To procure logistics in an increasingly complex environment
In the last years, transport of sensitive pharmaceuticals has moved away from the more simplistic notion of cold chain, with the conventional meaning of a temperature interval between 2-8°C, to the wider aspect of temperature-controlled transport, which include a range of different temperature intervals. There are products that must be shipped at controlled room temperature (15-25°C), body temperature (≈37°C), cold temperatures (≈ -20°C) and even as low as at cryogenic temperatures (-150°C). In addition, products are, to an increasing extent, sensitive to a number of other factors such as humidity and shock and vibration. To safeguard products with these kinds of requirements throughout a complex logistics chain, puts higher demands on procurement than just cutting costs. In addition, the shipping routes are also becoming longer, which means that the products must pass through markets with different regulatory environments and customs regimes.
In this scenario, transport is clearly not an off-the-shelf product. Procurement needs to have a holistic approach, analyzing all the various components of the transport chain to see where savings can be made while still adhering to the many quality requirements from the business units. In other words, procurement must work as an internal consultant, guiding the business units to the best transport options for the business units as such, and for the company as a whole.
Savings in one area could potentially increase costs in another, which can be exemplified by the high amount of products that have to be discarded due to temperature excursions during transport.
According to IATA, the International Air Transport Association, up to 20% of all temperature-sensitive pharmaceuticals are damaged during air transport due to a broken cold chain[i]. This could be an indication that the there is an imbalance between quality and risk aspects on the one hand, and cost aspects on the other hand when pharmaceutical companies procure logistics services. As the cost of discarded products is exponentially higher than the transport itself, the overall result for the company is an increase in spending.
Strategic purchasing calls for better understanding of the logistics chain
Temperature-controlled transport involves a number of different stakeholders – forwarders, airports, ground handlers and airlines. During transport the products will be lifted, hauled, stored in various places, and loaded and unloaded on aircrafts by different people and companies. It is obvious that collaboration and integration is fundamental to make the logistics chain work. To successfully procure logistics services, it is essential to understand all the components of the transport chain, and to collaborate with the suppliers involved, to ensure that the company gets the right service at the right price.
When it comes to the non-cost related aspects of the transport, the availability of data is constantly increasing. Smart sensors on packaging and containers can gather data on loadings, door-openings of the container, ambient and inside temperatures and if the container has been exposed to for example shock and vibration. While this is an area with increasing transparency, the same cannot be said of the cost related aspects of logistics. The way around this for procurement is to try and understand and collaborate with the different vendors in advance, rather than chasing margins during the actual procurement process. Any supplier who feels his or her margins are being chewed up by the other suppliers, or the shipper, will likely not be very cooperative and will likely not go the extra mile to offer exemplary service. To understand the different components is thus key to understand the costs of those components and whether the company is being charged the right price for the logistics services.
Understanding the components will also be key to procurement’s role as an internal consultant and specialist at evaluating services that are external to the company. The pharmaceutical industry is, like so many other industries, increasingly focusing on its core business, thereby outsourcing various tasks to third party suppliers, whereof logistics is one such example. The growing amount of sensitive pharmaceuticals also expose pharmaceutical companies to a higher level of risk, whereby strategic purchasing of logistics solutions will need more attention in the future.
A more strategic procurement process with long-term partnerships
A strategic procurement process, with procurement working as an internal consultant to the business units, must put more focus on building partnerships with suppliers of pharmaceutical transport rather than making one-off purchases. Long-term partnerships and mutual understanding will reduce the risk of unfair pricing or a stalemate of the process, when each party tries to squeeze the margins of the other parties and the pharmaceutical company ends up with a substandard service.
Collaboration with external companies, leveraging on their expertise, can also lead to new ways to procure logistics. The upcoming trend of personalized medicines with home delivery (where there are no clear answers as to how these kinds of products will be shipped in a secure way) will need new, innovative solutions. A strategic procurement process will be much more than strategic purchasing. The whole process will have to commence much earlier with the development of long-term partnerships with key logistics suppliers.
[i] IATA, CEIV, Center of Excellence for Independent Validators, Pharmaceutical Handling, How to Become CEIV Pharma Certified, Q1 2018, https://www.iata.org/whatwedo/cargo/pharma/Documents/ceiv-pharma-specifications.pdf