, the key components of the pharmaceutical supply chain include drug manufacturers, wholesale distributors, pharmacies, and pharmacy benefit managers (PBMs).

There are five steps that the pharmaceutical supply chain typically follows involving the key players mentioned above.

First, manufacturers produce the products. This involves brand name products, generic products, biologic products, and biosimilar products.

Second, the prescription drugs are transferred to wholesale distributors. The wholesale distributors' pricing structure can vary greatly depending on whether the drugs are brand name or generic.

The third step involves moving the prescription drugs to the pharmacies (retail, mail-order, etc.).

Fourth, pharmacy benefit management companies subject the prescription drugs to price negotiations.

Finally, the pharmacies dispense the products to the end consumer (the patient).

How to Reduce Shipping Costs in Pharmaceuticals

As a wholesale distributor, understanding how to reduce pharmaceutical shipping costs is important in maximizing ROI. We’ve outlined five techniques for managing shipping costs in the pharmaceutical supply chain: 

Supply Chain Modeling

A supply chain model is a network representation of the physical components of the supply chain. In a recent literature review by Golan et al. (2020), the researchers explained how the supply chain interacts with the transportation network. For example, during the COVID-19 pandemic, supply routes and transportation services disruptions greatly impacted the pharmaceutical industry.

By modeling this network proactively, supply chain leaders can better understand where to intervene and develop supply chain resilience. For example, amid the COVID-19 pandemic, reliable treatment options were not only dependent on the efficacy of the drugs but also on the ability of the supply chain to match consumer demand.

Advanced analytics related to supply chain modeling allow pharmaceutical companies to keep up with the demand in the face of major supply chain disruptions while also managing shipping costs by improving efficiency.

Freight Audit and Payment

Having the right freight audit and payment system on board can make or break a supply chain, especially in the pharmaceutical industry. By completing regular freight audits, enterprises uncover invoice discrepancies and operational inefficiencies that can unnecessarily drive shipping costs.

In a previous blog post, Trax covered the importance of freight audit in healthcare and life science supply chains. Similarly, when focusing on prescription drug wholesale distributors, FAP is the first step to improving accuracy, collecting necessary data, and creating better predictions for disruptions. Moving from a reactive to a proactive state of freight audit and payment is crucial for pharmaceutical companies to become more strategic and optimize their business processes to deliver more reliable results to the end user.

Demand Forecasting

There are a variety of methods that pharmaceutical companies adopt for demand forecasting. A case study by Merkuryeva et al. (2019) discussed innovative demand forecasting methods for the pharmaceutical supply chain, which include simple moving averages (SMA), correlation and linear regression, and symbolic regression.

While the models differ in accuracy and reliability, all add a layer of visibility to the pharmaceutical supply chain that must be considered. By seeing the complete, complex dataset that captures the historical market and product performance, supply chain leaders gain insight into what to expect from certain market conditions.

By understanding how disruptions in the market impacted the supply chain before, leaders can become better prepared for similar situations in the future and allot the appropriate resources towards total transportation spend management.

Sustainability

Focusing on sustainability in the pharmaceutical supply chain benefits the environment and reduces unnecessary shipping costs by identifying operational inefficiencies. In a 2020 literature review on pharmaceutical supply chain transformation, Argiyantari et al. discuss the importance of eliminating waste in promoting a lean supply chain.

Some factors that influence this element of the lean supply chain include decreasing the time and cost while maintaining quality. In addition, companies focus on reducing inventory, improving productivity, and reducing storage area to reduce costs.

Regarding saving time, pharmaceutical companies can focus on reducing lead time processing and reducing set-up time. Finally, companies should focus on maintaining high-quality products to reduce waste, defects, and errors to improve customer satisfaction.

Logistics Management

Working with a reliable logistics partner is essential in reducing shipping costs in the pharmaceutical supply chain. This involves employing an effective logistics network design, incorporating planning and scheduling, forecasting, and adopting an advanced transportation spend management solution.

With effective TSM software, companies can gain better visibility into all aspects of transportation spend. The logistics partner will empower enterprises to achieve the previous objectives for reducing shipping costs. A 3PL or 4PL can manage a pharmaceutical company’s logistics, addressing modeling, forecasting, FAP, and sustainability by acting as a trusted advisor and collaborator.

Trax Supports Enterprise Pharmaceutical Organizations

The five steps to reducing shipping costs in pharmaceutical supply chains include supply chain modeling, freight audit and payment, demand forecasting, sustainability, and logistics management. As stated above, finding a capable and trusted logistics partner can jumpstart a company’s progress in all other areas covered.

Trax is proud to support enterprise pharmaceutical organizations striving for transportation spend management maturity. Contact us today to speak with one of our transportation spend management experts about how Trax can help your company gain a strategic advantage and achieve success.