The coming storm in the pharma supply chain

Bontrager’s idea of a value triangle resonates in many areas, including the pharma supply chain.

Keith Bontrager was a pioneer in mountain bike design who famously spoke of a ‘value triangle’ when it came to bikes. “Strong, light, cheap – pick 2”; meaning that if a bike is going to be light and strong then it won’t be cheap, and so on. Bontrager’s idea of a value triangle resonates in many other areas of life and the economy. It can even be applied to the pharmaceutical supply chain.

The pharmaceutical supply chain is complex and fragmented with too many intermediaries, wide variation in remuneration schemes, structural inefficiencies, and poor access to timely information to allow understanding of what is going on. There has been no real change for decades and the highly regulated nature of the sector is slow-moving, which acts as a barrier to innovation.

Butterfly effect

Pharma executives often argue that there are too many supply chain intermediaries, with competition and a lack of communication across manufacturers, wholesalers and retailers complicating the picture and obscuring visibility. This leads to a phenomenon known as the ‘bullwhip’ where retailers who can’t accurately anticipate their needs transmit distorted demand information back up the supply chain. This leads to a butterfly effect, which amplifies the variation for each intermediary and results in over-production, over-capacity and returns.

Ripe for disruption

There are a number of new trends to consider as well. There is growing complexity with online pharmacies and home-care delivery. Amazon also hasn’t ruled out entering the pharma distribution market and would certainly be disruptive if they did so. What about changes in demand from patients, systems and regulators, for example around precision medicine? What about measures to combat counterfeit drugs such as the Falsified Medicines Directive (FMD) and the Drug Supply Chain Security Act (DSCSA)?

These largely-digital trends mean commercial entities are considering change anyway. The sector is ripe for disruption and it simply isn’t possible to resolve this without better information. This should lead to improved outcomes for patients, less risk for intermediaries and more revenue for all, including pharma companies.

Value triangle

This brings us back to our analogy with Bontrager’s value triangle. If you want information about the pharmaceutical supply chain then consider the three variables of:

1. Perfect information
2. Timely information
3. Inexpensive information

and pick 2.

If the information is timely and inexpensive then it won’t be comprehensive. However, in order to meet the challenges in the pharma supply chain we need all three at the same time. It is therefore in everyone’s interests to disrupt the traditional value triangle. Only by taking control of the critical information and informing each end of the chain can an intermediary add value and remain relevant. For that, we all need better information.

Change is inevitable

There is a genuine need for disruption. Change is coming whether we like it or not, so we should do our best to anticipate and shape the future before it shapes us. Disintermediation is inevitable if we do not act.

Rather than a brutal disintermediation, the fragmented landscape requires unification on a single platform that facilitates streamlined partnerships based on perfect, timely and inexpensive knowledge.

Hassan Chaudhury is Co-founder and Chief Commercial Officer, Health iQ.

Najib Rehman is Head of Data Strategy, FarmaTrust.