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Last week I had the opportunity to keynote a webcast regarding ongoing global manufacturing and supply chain challenges within the pharmaceutical and life sciences industry.
One of the key observations I made was that this industry is undergoing tremendous change, a change that places a fundamentally new perspective on global supply chain capabilities. Industry players are quickly evaluating whether they will adopt either of two business models: research and drug development or high volume producers of drugs and medicines. Rather frequent announcements of acquisition activity all seem to reflect on a market response to these strategic needs as companies acquire other companies to initiate these changed business models. Future top line sales growth also comes from the emerging economies where supply chain and distribution models are different.
Today brought yet another headline, Pfizer, Inc. announced that it would acquire pain drug producer King Pharmaceuticals Inc for $3.6 billion. Other recent announcements tend to reflect on other industry player acquisitions of high volume generic drugs or vaccine producers.
This activity brings a new awareness to global supply chain competitiveness, efficiency and adaptability. Reviewing key supply chain metrics for the industry, one can find strong evidence that increased acquisitions bring increased supply chain challenges when the acquirer attempts to consolidate what perhaps may have been inefficient inventory and working capital practices. For instance, in the category of Days Inventory Outstanding (DIO), the 2010 Working Capital Scorecard published in CFO Magazine noted that the pharmaceutical industry average DIO in 2009 was 39 days, vs. and overall 1000 company average of multiple industries of 39.3 days. However, a snapshot of some key industry players who were involved in large acquisitions paints a far different perspective. Merck had a DIO of 109 days and Pfizer, 91 days. In the category of Days Working Capital (DWC), the CFO analysis noted an average 73 days vs. the multi-industry average of just 39.3 days. A look at any other supply chain benchmarking data more than likely will point to other areas requiring attention.
In prior business models, pharma and life sciences companies measured and placed business emphasis on their ability to deliver innovative new drugs from clinical trials through market launch. As this new era of the industry unfolds, the lens must also shift to global supply chain capabilities in end-to-end efficiencies, responsiveness, risk management and agility to rapidly changing business needs. This an industry that needs to bring more outside thinking and proven supply chain best practices to demand visibility, extended supply chain collaboration and visibility.
Bob Ferrari.
