Logistic provider in the Pharmaceutical industry: Podcast Transcript

Tim Foetisch    

Hello everyone, and welcome to Supply Chain Operations third post about logistic provider in the pharmaceutical industry. This podcast is brought to you by Supply Chain Operations, a supply chain consulting firm based in Switzerland dedicated to the pharmaceutical industry. Today I'm sitting with Chris Wallace and I like to start by giving the voice to Chris so that he can introduce himself and let us know about who he's and where he come from.

Chris Wallace   

Thank you, Tim. I'm originally from the UK. I've lived in a number of countries now living in Switzerland. My background is as a supply chain professional. I've done end-to-end supply chain activity from the demand planning forecast through to the execution side of distribution logistics. I've been recently based here in Switzerland working for Clover, which was a Chinese pharmaceutical biotech startup. And I've now been working with SCO for a year or so helping clients with their supply chains in terms of their improvements as well as the setup of those supply chains.

Tim Foetisch    

Thank you, Chris. So first question to you: could you define what is a logistic provider in the pharmaceutical industry and really focusing on the particularities related to that industry?

Chris Wallace   

It's a good question because I think the old definitions of logistics providers have become very blurred as their scope of services and activities that they offer have broadened. They've come a long way from simply providing the warehousing and distribution services of which we're all familiar. We now have several providers giving GMP services. They can also outsourcing of order to cash that can be activities from customer services through invoice collection and so on. So quite a dramatic change, in fact over the last 10 years in terms of the services they provide. Therefore, in terms of a definition, it's become very blurred in traditionally you also had contract manufacturers, contract packers and so on, and the logistics service providers, particularly the major ones, are encroaching on that territory. So it is a very dynamic and changing picture. I think in terms of what's happening with the pharma industry. It's particularly relevant to this because again, traditionally the scope of services offered was quite narrow warehousing, transportation and so on. Now that has changed quite dramatically over the last 10 years as mentioned, and I see that continuing. It wouldn't surprise me if there is much more merger and acquisition activity, and indeed some of the logistics service providers buy into, contract packers, contract manufacturers, and vice versa. It's a very, very, dynamic and changing market. I think obviously the specifics of the pharma industry mean that quality is paramount as is conditions around regulatory and other things like that, which perhaps are not so common in the traditional logistics service provider space. Hence why in pharma logistics, it's tended to be either a combination of specialists or multinationals who have either bought specialists to move into that space or developed their own and built on it. It's quite a, a dramatic change over the last 10 years.

Tim Foetisch    

Excellent. Well, this brings me to a very important question. I mean, this consolidation of the industry, do you think is it a benefit or threat for the actual pharma companies that are handing over the product to those providers?

Chris Wallace   

It could be both, but I think in large part it's a benefit. And let me explain why. The market still remains very fragmented. Despite the muscle of players like DHL, UPS, KN and the other major players, it remains fragmented. And you have the challenge that there is no company that has this exhibits universal strengths globally. You can have strong players in North America who are under very much underrepresented in Asia Pac, strong players in Asia Pac, who have no operations in Europe and so on. So it is something that you need to keep in mind if, particularly if you're doing a global outsourcing, that one player is unlikely to be able to provide the solution you need. That is clearly something that a number of them are trying to address through merger and acquisition activity. As you, as you mentioned, however, we're still a long way from, from somebody being able to say, Hey, I've got this universal solution that is to the same consistency and size and capability across the world. I think there is also a challenge anyway, and particularly for the larger pharma companies who outsource in the sense that they have the ability to go to either a local or a regional player versus a global. But what they tend to do, of course, is deal with the bigger players, and that's a natural consequence of size, maturity of organisation and so on. If you were, by contrast, a small biotech, would you really want to have as your main provider a multinational where you might be very small for them, you wouldn't necessarily have the attention that your business needs to develop and so on, which brings to the age old problem of do you go for a local solution or a regional or a global. And the reality is that as businesses develop, their needs change. And that's a particular dynamic of the marketplace. Of course.

Tim Foetisch    

This brings me to what I will call the lifecycle of a logistics service provider. So usually it starts by, you know, you start by saying, okay I have a need. You list requirements, then you move into a selection process where you will do a couple of steps and then there is an implementation, then once you're live and the operation are running, you need to manage those operations. So I'd like now to take a bit those three different parts of the life. So the selection, then the implementation, and then the running business. I'd like you to share a bit your experience on, you know, good practices or really stuff to avoid and starting with the selection process. What have you learned throughout your career on that part?

