Material and Money Flow in the Pharmaceutical Supply Chain
The material and money flow for pharmaceutical products is “a little different” from other industries and this blog is supposed to provide some insight into this. Even though the first part from the supplier to hospital or pharmacy follows a rather classic pattern there are quite some differences when you look into the details.
Supplier qualification is required for all direct products (like ingredients, blister foil etc.) and all equipment (from scales to packaging lines) as well as software and hardware that somehow mange the process (MES) or effect product quality (LIMS, ERP QM).
Contract manufacturers (CMOs = Contract Manufacturing Organizations) play an increasingly important role in the production process. Many brand owners outsource parts of their operations, which may be the manufacturing of the active ingredient, packaging or the entire manufacturing process. Some CMOs have specialized in certain production steps like packaging only (then sometimes referred to as CPOs) or sterile filling and packaging.
Goods are distributed via wholesalers or distribution centers while the latter can be managed by the brand owner itself or by a third party logistic provider (3PL). The latter becomes more and more important especially in smaller regions or when special requirements like cold chain management come into play.
The final point of sale (or better: point of dispensing as it is referred to in pharmaceuticals) are the hospitals and pharmacies. Here we see extremely different landscapes and processes. While the US market is dominated by largepharmacy retail chains only small privately owned pharmacies are allowed in Germany.
The final step of the supply chain where the drug is dispensed to the consumer differs very significantly by region. In Europe pharmacies dispense the original package as they received it from the wholesaler. Those packages are consumer sized, e.g. 20 tablets per package, so they are sold as is. In the US market the salable units are much larger, e.g. 1000 tablets and these units are opened at the pharmacy and smaller quantities are dispensed as required by the prescription.
So a pharmacy would count 30 tablets if the prescription says so, in a lot of cases this is done by an automated tablet counter.
Final sale to the consumer also differs very significantly from other industries. Pharmaceuticals are probably the only class of consumer products where the person making the decision for a dedicated product, the person who pays for the product and the person who ultimately consumes it are different. In classic consumer products the consumer is the person who decides, pays and ultimately consumes the product. So the same person can select a product based on preference and cost and can balance between the two. It’s the consumer to decide whether to buy the bottle of wine for 12,99 or 3,99 and whether the wine
is a red or a white. Pharmaceuticals products however are prescribed by a physician and typically paid for by an insurance either directly or as a patient refund. So it’s the physician to decide, however physicians are being influenced by both, the patient and the insurance company. A consumer may have seen advertising for a certain brand or may have found information on the internet and may use this information to get a prescription for a certain product. Insurance companies on the other hand might incent a physician for prescribing lower cost products, e.g. generics or even may only allow certain products to be prescribed if a physician is part of a network.