Drug shortages will impact Healthcare…

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Supply chain

Most of us are excited about the changes occurring in healthcare around mobile applications, electronic health records and the advent of social media just to name a few examples. Yet there is a mounting concern with the rise of drug shortages now reported at “178 a 3x rise since 2005!” A look at the FDA web site for drug shortages shows a list of both generics and branded products with the reasons for the shortages (including manufacturing delays, increase in demand, etc.). We’ll look at the background of the industry, the traditional view of supply chain, current factors facing the industry, and what companies can do to ‘improve’ their operations. Recognizing the need to convert your improve your existing operations will be good business and the consequences will directly impact you and I.

Key facts about the industry

According to IMS Health pharmaceuticals sales in 2011 is expected to reach 880 to 890Billion USD, which is a growth of 5 to 7%, and is 1% higher than the 2010 expectations. The current view of the supply chain includes:

Today's supply chain

  • In the US market the top 10 pharmaceutical companies give some 60% of the total US sales.
  • As products come off patent Generics control the prices of these products.
  • The wholesalers may also negotiate prices between the manufacturers and the Pharmacies.

The traditional view of the supply chain

The driver for any supply chain is to offer:

  • Product at a ‘reduced’ cost
  • Faster to market
  • Delivered at a high quality

Apply this to the previous diagram and you can see the challenges that face healthcare. As the view of the patient and pricing for these products are disconnected. This diagram gives you the full view of the Healthcare supply chain:    

 
 
 

The Healthcare Supply Chain

 

Current factors influencing the industry and the Healthcare supply chain

The following factors have influenced the market:

  • Mergers and Acquisitions – have reduced the number of manufacturers as companies have consolidated to make up for the loss in patent expiry and look to increase market share (Merck and Shering Plough, Pfizer and Wyeth, and Teva and Barr Labs are just a few examples)
  • Regulatory issues – it is harder for manufacturing sites to recover from an FDA violation. This delay can lead to drug delivery delays.
  • Government control over pricing – as the cost of healthcare rises many governments are dictating the price of drugs (Spain, Canada, Turkey and Greece). This puts the supplier at a disadvantage to be able to deliver products at these ‘reduced’ prices given the cost for raw materials.
  • Globalization – in response to some of these factors many companies have already moved their operations to off-shore locations. India for API manufacturing.
  • Risk Management – having the ability to ‘view’ any of these problems can lead to drug shortages. Supply chain operations must therefore give this visibility so the right changes can be made.

Taking these factors into account and with a view of the ‘future’ of the healthcare supply chain from Gartner:

The Demand Driven Healthcare Supply chain

How can I ‘improve’ my operations?

I now work with a variety of companies that look for solutions to ‘improve’ their processes. We began his discussion trying to understand why there are so many drug shortages, and I would suggest the following as a means of enhancing your supply chain operations:

  • Refocus business growth and performance across the entire healthcare supply chain. This includes both the patient as providers of healthcare with a C level sponsor that understands that the aspects of healthcare lie outside of your companies boundaries.
  • Collaboration. Look to improve demand from both your suppliers as well as your customers. Provide visibility and metrics that you can mutually share.
  • Leverage IT as an enabler to meet the first two points. Make investments that promote organizational visibility. Specifically analytics solutions that provides management with a view the business as a result of this investment.
  • Governance. This process does not happen overnight. Change management is an ongoing process and you will need leadership and support to sustain these processes as they evolve over time.
  • Invest in skills and talent within your organization. I’m in the IT services business and you would think this takes away from my opportunities. There is a tendency to think that these processes can be solved through off-shore support capability. While this is true I am taking about the need to enhance your folk’s ability to understand the entire healthcare supply chain.

I am convinced healthcare can improve yet the threat of drug shortages can impact any course of treatment if the right products are not available. What I hope to do with this blog post is a summary of the problem and possible solution. I welcome your suggestions or comments to improving this blog post.

Thanks,

Jim

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2 thoughts on “Drug shortages will impact Healthcare…

    alisa1234 said:
    Monday, 28Feb2011 at 9:55 AM

    Drug storage makes a great impact on medication as if it is stored well, then only it is safe otherwise it will be destroyed . Thanks for posting this post.

      Jim Sabogal responded:
      Monday, 28Feb2011 at 10:52 PM

      Yes I agree. I still think there has been an increase in drug shortages that will impact healthcare. Products are just not reaching pharmacies and hospitals. Do you see this trend from your perspective?
      Thanks, Jim

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