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The pharmaceutical supply chain is one of the most complex supply chains in the world. That’s no surprise when you consider the global nature of the industry and the size and scope of the companies that dominate the space. But it is also notoriously unwieldy and has historically been resistant to transformation.

In many ways, 2016 was a turning point. We saw significant changes in the way consumers and regulators alike approached the pharmaceutical space, resulting in a number of trends that have pushed pharmaceutical companies to an inflection point. Higher consumer expectations, an increase in scrutiny from regulators, and an unprecedented slowdown in mergers and acquisitions has meant that there’s more pressure than ever before on the supply chain to be redesigned. The remit for supply chains of 2017 and beyond will be to start actually driving real revenue for businesses instead of just passively supporting revenue-generating operations.

Some of the major trends of 2016 that are driving supply chain transformations are outlined below:

Trend #1: The rise of generics

Over the last few years, the percentage of generics in the market has been steadily increasing and they are estimated to account for 91 to 92 percent of all prescriptions by 2020. As consumers become more and more comfortable with generic medications and with fewer blockbuster drugs in the pipeline, the onus is on pharmaceutical manufacturers to make up lost revenue. Companies whose revenue has traditionally come from patent-protected drugs are being forced to rethink their supply chain strategies as a means to counter this formidable rising segment which has lowered the cost of some drugs by 80 to 85 percent.

Trend #2: An increasing volume of prescriptions

Alongside the rise of generics there has been an overall rise in the volume of prescriptions—something that could be considered good in theory for pharmaceutical companies but that is not without its complications. Despite the volume of prescription drugs declining from 2000 to 2013, those numbers picked up again significantly in 2014 and 2015, with growth rates of 11.4 percent and 6.8 percent respectively, and that upward trend has continued through 2016. The cause of the overall increase in the utilization of drugs has not been clearly attributed to any single factor. Rather, studies have pointed at the effects of an aging population, the introduction of new drug products, and consumer empowerment as possible factors. Regardless, as the demand for drugs continues to grow, more accurate forecasting and inventory management has become increasingly important.

Trend #3: The rise of cold chain logistics

The market for biologics-based products that need to be stored at colder-than-average temperatures for the duration of their long expedition to market is rapidly growing, and what was once the domain of niche biologic companies is fast becoming an expectation for all pharmaceutical players—something that could easily cost biopharmaceutical companies somewhere in the ballpark of $17 billion by 2020. With demand for cold chain logistics growing, it has become increasingly difficult for pharmaceutical companies to manage fluctuations in demand for temperature-dependent drugs, which can result in exceedingly high inventory costs due to the cooling requirements. This has driven a need across the board for better oversight of impending market requirements.

Trend #4: A marked slowdown in mergers and acquisition

In the pharmaceutical industry, 2015 was a record breaking year for mergers and acquisitions. But what was once a beacon of opportunity for pharmaceutical companies looking to expand their portfolios in priority regions came to a grinding halt in 2016. Though market changes and instability are nothing new, 2016 was unique as a number of factors collided to create a particularly tumultuous year. On top of significant global political events, including Brexit and the U.S. election, the introduction of new laws to curb tax inversion had a major impact and in fact is the reason behind the undoing of the Pfizer-Allergan mega-merger. The result of all of this was that life sciences deal-making fell 65 percent behind its previous year rates, something that left many organizations at a loss as to how to maintain forward momentum. 

As we move into the new year and companies start to look to 2017, the pharmaceutical industry has begun working in earnest to digitize the supply chain as a means to deal with these changes and retain their margins as well as keep pace in a competitive market. In this vein, 2017 is shaping up to potentially be one of the biggest years for transformation in the sector to date.

Major transformations we can expect to see in 2017 are as follows:

Transformation #1: A push into emerging markets for growth

In an effort to seek out new opportunities for growth, pharmaceutical companies will continue to ramp-up their efforts in emerging markets, especially the BRIC +T regions (Brazil, Russia, India, China, and Turkey). Countries that in the past were treated as small volume export markets are now becoming areas of significant growth and investment. Their full integration into global supply chain management is paramount to supporting this growth.

Transformation #2: A shift toward global inventory management

With the proliferation of markets being serviced, organizations are pushing forward global inventory management systems to help ensure that each region is serviced with as little overhead as possible. End-to-end visibility is a popular theme at most pharmaceutical supply chain conferences and companies have been investing for years in consolidating their ERP footprint and harmonizing what is left. In order to leverage this opportunity properly though, given the volume of data, transformation #3 becomes an imperative.

Transformation #3: The unlocking of AI, Big Data, and Cloud technologies

In order to roll out dramatically improved practices, 2017 will see organizations utilizing a slew of newly available solutions to “turn on” their supply chains—making them business-aware and able to predict outcomes and prescribe actions autonomously. Just as Uber, Amazon Prime Now, and other service models in other industries that rely heavily on cloud, Big Data, and machine learning, there is significant promise for return on investment in supply chain automation tools—something that pharmaceutical companies will begin to experiment with in earnest. In 2017 these advancements will continue to evolve to make the entire supply chain autonomous.

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