transforming pharmaceutical operational performance with supply chain traceability

Safe and Secure

Transforming Pharmaceutical Business Performance:

The Supply Chain as a Strategic Enabler

Robin Koh and Yun KangSupplyScape, Inc.

© 2008 SupplyScape Corporation. All Rights Reserved.

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Leveraging technology with supply chain domain expertise…

… to deliver industry’s most relevant Track & Trace based Supply Chain Solutions

Turning Data Into Actionable Knowledge

Pedigree, Serialization & Authentication

SupplyScape Driving Product Integrity and Additional Business Value

Business Collaboration &

Traceability


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A Safe & Secure Chain The Evolution Continues

Improving Accountability & Control

Chain of Custody SecurityIndividual Product Security

ProductSecurity

TransactionSecurity

Physical Auth.Features Serialization TraceTrack

Authentication Pedigree

Pharmaceutical Co Wholesaler Pharmacy


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Agenda

Trends Driving a Focus on the Supply ChainTrack & Trace Implications on the Supply Chain

Case Study

Suggested Next Steps


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Patent Expiry and Generic SubstitutionAn Increased Emphasis on Efficiency & Cost

US Patent Sales at Risk Number of Generic Filings

Impacts on price per dose


6

Global Growth StrategiesEmerging Markets Offer Growth, Challenges

Source: IMS Market Data, 2007

25.7%

20.2%

15.7%

4.8%

3.8%

0% 10% 20% 30%

China

Russia

Brazil

Top 5 Europe

U.S.

Year over Year Growth


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Product Security IncidentsThe need for better control on Supply Chains

Worldwide Commercial Impact

65

09

56

08

49

07

44

06

39

05

75

1004

35

(Counterfeit drugs — $ billions)

Sources: Center for Medicines in the Public Interest

Global Pharma Safety Incidents

Sources: Organisation for Economic Co-operation and Development

964

04

196

02

484

03

1,123

05

1,412

06

1,759

07

US Drug Recalls

Sources: FDA (CDER)

Incidents reported:• Counterfeits• Diversions• Thefts

(Prescription only, not including Biologics)

Drug Counterfeit Incidents Investigated

Sources: FDA

58

04

27

02

21

01

6

00

11

99

30

03

32

05

54

06

31

07

(# Investigation cases opened)


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Select Strategic Transformation Programs


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Supply Chain TraceabilityIncreasing Global Requirements & Complexity

(1) Hemophilia products only

Country Tracking Level Data Carrier Data Required Data Format Mandatory Timeline

Italy Sales Pack Code 39 Product License # 1 letter for Drug Class + 9 digit Numeric

Yes In effect

I2/5 Sequential # 9 digits - Numeric

Belgium Sales Pack EAN 128 Product License # + Random Sequence #

16 digits - Numeric Including 8 digit sequence #

Yes In effect

Greece Sales Pack EAN 13 National Reg. Number , Sequential #

13 digits - Numeric12 digits - Numeric

Yes In effect

Spain Sales Pack Data Carrier TBD – PDF 417 / Data matrix

Product Code, Batch #, Unit #, Expiry date

TBD Yes TBD

Ireland1 Sales Pack Data matrix Serial # - TBD SGTIN -96 Yes In effect

Korea Batch Level Linear Barcode - TBD Batch # TBD Yes Est. 2013

Japan Biologics Only – Unit

Data Matrix / QR Code Batch # In effect

Brazil Sales Pack Data Carrier – TBD Product Code, Batch #, Date of Mfg, Expiration Date

TBD Yes TBD

France Lot Data matrix CIP code 13, Lot #, Expiry date 13 digits - Numeric Yes Start – 01/08End – 12/10Data matrix on

vignetteReimbursement data

Turkey Sales pack, transport unit

GS1 standard (Data Matrix ECC 200 or GS1 128)

Product code, Serial # AI(01) + AI(21)14 digit – Product code 20 Digit – Serial number

Yes Jan 1, 09

China Sales Pack Code 128c manufacturer code + serial number + check digits

6 digits - Numeric9 digits - Numeric Serial # 4 digit – Numeric check digit

Yes Oct 31, 2008


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Agenda

Trends Driving a Focus on the Supply Chain

Track & Trace Implications on the Supply ChainCase Study



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Supply Network DesignImpact of Track & Trace Technologies

PharmaCo Distributor Pharmacy Customs CMO/CPO

GlobalizationAcquisitions & DivestituresOutsourcingCapability ConstraintsReliabilityFlexibility


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Inventory ManagementThe Systematic Reduction of Uncertainty

Supply Side• Supplier Integration/Collaboration• Inventory Visibility• Cycle stock/Safety Stock

Demand Side• Forecasting• Actual Demand• Rate of Depletion• Location• Shrinkage

Cost

Service

Time

Inve

ntor

y

Min

Max


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Other Supply Chain Initiatives

Supply Chain Rationalization

KPIs

ReverseLogistics

PricingPrograms

Description Opportunity for Track & Trace

• Rationalizing the number of supply chain partners for better control on product distribution

• Understanding the role of additional information in internal & external Process and Result measures

• Improving visibility into the qty and terms of products being returned to organization

• Wholesaler and pharmacy register the drug sold to Health Authority, and PharmaCo uses this info to pay discount to wholesaler

• Track & Trace technologies as an enabler for greater accountability of products

• Impact of granular information on Write-offs, Stock-outs, Service Levels, Fill Rates etc.

