By Kate Hammeke, research manager, Nice Insight
Between the 1970s and 1980s, the American automobile industry learned a lesson from the Japanese in the form of a leaner manufacturing model. Rather than follow Henry Ford’s concept of a vertically integrated production facility where raw materials from company-owned mines and plantations were transformed into cars, their idea was to focus on the core competency of building cars and buy the steel from someone else. The structure of the Japanese plant ultimately contributed to Japan’s ability to produce cheaper, better cars.
In the past decade, the pharmaceutical industry has looked to supply chain inefficiencies in order to improve operations and streamline costs. Much like the American car manufacturers realized they could reduce expenses and increase production by not doing everything from scratch, pharmaceutical companies have learned that partnering with third parties — contract research and contract manufacturing organizations — for certain services increases efficiency and flexibility. Outsourcing specific steps in the manufacturing process has become so commonplace that approximately 80% of drug substances are now manufactured outside the United States.
THE IMPORTANCE OF LOGISTICS & DISTRIBUTION SERVICES
Globalization of the pharmaceutical supply chain has brought benefits to the industry, such as reduced operating costs and the ability to better allocate resources to core competencies; yet it also carries significant risks. A current challenge faced in protecting the integrity of the global pharmaceutical supply chain is counterfeiting. The World Health Organization has identified the international trade of pharmaceutical ingredients through free trade zones where regulatory oversight is lax or absent as a factor contributing to an increase in counterfeit drugs. With this consideration, Nice Insight looked at its data to see if there were differences in customer perception scores for quality, reliability, affordability, and regulatory compliance among global CMOs who offer logistics and distribution services and global CMOs who do not provide this service.
Survey results indicate that global CMOs providing logistics and distribution services have a small advantage (+2%) over CMOs that do not offer support in this area with respect to affordability and regulatory. However, global CMOs without this service offering scored 2% higher on reliability and eked out 1% ahead with respect to quality. Knowing that some of the challenges in streamlining the supply chain come from global businesses trying to meet varying regulatory standards and shipping materials through localities without sufficient oversight to completely prevent tampering, Nice Insight investigated to see how the top 10 CMOs that solely operate in the United States fared against the top 10 global CMOs that provide logistics and distribution.
Across the two groups offering logistics and distribution services, both had near equal ratings for quality, affordability, and regulatory scores. On the other hand, the U.S.-based CMOs scored 2% higher on reliability than their global counterparts. Interestingly, reliability was the lowest scoring measure across each subset of CMOs analyzed, yet survey respondents rank it as the second most important driver in outsourcing. When it comes to the global supply chain, outside factors that cannot be controlled by a CMO itself — such as transit and border delays, regulatory oversights, and political pressures — impact supply chain logistics and often influence reliability perceptions. These marginal differences are not strong enough to indicate that using a U.S.-based CMO is a better all-around option, but it will likely reduce some concerns associated with partners in emerging markets.
Ultimately, there was not a clear indication whether or not outsourcing companies should opt for a global CMO with logistics and distribution support when using an overseas provider, as the averaged customer perception scores were very close. However, when looking to reduce expenses by restructuring the supply chain, it makes sense to start the search with global CMOs that do offer logistics and distribution services because these businesses are the most likely to innovate technologies (or use innovative technologies) to protect the supply chain’s integrity.
SOURCE: Nice Insight