When focus switches to securing supply, costs associated with manufacturing traditionally lose the necessary attention. The current SARS-CoV-2 epidemic teaches us a lesson on the importance of secure supply chains across industries. Small disruptions, due to for example local outbreaks, increase the risk of stockout situations in our highly fragmented and international supply chains. Furthermore, national export bans and competition on scarce products demonstrate our high dependency on international suppliers. This is particularly true for companies supplying life-saving products like drug manufacturers.
The pharmaceutical industry is currently facing intense public scrutiny and decisions to move key parts of the pharma supply chain to low cost countries are controversially discussed. However, it is without doubt that secure supply chains and efficient manufacturing go hand in hand. Manufacturers with highly transparent production networks and efficient sites usually also feature the most reliable supply chains, whereas inefficient production sites frequently face stockout situations and supply interruptions. The false perception that efficiency measures are related to the transfer of production sites to low cost countries is not true since high labor costs are a well-known driver of efficient production.
"We allocated these levers to three main topics – network optimization, production optimization and digitalization and experienced a general savings potential of 8-12% in successful optimization projects."
In recent years, several companies have moved their focus from efficiency programs targeting SG&A and R&D towards programs in their manufacturing networks. A high, but yet untapped, saving potential offers an opportunity to maintain or even increase operating margins in times when product prices are under pressure. The efficiency measures can be split into network and site optimization as well as digitalization.
For pharma companies it is important to take a holistic approach across the three measures to achieve the maximum potential. Moreover, digital tools in connection with process automatization enable a reduction of personal interaction which is an additional benefit during an epidemic.
Returning to a new normal after the crisis will further increase the pressure on drug prices and force pharma companies to identify new savings potentials. Early and continued focus on holistic efficiency measures across production networks will help pharma companies to maintain their operating margins and remain competitive in post crisis times.
The SARS-CoV-2 pandemic makes supply security top of mind for pharma companies. Efficient and transparent manufacturing networks facilitate security and are thus becoming increasingly important.