Chris Wallace 

Yes, it's been quite, I've seen probably a hundred plus of these types of projects. And there isn't a one size fits all, but there are principles that you can apply to each one. One of the things that I've seen, which amazes me is that it can be seen as being something that is strictly for the logistics professionals. To do that is clearly, in my view wrong, you need to bring the other stakeholders to the party. Similarly, I've seen procurement functions do a great job in terms of obtaining a good price, but of course there's been a disconnect with the actual user requirements, which meant that the whole exercise needs to be reworked or redone which is not really to anyone's benefit. The reality is that it needs to be done with a cross-functional team. It needs to be by all means led by the logistics professionals as they will be the ones directly managing the provider. However, it's not something that can be for example, draw up a list of user requirements, pass them to procurement and think, Hey, Presto, procurement can go off and, and do their thing, and that's it. No, it needs to be a mixed team with defined stakeholders done to a process. Clearly there are different stages and there is the request for information, request for proposal, request for quotation. All of these steps are quite well defined, albeit that they can be combined, which can be of particular benefit. If there is a situation where either the logistics services capability and requirements of a market is very well known, or indeed if it's somebody like a small biotech or something like that, who needs to help in terms of accelerating that process, if they're bringing, for example, a first product to market, you don't want an extended process of trying to select your logistics service provider. So there are principles in terms of what you then would then do in terms of obviously it needs to be a very objective as far as it can be process. The use of scorecards waiting factors within those scorecards is well known. That has to be agreed upfront, but also there needs to be some real sense applied to those in terms of how that relates to the organisation that is actually undertaking the outsourcing. Let me give you an example. If your organisation is a young biotech, it's probably has a not a series of processes in place the way that a large pharma multinational would have, that then means that perhaps they need to bring in external help to help them with that in terms of that defined process. But it also means that perhaps they need to look for a service provider who is incredibly flexible because they know their business is going to change probably over a reasonably short period of time, maybe three years. That means that they can must have a provider who can accommodate that development. Obviously, if by contrast you're a large pharma multinational and you have a specific need for a specific market that you don't see is going to change, then it becomes simpler selection process. And in the latter, clearly the dynamics of the factors involved in making that selection can change. So in the latter example price can become a more significant factor. However, in general, in the pharma world, things like quality and solution and operation are much more important than cost. That is a typical scenario, but sadly, one all too often forgotten in occasional organisations, I was involved with one outsourcing process, for example, where price was number one and the actual quality of solution was number four, absolutely crazy. You, in other words, you could have something that was approved and selected that did not meet the actual requirements which clearly is sheer lunacy.  I would also suggest that in terms of the process, a lot of companies still do this in a hands-off manner, which I think is a major mistake. You need to get to know your partner. You're gonna be with this partner for probably some considerable time, therefore, you need to make sure that that partner can be responsive to your needs. So for example, site ward, it's absolutely critical in terms of the selection process. Also key positions like the account manager at the logistics service provider, absolutely critical. If you don't think that the account manager is going to meet your requirements, then you need to be bold and ask for an alternative. Similarly, if you don't like the facilities, again, ask for an alternative. Now, of course, that's not always possible on the logistics service provider's part, but hey, it's far better to have that discussion upfront than have a costly and very expensive mistake later because certainly in my experience, trying to change a logistics service provider mid-contract is not only a, an expensive exercise, but an extremely challenging one with implications for your service level and product delivery to customer.

Tim Foetisch    

Yeah, you better start early than too late.

Chris Wallace   

Absolutely.

Tim Foetisch    

Now, if we move to the implementation phase, is there any particular experience and knowledge that you can share that you learned throughout your career?

Chris Wallace 

The implementation phase is where so many outsourcing exercises have gone wrong. know it's a cliche, but you have to plan in detail or it's something that is likely to go very wrong. A detailed plan must cover things like process communication, dispute resolution, systems, not just the scope of services, which would be the, the bedrock of, of any contract. Clearly, in terms of that implementation, there should, again it can't be done effectively at arm's length in my opinion. You need to have a joint team between your preferred provider, your selected provider, and the outsourcing company, and potentially others involved who might be helping with that could be systems professionals or whoever it might be. That team is got to be cross-functional as well, be able to report continually with updates to the stakeholders because everybody has a stake in this. The implementation of it goes badly wrong or is delayed at best, it's expensive at worst, it can really impact the company and its product service to patients.

Tim Foetisch    

Yeah, I mean, it really resonates with me. I have to admit that communication for me is one of the foremost important criteria or dimension to put on the control because with communication comes trust. And if you don't have trust in the process and in the provider, you're really off onto a wrong track.

