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Dear Pharma Veterans. This series of Blogs is a summary view of Pharma Business in Pakistan. It is a series spread over several parts covering the entire spectrum of Pharma business.
Logistics is among those fields which have undergone rapid changes and huge developments. The field is still evolving fast. Use of Technology and Artificial Intelligence has changed the very concept of how logistics were handled.
Logistics, in real sense, covers the entire sequence of planning, implementing, keeping and supplying for an operation. However, logistics in Pharma most often refers to transportation of goods. It is mostly from the company to distributors; sometimes it is also used for transport of materials to company.
Pharma, as in other areas, has not made huge strides in this area. The system and tools are still the same; the results are also the same.
Transportation of Materials to Company
It would be either import or local movement. Most Pharma materials are imported by air. The air shipment is booked by the supplier and there isn’t much to do except clearance at the port of arrival. If the import terms are FOB or Ex-Works, the importing company would normally engage a logistics company (Agility, Panalpina, DHL) to handle the movement.
Local materials are almost always brought in through truck services, which may be arranged by the supplier or buyer.
Transportation of Materials from Company
Manufactured products are supplied to distributors in Pakistan, and abroad if the company has international operations.
Traditionally, the supplies to distributors were affected through trucking services. Goods were hauled to ‘Truck Addas’ and were booked for destinations all over the country. The time to reach was highly variable and was based on the distance and accessibility and frequency of transport to that area.
Next step in evolution was that some trucking companies started lifting stocks from company warehouse and delivered to distributors. Several companies then shifted to courier services such as TCS, Leopard, OCS (which is now M&P). The courier services arrange door-to-door delivery. Time to reach is more controlled now and remains mostly within defined limits.
For international deliveries, the company and freight forwarding agencies work together to affect shipments by sea or air.
Challenges in Logistics
Number of Deliveries – A Pharma company having operations all over Pakistan will have 60+ distributors.
- Standard practice is that every distributor shall place orders twice in a month. Some companies calculate stock requirement of distributors based on a formula and advise the distributor to send payment accordingly. As a standard, it comes to 120 deliveries in a month. It is quite common that the distributor may also place 3 or 4 orders in a month, taking the number of deliveries in a month to 150 or more.
- Stock shortages are frequent which leads to multiple partial deliveries taking the number of deliveries to over 200 in a month.
- Working 22 days a month, it would be about 10 deliveries per day. Medium size Pharma companies have more than 100 SKUs of products. Multiply this to the number of SKUs in each order and you may find that each day 500 – 700 SKUs are handled by the staff involved with Logistics. All of this work is ‘Manual’.
- Storage spaces are inadequate, stocking is haphazard and handling space is even more inadequate. This leads to mistakes, mixed stocks, mixed destinations and dissatisfied customers.
Solutions will include:
- Reduce Number of Deliveries – Preferably, it should be one order per month. However, it will be an impossible target to achieve at present. At least the number of orders must be fixed to not more than two in a month.
- Improve Storage – It may seem ironic that the place which actually ensures that the revenue comes in is least focused. Cramped warehouses are a common sight while the plan to invest in warehousing is not in sight. An adequate space will minimize errors and improve efficiency.
- Invest in Technology – This is a much needed and much desired area. It is guaranteed that this investment shall pay off immediately. The logistics managers and their bosses should review and make plans to bring in technology.
Stocks Availability – Stock shortages and overstocking are happening side by side.
- Every Pharma company is having problems of shortages and is also taking expired medicines worth hundreds of thousands of rupees. It looks contradictory on the surface. However, if you look deeply, you will see disconnects between forecasting, planning, production and distribution. As a nation, we love to exert blindly and keep pushing in the wrong places. No wonder our results are not in line with our exertions.
- There is general tendency to stuff the distributors to maintain cash flow. It brings temporary relief to the manufacturer but disturbs the company-distributor relation, leading to frequent change of distributors. The number of distributor changes in Pharma is much higher than the FMCG which indicates the kind of mistrust prevailing between the two parties.
Solutions will include:
- Improve Planning Process – Make planning process analysis-based; not wish based. Stay as close to reality as possible.
- Improve Execution Process – Inadequate planning also leads to faulty execution or it may happen independently. The best indicator of the health of execution process is that the execution chain should run smoothly; no choking, no down times and no dry times.’
- Improve Distribution Practices – First thing to do is to consider the distributor as a ‘Valuable Business Partner’. Everything else shall start getting better from this point onwards. Trust will come in, stocking will be adequate and most importantly, market penetration will be greater.
Logistics, as you see, is not just arranging transport. This function connects the manufacturer with the market and must be given due attention and respect. Investment of all kinds; technological, human, analytical, financial will bring ample support to make the company grow.
No doubt logistics (supply chain) does play very important role for existence especially for new entrants as distributor dominates usually and orders of stocks may vary from 3 to 5 time for each per month. TCS is getting its place again in delivering as commitment while M&P and Leopard stands 1st and 2nd respectively in ranking (in my point of view).