I’m going to describe something I’d love to do but for which I don’t have the means. Then, I am going to send this post to people I know have the means. Let’s see what happens.
I’ve spent the last 10 years working in Generic Pharma in Canada, with some involvement in the US and Europe. I’ve worked specifically in running supply chains. I’ve seen the evolution of the industry up to the point where it failed the patient community in the current crisis of drug shortages that began sometime in late 2009. The industry is plagued by a number of serious problems:
- Supply chains are long and therefore slow to react
- Supply chains are no longer chains, they are global networks of Plants that serve multiple markets
- Supply flows are being perpetually disrupted by the migration of products from one Plant to another as a result of mergers and acquisitions as combined companies try to optimize capacity
- Flow of supply from Manufacturers to Pharmacists is done through Wholesalers or dedicated Distributors (pharmacy chains) operating in an antiquated model that isn’t very good at reacting to volatile demand in a time of shortages
- The industry is terribly disjointed: manufacturers work in isolation from Distributors; Pharmacists are limited to what distributors do
- The industry works in a Make to Stock model whereby Manufacturers try to guess what Distributors will order; and Distributors assume Manufacturers have guessed right – and yet they don’t guess right at all.
At a time when retail in consumer products has gone through massive disruption and new models have emerged to connect demand to supply – thanks to Amazon and eBay – Generic Pharma is relatively powerless at responding to the shortages of the market and resolving the plight of pharmacists and patients.
This is the year 2013, 10 years since the invention of Facebook and the iPod. We can do something very different with this industry that will afford much better Service to patients. The ultimate goal is to have a supply network that self-adjusts to patient demand and where, therefore, supply and demand are naturally aligned all the time.
This, however, can’t be accomplished by minor tweaking, it requires massive transformation. The direction I am going to propose here is completely different from many things done in the past because it doesn’t start with Pharmaceutical companies; it starts with the other end of the chain, i.e., with Pharmacists and Patients.
What does that model look like? I’m going to call it Pharmazon (it’s just a name so that we can call it something) and here’s how it works:
Pharmazon consists of a few components:
- A social network for Pharmacists, Doctors and Patients
- A trading environment for Pharmacists to move inventory amongst themselves
- A Ushahidi site that will collect and display information on shortages of medication directly from Pharmacists
- An alliance with Amazon.com to provide a platform for online ordering by Pharmacists directly from Manufacturers
- Professional services by Supply Chain professionals aimed at aligning demand patterns at the pharmacy end with supply plans at the manufacturing end
This is the Pharmazon platform and through it demand and supply will be naturally aligned. What is available will flow to where it’s needed. What is needed will trigger new supply. Manufacturers will be connected to the reality of patients and Pharmacists but, more fundamentally, the former will be guided by the latter on an ongoing basis in terms of what they should be manufacturing and supplying. In this environment, shortages will be accurately measured and known by all players in the industry, including Patients, Doctors and Regulatory Agencies.
Pharmazon will provide a rich environment for enlightened organizations to introduce new services to Pharmacists, for Pharmacists to offer more intimate services to patients in collaboration with Doctors, for Patients to know more about the medication they need and to influence the behaviour of the supply chain.
Let’s take a closer look at each of the components of the platform
Social Network and Trading Platform
The idea here is to set-up a social network for Pharmacists in particular. What I’ve learned, through conversations with Sales Rep’s on the field and with actual Pharmacists is that when Pharmacists are short of a critical care product, they seek help from other Pharmacists either in their region or in their network of contacts. The Pharmazon social network would be modelled on a seeker-solver model where Pharmacists could both publish needs and also available stock they are willing to make available for trading. Our concept is not to create an actual commercial trade platform but simply a matching and conversation platform. Anywhere in the market where there are shortages there is also excess. Thus, a Pharmacist could publish that he/she has excess of something and then seek help with something else he/she is short on.
Ushahidi
Ushahidi is a social platform developed in Kenya for the 2008 election crisis and has since become a world-famous platform that has proven extremely helpful in disaster areas. Interestingly, it has been used in Kenya and Uganda in a campaign to raise awareness to drug shortages in those countries! Through Ushahidi, citizens can report incidents through SMS or smartphone apps, as they occur. Ushahidi then maps these incidents by category on a geographical map, visible thorough a web site. Anyone following the situation can view on the map where there are more incidents of each category.
Ushahidi would be used in Pharmazon to capture reports of shortages of medication by Pharmacists. Hence, anyone in the Supply Chain could visualize where in the country there are shortages of any particular molecule. This approach would democratize this information and provide an accurate accounting of shortages throughout the country, unbiased by pharmaceutical companies or distributors. It would show not only what is short but where that shortage occurs.