• Track & Trace technologies can provide visibility into the age of trade inventory and exact terms of sale

• Free Pricing is a complex system that can be simplified by bypassing much of the data recording and facilitating the verification process by the PharmaCos.


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Agenda


Track & Trace Implications on the Supply Chain

Case StudySuggested Next Steps


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Case Study #1OverviewA Leading Global Pharmaceutical Manufacturer

Objective: - To understand and quantify benefits in product security and business

practice improvements enabled by Track & Trace

Key Issues:- A few top-selling product lines highly counterfeited and diverted- Faced with various global serialization mandates, and in need of

justification for what was expected to be substantial investment- Integrated production network that makes localized approach challenging


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Case Study #1Operational Areas Investigated

Product Security

Trade Financials

Supply Chain Efficiency

Out-of-Stock Reduction(Direct Channel)Anti-Counterfeit & Diversion

Returns Management

Theft & Shrinkage Reduction

Clinical Trials Supply Chain

Product Complaints Management & Resolution

Shelf-life Management

Chargeback Management New Product Launch Management

Demand Forecasting & PlanningRebates Management

Government Pricing Consignment Inventory / VMI


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Case Study #1 Three Different Approaches Used To Estimate Counterfeit Revenue Loss

Online Pharmacy Model

• Treat on-line pharmacy to be major source of counterfeit, unauthorized generics, diverted.

• Determine amount of counterfeit purchased on-line

Overall Market Size Model

• Estimate market size by various patient group

• Determine different between estimated market and actual sales

Global Seizures Model

• Utilize actual seizure data• Derive amount of counterfeit sold

from seized API

Revenue Loss

Estimate

1 2

3


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Case Study #1 Returns Problem Decomposed

Returned Products

Direct Returns Indirect Returns

Sold on Contract

Not Sold on Contract

Sold on Contract

Not Sold on Contract


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Case Study #1 Returns Reconciliation – Issues and Opportunities

Unable to tie individual returned items to the original purchase. Credit is issued based on most recent WAC

Difficult to differentiate whether the returns are ‘legitimate’ or not.- This is turn poses challenges in enforcing

the terms and conditions of contract

Returns processing is labor intensive, requiring manually reading and typing the lot #

Business Issues/Challenges Opportunities Improved return goods accuracy by issuing

credit based on actual purchase price

Serial number on the items is tied to the transaction identifier (invoice #, PO #) that can be used to identify to whom the product was sold to identify ‘illegitimate’ returns

Scanning serial number rather than typing lot # results in more efficient returns processing


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Case Study #1 Hard Savings Identification

Yearly Benefits (unit: $ Thousand)

Supply Chain &Trade Financials – I

Supply Chain &Trade Financials – II

TotalProduct Security

Realizable unilaterally by Client

Requires data sharing with TP

Benefit A

Benefit B

Benefit C

Benefit D

Benefit E


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Business Value Matrix

Benefit B

Benefit K

Benefit L

Benefit R

Benefit S

Benefit D

Benefit U

Benefit F

Benefit E

Benefit A

Benefit O

Benefit Y

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

0 0.5 1 1.5 2

Feasibility of Implementation

Attr

activ

enes

s to

Clie

ntCase Study #1 Key Success Factor: Getting Downstream Partners to Participate


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Case Study #1 Key TakeawaysAs expected, most attractive benefits require

collaboration from supply chain- Internally realizable benefits do exist, but not as sizable

May need to look at areas other than finished goods for internally realizable, compelling benefits- Clinical trials, samples, reusable assets, etc.- Utilize the same infrastructure for Track & Trace

Some benefits require policy changes to be accompanied

Data sharing can lead to significant benefit- Manufacturers can do so much with data, if they can get it- Why would the downstream partners share data?


