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Where the Pharma Value Chain Meets the Supply Chain

By Avetta Marketing
July 26, 2021
9 minutes
Where the Pharma Value Chain Meets the Supply Chain

Digital solutions and automation can again inspire improvements for this stage. These solutions can alert your distributors to potential shipping delays caused by weather or other events. They can also help you make informed decisions about the pharmacies you choose to distribute to.

You may also want to track the performance of your distributors. This practice will help you understand which distributors are top performers who sell a greater volume of your products. From this data, you can determine which distribution partnerships should continue and which should be terminated for better profits.

What Is the Difference between the Pharma Value Chain and Pharma Supply Chain?

Both value and supply chains work to improve profits and offer a better customer experience. However, while these two chains feature overlapping responsibilities, they are not strictly synonymous.

Pharmaceutical supply chains ensure medicine is manufactured, stocked in pharmacies, and delivered to customers. This chain prioritizes customer satisfaction, encouraging customers to become repeat buyers because of the quality of service.

Meanwhile, value chains have a slightly different focus. Simply explained, the pharma value chain allows an organization to create distinctive products and experiences for its customers. It includes strategies a company employs to offer unique value to its customers and, in turn, create a competitive advantage. 

What Are the Steps to These Chains?

Both pharma value chains and supply chains require a precise order of commands to create a viable end product. Each of those steps offers potential challenges as well as opportunities for improvement. 

These chains have a lot of operational overlap, mostly because customer satisfaction and a unique customer experience are so strongly connected. Together these two chains are made up of five distinct steps. We’ll go over each step, which chain the step applies to, and the challenges and opportunities each encompasses.

1. Research and Development (Value Chain)

Pharmaceutical companies provide value when they provide new and unique medicine. These new medicines often come from patents, historical project reviews, and internal research. And thanks to technological advances in recent years, pharmaceutical researchers continue to make discoveries that can address the specific needs of patients everywhere.

This part of the value chain takes the longest to perfect—from the initial discovery of a drug to rigorous tests and clinical research, prescription drugs can take up to 10 years to develop.

Potential Challenges

If pharmaceutical companies fail to hire specialized workers for a specific stage of the R&D process, they may be unable to scale their efforts effectively. For example, even if the R&D team has a swelling number of data analysts, a lack of chemists will bottleneck any expansion opportunities.

Unfortunately, a severe lack of innovation plagues the pharma industry. Colleen Cunningham, a leading researcher of the pharmaceutical industry, cites larger pharmaceutical companies buying up medical startups as a source of this issue—drugs that were getting developed at the start-up often stop once the sale closes.

Potential Improvements

Some pharma companies have found success in outsourcing portions of their R&D process. Outsourcing creates savings on labor costs and attracts specialized experts to research new medicines.

R&D teams also have access to more data than they’ve had in prior decades. This data can help them gain greater insights about the drugs they test. This new onslaught of data could potentially reduce operational costs and even improve the safety of patients taking the new drugs.

2. Medicine Manufacturing (Value and Supply Chains)

Once a medicine is thoroughly tested and proven to be safe and effective, it will go into mass production. This includes blending the right ingredients, shaping the medicine into its final form, and packaging it to protect it during shipping and future storage.

Potential Challenges

Many pharmaceutical companies are updating their supply chains to be better optimized for this manufacturing step. But there are growing pains—some companies have trouble coordinating how to use their resources and assessing needs when making production orders. 

Additionally, some manufacturing firms are reluctant to adopt new production processes. Although new processes can improve efficiency and reduce costs, many companies are still slow to adopt digitization in their manufacturing.

Potential Improvements

Adding digitization and automation to pharmaceutical production are two major ways to increase profits during the manufacturing stage. With automation and digitization, companies can quickly access their order information and know when to increase or slow down production on certain products.

3. Medicine Distribution (Value and Supply Chains)

From the manufacturing plant to the pharmacy, medicine distribution brings pharmaceutical products to the customers. Most often, companies will work with a wholesale distributor to sell their manufactured drugs to pharmacies.

Potential Challenges

Because many pharmaceutical manufacturing plants are overseas, a lot of issues can arise from international distribution. For example, overseas production can add importation and special handling costs. Additionally, any delays during shipping can lead to shortages at pharmacies.

Distributing pharmaceuticals also involves a complex regulatory framework. Distributors need to know how to navigate this framework. They have to understand different government agencies’ compliance requirements so they can avoid significant shipping delays and fines to your company.

Potential Improvements

It’s no secret that the prices of patented medicines have skyrocketed in the United States. This has initiated distrust in the pharmaceutical industry.

Potential Improvements

Pharmaceutical companies and their distributors must do their best to avoid price fluctuations. Stick to your fixed price to gain the trust of pharmacies and your consumers. You can calculate your fixed costs by accounting for the following expenses:

  • Labor 
  • Facilities
  • Equipment
  • Utilities 
  • Insurance

It is much easier to keep track of these costs when you have an automated system to track your finances.

4. Price Negotiation (Supply Chain)

Price negotiation is a part of the distribution process, but it mainly serves the pharma supply chain. Because of production costs, a pharmaceutical product’s price is determined mainly by the manufacturer. However, the distributor may also negotiate the price with pharmacies or pharmacy benefit managers (PBM).

Potential Challenges

Is your pharma supply chain running as efficiently as possible? If you haven’t invested in automation, chances are you’re lagging behind the competition and losing money. 

To improve efficiencies, you need to be aware of two things:

  1. How your supply chain interacts with your pharma value chain

  2. The current challenges of your pharma supply chain

We’ll help you understand your pharma supply chain’s potential issues and give you some actionable tips on how to get ahead of the competition.

5. Dispensing to Pharmacies and Users (Value and Supply Chains)

A pharmaceutical company’s job isn’t over once its products are shipped and stored at pharmacies. Your company must also provide the correct dosage and provide usage instructions for various health conditions. This step ensures your customers get the full benefit from their medicine and promotes an optimal customer experience.

Potential Challenges

Dispensing the right drug at the right time at the right dosage is the biggest challenge of this stage. This also entails correcting any prescription errors, processing the prescription, and educating patients on the drug’s safe use. All of this stage’s micro-steps can lead to dispensing errors, which can cost your company time and money to fix.

Potential Growth

As is the case with many other steps in the chain, digitization and automation can streamline your dispensing process. Digital systems allow you to share important information with your pharmacies and patients through email and other digital files. Quick distribution of information can reduce dispensing errors and make your operation more efficient.

Streamline Your Pharmaceutical Supply Chain

When was the last time you introduced new technology to your supply chain? If you don’t remember when that was, then it’s time to upgrade.

With Avetta, you can find out the specific risks your supply chain currently faces. With our pharmaceutical management services, you can expertly manage potential risk areas and reduce the chain’s administrative burden. Find out how our supply chain management services could help your pharmaceutical business work towards life-saving innovations.

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