Amazon.com
Amazon today functions as the store front to millions of merchants, bringing their products to the consumer and facilitating online trading and movement of goods. A deal with Amazon.com could result in setting up an environment for Pharmaceutical companies to expose the capabilities of their in-house order management systems and thus allow Pharmacists to order directly from Manufacturers. Amazon could provide both the eCommerce connection and the logistics connection. It can also happen that a current Wholesaler steps forward and provides the logistical connection underneath the online commerce capability of Amazon.com.
5PL’s – Demand Management services
Pharmazon’s ultimate goal is to align supply and demand, i.e., provide guidance to manufacturers on what to make in order to satisfy demand more precisely. Given the online nature of Pharmazon and the availability of demand data, it is quite feasible and indeed interesting for a group of professionals in Supply Chain Management to offer a service of Demand Planning and Management to Pharmaceutical companies. We’ll call them 5PL’s.
Essentially, a 5PL works online and works collaboratively with Pharmacies and Pharmacy Chains on one side and with Manufacturers on the other, to monitor and manage demand. The end result of the work of a 5PL is a precise demand plan used by Manufacturers to plan supply. In addition, a 5PL monitors both demand – through Ushahidi, the social network and the trading platform – and Supply – through the use of collaborative spaces in the same social network used by Pharmacists. Without the help of these demand-driven ‘honest brokers’, it is very difficult for Manufacturers to figure this out on their own. 5PL’s can look at ‘unbiased’ demand, i.e. demand for medication without knowing who will provide that medication; whereas Manufacturers can only look at demand that has been assigned to them deliberately.
The dynamics of the Pharmazon environment
The Social Networking and Trading platform, Ushahidi and Amazon are really the 3 basic pillars of Pharmazon. Through these 3 elements, several things become possible:
- Pharmacists can see (Ushahidi) the shortages in their area but also in other areas of the country.
- Through the social network they can reach out quickly to other Pharmacists and the trading platform may help them match their needs with available excess stock. This layer of Pharmazon provides a safety net amongst Pharmacists that shields them from the deficiencies of the long supply chain behind them.
- Beyond emergencies, Pharamcists could actually order (through front stores at Amazon.com) from Manufacturers, thus providing a more complete picture of current demand to the latter. Inventory in the industry would reside in the warehouses of the companies where they are made or imported and then pulled directly by Pharmacists to where the need really is.
A major change in this model is the notion of next-day-delivery or same-day-delivery. I actually don’t believe that these requirements are a major issue. Most people have adapted to the lead times of eCommerce. The fact that sometimes you wait 5 days or longer for a delivery from Amazon hasn’t stopped the phenomenal growth of eCommerce. In any event, when you’re talking about supply chains which are 120 days long, what is 2 or 5 days, really? Is it something that Pharmacists can’t manage? Here’s something that most people don’t know: if a drug is on backorder and then the Manufacturer has new stock, it takes up to 2 weeks for Pharmacists to see the new stock. I suggest that in such cases, if Pharmacists ordered directly from the Manufacturer, they would be able to resupply their patients faster.
I also realize that there is a cost associated with direct order, just as you usually pay for shipping at Amazon (unless you order above a certain amount and accept a reasonable lead time). But today somebody is paying for the trucks to move goods around, that money is in the supply chain and it will go where it needs to go. Besides, Pharmazon costs less than current systems because there is less waste in the system, less inventory and fewer movements.
So, as long as Pharmacists adjust to lead times for regular cases, deal with emergencies through the social network and trading platform and order directly from Manufacturers for new released stock, I think that overall the industry will adapt to the lead times imposed by a direct-order model.
In Conclusion
As you can see, this strategy doesn’t require any significant change in how Pharmaceutical companies operate, although it disrupts their relationship to the downstream customer market. It is my view that where there is opportunity to improve the fabric of the industry is not at the manufacturing end but rather at the distribution and retail end. At a very macro level, the key ingredient of this strategy is to connect those that know about demand to those who know about supply, thereby aligning the two.
An apparent major casualty of this model is the Wholesaler or Distributor. Yes, that’s a fact, the traditional Distribution model is challenged by Pharmazon. But Wholesalers and Distributors in general are in an excellent position to play a major role in the Pharmazon model, if only they displace their current role to something new. They are today the closest player to Pharmacy demand and so, if they so wish, they are well placed to assume the 5PL role described above. They can also provide the logistical network for movement of goods in the industry, in association with a hypothetical arrangement with Amazon.com.
Evidently, all that I have written above is purely hypothetical. It is not my place to assign roles or in any way determine the destiny of Amazon.com, Wholesalers or any other player. I am describing a model where the centre of the industry migrates to the Patient, largely via the Pharmacist. It is a theoretical model which, technically, is entirely feasible. Who plays what role, ultimately, is the choice of each company but I suspect that very soon pressure will build for changes to take place and that pressure will come, precisely, from patients.