Chris Wallace   

I would agree that a communications plan, it needs to be done upfront, but it must be adhered to. And in my experience, even if it's bad news, for example, a delay or something like that, then it needs to be communicated as soon as possible. That's much easier when it's a joint team, you don't have this messaging over a wall between provider and pharma company. You have something that is then joint and in, I know it's again, a, it's a cliche, but a problem shared is a problem halved and people can work on that as alternatives. And in my experience, when you catch a problem early enough, you can often have an alternative methodology or approach or whatever it may be in order to still hit your target.

Tim Foetisch   

Mitigation is way simpler.

Chris Wallace   

Yes, very much so.

Tim Foetisch    

Absolutely. To finish, we can discuss about running operations. So you have selected your provider, you have running operation, you are together for year, two, year, three years, whatever. It's of utmost importance to still be close by and to maintain that relationship, can you tell us a bit what you gain in terms of experience and a few best practises that may be useful for the audience?

Chris Wallace   

Indeed. When I first started working in third party logistics, the standing joke was always if you had a graph of the bottom axis was time and the other axis was attention given to the customer, it would be shaped like a bat. In other words, at the start of the contract, there would be lots of attention given very little in the middle, and then as if the contract near closure or renewal everybody would be back all over it. There was some truth in that. Like clichés that the origins have got some truth in it, that clearly is a situation that has to be avoided. Similarly, on the side of the pharma company is they can't just outsource expect everything to happen wonderfully and forget about it. It needs proactive management for a number of reasons, not just because the simple one of you want your provider to continue to do what you want, but the fact reality is your business will change the dynamics change. And that could be new product, new market, it could be some merger and acquisition activity. I had an example where I was in the middle of an outsourcing process and my CFO came to me and said well actually we're gonna have to change the project slightly. His version of slightly was, there was an acquisition happening the following month and it was gonna increase the volumes by 40%, quite dramatic. Similarly, I've worked in a situation where a company has had a successful outsourcing, but its latest product was its first cold chain product. Again, quite different dynamic and requirement for the logistics service provider to give them, and in certain cases, the existing provider for a given territory in the latter example, did not have that capability. That meant a wholesale change, as you can imagine. So in that dynamic, we need to understand that there needs to be a constant management of the logistics service provider. And indeed, I might add from the logistics service provider's perspective, constant attention to the pharmaco because they need to understand and anticipate the business issues and the changes that happen. So that gives and very successfully done is to have a multidisciplinary team who manages their logistics service provider. Yes, it can be led by the logistics team, but it needs strong input from functions like quality, like finance, like commercial to ensure that firstly pharmaco and its stakeholders and their requirements are still being adequately satisfied, but also that any changes that occur are smoothlyundertaken and you don't have any blips in service because, for example, a new product has been launched or another market taken on that shouldn't happen if it's planned properly and executed to the plan. I would add that you can manage with these multidisciplinary teams a cradle to grave relationship with third party and that third party, yes, we focus to date Tim on logistics service providers, but it could be contract manufacturer, could be a contract packer, it could be a distributor, wholesaler. The same principles would apply with that multidisciplinary team. And that to me is best practise and it's been proven to be the case in a number of companies where not only I've worked, but where I've observed the workings of that.

Tim Foetisch  

Excellent. Is there anything else you'd like to add on logistics service provider in the pharmaceutical industry?

Chris Wallace   

I would just add one thing that is often overlooked. A lot of people focus quite rightly on things like the solution and so on, but the culture is clearly incredibly important to be understood. And I might add on both sides at extremes. Clearly, if you are a small pharmaco looking to outsource, do you really want to be with a very immature organisation? Do you really want to be with a small provider who cannot really help you with, for example, new processes and things like that? At the same time, you need to ask the same question. Do you want to be with a large multinational where you might get lost and not get the attention you need for your business to develop? It's understanding that that maturity of organisation, that culture and so on, is incredibly important for you, not just to get the right solution, but to get the right provider who can develop with you as your business develops.

Tim Foetisch    

Excellent. So I think we'll definitely take away this balance and finding the right compromise between all those dimensions. Thank you, Chris, for taking the time, sharing your insight. Also, thank you for putting together two articles, one article which is available on our blog on how to choose a logistic provider and then a global guide on the lifecycle and how a logistic service provider can support a pharmaceutical company. Thank you, Chris.

Read the article related to the art of logistic providers selection and our guide on LSP in the Pharmaceutical Industry