Pharmaceuticals must future proof their supply chain to protect value, says KPMG

Pharmaceuticals must future proof their supply chain

The supply chain is one of the very few areas where a life sciences company can create value, along with the sales force and research and development.

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In the face of enormous pressures across the industry, life sciences companies must review their traditional business models and ‘future proof’ now, or risk losing value according to a new report by KPMG, Fast Forward: Future proofing the life sciences supply chain.

The supply chain is one of the very few areas where a life sciences company can create value, along with the sales force and research and development. Today’s innovations, such as specialty medicines that provide effective treatment for complex or chronic diseases are revolutionizing the healthcare industry; and supply chains that support centralized, high-volume products sold to mass markets are predicted to disappear over the next decade.

Supply chains will need be restructured to incorporate low-cost sequencing in order to support a larger and more diverse portfolio of products tailored for specific patient populations, or even individuals. They must now be agile enough to manage the complexity of adapting to variations in demand, price volatility; increased pressure to access emerging markets, the need for improved connectivity to support shorter supply cycles; and an increased focus on anticipating and embedding regulatory change.

Roger van den Heuvel, from KPMG’s global strategy group comments: “We’re already seeing some players reinventing operating models or looking to develop new business models.  We have also seen examples of a deliberate rethinking of the supply chain resulting in an extended view, so incorporating external partners much more purposefully and tapping into their capabilities for more than just a cost advantage.”

Inorganic growth is increasingly being used to cope with market changes. There has been a substantial increase in the number of mergers and acquisitions, with deal value up 250% on Q1 2014, and average deal value up more than 400% versus a year earlier. This investment trend is being seen across all parts of the life sciences industry, with pharmaceuticals and medical devices leading the way.

When looking at the investments being made in new technologies, medical devices are only part of the story. Advanced 3D printing is being used to significantly decrease or eliminate the need for centralized manufacturing, warehousing and distribution, by printing hip and knee replacements on-demand at the hospital. In addition, hospitals do not have to store as much equipment, and patients heal faster because each piece is custom designed and sized for their body.

3D printing technology could also force pharmaceutical companies to completely rethink the supply chain – where raw ingredients are ‘ink’ cartridges, product development lead times are slashed, distribution to customers is radically simplified, and drug production is far more cost effective.

Looking ahead, Roger concludes: “The need for transformative change across the life sciences supply chain is greater now than at any other point in the history and the industry must embrace the rapidly evolving and globalized marketplace. The benefits of future proofing are being proven every day in global markets, increasing revenue growth, optimizing new product pipelines, and improving material flows and reduced operational risk.

“Any change in the supply chain involves an element of risk and life sciences companies have typically been risk aware but risk averse. Companies should determine a future vision now, map the current state, and start the process in carefully selected areas to support enhanced agility, capabilities and value. When companies anticipate future innovations, adapt to change, and seize valuable opportunities, they can help future proof not only their supply chain but the organization as a whole.”


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About KPMG

KPMG LLP, a UK limited liability partnership, operates from 22 offices across the UK with approximately 12,000 partners and staff.  The UK firm recorded a turnover of £1.9 billion in the year ended September 2014. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 155 countries and has 162,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity.  Each KPMG firm is a legally distinct and separate entity and describes itself as such.

This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.

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