The Evolving Global Pharmaceutical Supply Chain

As the globalization and complexity of the pharmaceutical supply chain increases, sourcing and procurement professionals face greater challenges in supplier selection and management. To gain a perspective, Patricia Van Arnum, editor of Sourcing and Management and senior editor of Pharmaceutical Technology, discussed these issues with Terry Simmons, vice-president of global purchasing with Baxter International Inc. (Deerfield, IL). Simmons will be participating in the Senior Sourcing Executive Roundtable on Risk Mitigation at the Annual DCAT/ISM Sourcing Summit 09, which will be held Nov. 4–5 in New Brunswick, New Jersey. The summit is presented by the Drug, Chemical, and Associated Technologies Association in partnership with the Pharmaceutical Forum and Chemical Group of the Institute of Supply Management.

PharmTech: Supply-chain integrity is of critical importance to pharmaceutical companies and their suppliers. What would you identify as key best practices or critical success factors in executing a sourcing strategy that secures the supply chain?

Simmons: One of Baxter’s strengths is tremendous execution, and we align and integrate our critical functions to oversee and expedite potential sourcing options for commercial use. Although we have centralized our sourcing strategies, we execute these strategies through our regional sourcing/purchasing office, through reviewing and monitoring our active pharmaceutical ingredient business portfolio, and finally through our risk-assessment reviews in conjunction with the quality function.

To support our commercial strategies, we have formulated a significant sourcing review between our quality, manufacturing, and purchasing functions by region, based on the material availability, approval calendar, and supplier’s supply-chain capabilities.

PharmTech: Risk mitigation is an important focus in supply-chain management practices. What would you identify as the key elements in a risk-mitigation strategy? Can you be specific in terms of the process for supplier identification, supplier selection, and supplier performance?

Simmons: Risk mitigation is extremely critical to our organization, and we’ve found that a simple, yet structured process with strong specifications and comprehensive planning helps to set us up for success. We follow a standard sourcing model of: (1) identify opportunity; (2) develop strategy; (3) source and negotiate; (4) process contract; and (5) monitor suppliers. In each step of the sourcing process, in addition to cost and quality, continuity of supply is a constant concern as we procure around the globe. All levels of risk are considered as we move product to market. The supplier’s supply chain continues to grow, and we continue our careful review and oversight every step of the way.

PharmTech: The industry as a whole is evaluating tools, such as shared supplier audits, as a possible way to manage the costs and logistics in increasing the scope or extent of supplier audits. Do you think this is a viable option and what are the advantages or disadvantages of such an approach?

Simmons: While the most important component of a supplier relationship is well-defined agreement terms, the audit process in a global supplier manufacturing community is essential to build confidence in the steps your supplier may be taking halfway around the world. The checks and balances of an audit process allows both parties to participate in the review process. And, as a member of Rx-360, we support shared supplier audits.

However, the most important part of the supplier-relationship process is to clearly outline terms and conditions in your agreement, which are understood and agreed upon by both parties from the beginning.

PharmTech: Track-and-trace capabilities (such as radiofrequency identification) are being considered and implemented as way to manage the supply chain for finished drug products. To what extent are such technologies currently used in raw material or pharmaceutical ingredient sourcing and supply? If used, what technologies are typically used? On an industry basis, where do you see opportunity to use such technology earlier in the supply chain (i.e, raw material, ingredient supply) and what specialized considerations or requirements would be needed to serve this part of the supply chain? Outside of track-and-trace, are there other technologies of growing significance in sourcing, inventory management, and supply-chain management?

Simmons: Baxter’s supply-chain organization is looking at several systems and approaches in the area of track-and-trace capabilities to create a competitive advantage and monitor supply-chain activity. Traceability is a critical security application when working with supplier manufacturing systems around the world. We have not decided on any one application, but rather implement global, regional, and local approaches that best meet the needs of the business.

Currently, Baxter’s supply-chain function is examining several areas in data management, where produced, where shipped, where used . These are three critical areas of oversight we must have in place in order to effectively manage this unique area of spend.

PharmTech: Looking ahead 5 or 10 years from now, how do you see the pharmaceutical supply chain evolving in terms of number of suppliers, location of suppliers, and the relationship between suppliers and customers (such as realizing more collaborative planning, i.e., demand forecasting, etc). Are there models used now in other industries that may have future application in the pharmaceutical industry?

Simmons : Industry supply-chain management will be impacted and evolve in parallel with the evolving regulatory guidance/oversight by authorities around the globe. In addition, make versus buy will grow in review and design in order to adapt to the speed of the market. Companies will have to apply a greater focus on negotiating and to dedicating the appropriate resources to sourcing and approving new materials and supplies. One item that is definitely impacting purchasing teams is competencies around working as an effective project manager in the growing global marketplace.