20160219_Building Strengths in Healthcare Supply Chain.pdfVIP

Building Strengths in Healthcare Supply Chain As operations become more complex, even small improvements in efficiency can translate into huge savings February 2013 by Thomas Ebel, Katy George, Erik Larsen and Ketan Shah This article originally appeared on . Products, markets, regulators and patients are making new demands on pharmaceutical and medical device supply chains, from the factory floor to the bedside, and the pace of these demands is accelerating. For example, McKinsey’s proprietary POBOS benchmarks suggest that complexity, as defined by number of SKUs per packaging line, has Month YYYY increased by more than 50% over the last five years. The industry’s current supply chain model will not be able to meet these challenges forever, forcing companies in the sector to develop new capabilities and new ways of working in order to transform speed, efficiency, flexibility and reliability across the entire value chain. Higher supply chain performance has significant and strategic benefits for pharma and medical device companies. First, it can reduce costs by shortening manufacturing lead times, slashing inventory levels across the value chain and cutting product obsolescence. Second, it can improve access, reducing drug and device shortages in developed markets and delivering affordable healthcare to millions more people in emerging markets. Third, it can transform safety by making it harder for counterfeit products to enter the supply chain and reducing the human and financial toll of medication errors. We estimate that end-to-end supply chain expenses including conversion cost, warehousing and distribution, inventory carrying cost and obsolescence cost now represent nearly 25% of the pharma value chain costs and more than 40% of the medical device value chain costs. The annual spending is so vast — about $230 billion in pharma and $122 billion in medical devices — that even minor efficiency gains could free up billions of dollars for investments in other