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Case Study #2:A leading chain drug store

Objective: - To understand the potential benefits of Track & Trace enablers

Key Issues:- Faced with various regulatory requires for Track & Trace- Pressure for margin improvement- Complexity in operation - # of SKUs, variety in the form and shape,

# of locations, etc.


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Frequency of manual checking of aging Monthly

Typical man-hours spent each time X hours

Average hourly wage $ Y

# of stores Z

Today’s practice

~ $ XX M

Business benefit

• Monitors exp-date of individual bottles

• Eliminate need to check for every bottles in store

Man-hour reduction due to T&T ~ X %(incl manual searching & checking, creating and managing current tags, etc.)

ePedigree processHow T&T can help

Stores

Case Study #2 Shelf Life Management and Control Made Easier at Store-level


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Inaccurate supplier mis-pick

• T&T picking is a self-auditing process, with additional verification step before sending to stores

• Expected to reduce picking of wrong items and quantity

• Improvement above 80% expected

• Minimal impact

• Individual item tracking allows monitoring of inactive bottles/units in store and generate warnings

• Otherwise, minimal impact

• T&Tputs in place a disciplined procedure for returns and transfers to be updated into the system

Root causes of inaccuracy% accountablefor inaccuracy How ePedigree can help

X %

Y %

Z %

V %

~ XX %

PI Improvement %

Dispensing error

Theft & misplacement

Unreported transfers & returns

% improvementby T&T

50 %

0 %

0 %

50 %

Stores

Case Study #2 Perpetual Inventory Accuracy Improvement Identified


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Cycle count frequency Daily

Typical man-hours spent each time ~X min

Average hourly wage $ Y

# of stores Z

Today’s practice

~ $ XX M

Business benefit

PI accuracy improvement

~ XX %

% reduction in cycle count efforts ~ X %(excluding controlled drugs)

ePedigree process

Stores

Case Study #2 Inventory Accuracy Leads to Potential Reduction in Cycle Count Effort


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% of scripts with OOS X %# of scripts/week/store YAvg retail value of script $ ZAvg markup % V %

Out-of-stock (OOS) relevant status

Leave for a competitor nearby ~ 5 %Leave for another ABS store ~ 15 %Accept partial fill and/or ~ 80 %return some other time

Patient reaction to OOS

Ordering

• Exceptional demand

• Inappropriate parameters in sys

• Item not in masterfile

• Supplier OOS• Supplier mis-pick• Operational

interruptions/ delay

• Receiving error• Dispensing error• Theft &

misplacement• Unreported transfers

& returns

Supplier delivery failure

Inaccurate perpetual inventory

Root causes of OOS% accountable

for OOS% improvement

by Track & Trace

~ X %

~ Y %

~ Z %

~ 0 %

~ 0 %

~ 30 %

~ $ XX M

Business benefit

Stores

Case Study #2 Inventory Accuracy Also Leads to Out-of-Stock Reduction at Stores


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Sample on-hand qty of an item at DC A

On-hand qty for Item # A

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

0 10 20 30 40 50 60

Day

Qty

Order point = 2880 - If products are received and made

available for sale faster, the order point can be reduced

- Lower order point results in lower average on-hand inventory

Rationale for inventory reduction

~ $ XX M

Business benefit

Assumptions:(1) Inventory holding cost is X% of inventory value per year.(2) Build-to-week is 0.8 for DC A(3) Avg receiving hour for a PO is 6 hours currently, and is reduced to 4 hours

DC

Case Study #2 Inventory Accuracy Leads to Similar Operational Savings at DC Level

Productivity Increase in Receiving Leads to Potential Inventory Reduction


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Key TakeawaysCase Study #2:

- Overall benefit at the store level order of magnitude higher, due to scaling factors

- Rather than a single large benefit area, business case will most likely exist in sum of smaller ones

Overall- Benefits do exist at all segments of supply chain. - It’s matter of identifying where it works at each party, which will most likely

be very different for both parties. Type of benefit Prioritization on product lines, locations, timing, etc. Beyond operational

- There are evolutionary opportunities, and they are revolutionary ones.


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Agenda


Track & Trace Implications on the Supply Chain

Case Study



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What Top Pharmaceutical Companies Need To Be Able To Address TodayCompliance responsibilities around the globe

- Localized approach vs integrated- Balance between doing too much vs. taking too much risk

Alignment between compliance, product security, and business value initiatives- Prioritized implementation plan

Alignment between US efforts and global needs- Need for greater supply chain control and closer customer access- Manifested by strong trends such as wholesaler consolidation, direct

distribution, quota system, free-pricing

Getting the downstream trading partners aligned- Negotiating from the position of strength- Knowing what and how much to give and get


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Business Opportunities in Supply Chain Traceability

What if you could?Leverage investments in product

serialization initiatives to drive a higher return on product and brand protection?

Increase new product launch success by ensuring proper supply into key markets?

Establish a global network of trading partners to provide greater visibility into distribution channels?

Overcome barriers to entry into new markets by more efficiently addressing local distribution requirements?

Facilitate financial reconciliation across chargeback, rebate, and re-imbursements across your supply network?


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Next StepsGet Started on Improving Supply Chain Performance

Contact Mary Hall Contact Mary Hall todaytoday to schedule a to schedule a

consultation!consultation!781.503.7462, [email protected]

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transforming pharmaceutical operational performance with supply chain traceability

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