A flexible supply chain is incorporated to adapt to unexpected changes in demand and external factors like weather, natural calamities, strike, etc.Technology IT has been the backbone of SCM to enable paperless logistics, automated KPIs- both Lead and Lag indicators to understand the health of logistics.
Importance of logistics for Dr Reddy’s Laboratories Ltd
Logistics is a critical aspect of any business, for that matter. In the Pharma industry, it plays a very vital role in driving business and achieving business targets like OTIF, customer service levels. It is equally essential like R&D incase of new products launches to ensure product availability in the market on the 1st day of launch.
For the scale of our business, a well-defined and efficient process and user-friendly IT support system is must to ensure coordination between all stakeholders of SCM starting from RM suppliers to manufacturing plants to warehouses to the point of sale. Availability of tracking over a mobile phone is one of the best example of IT support. IOT has enabled this synergy beyond expectations.
Supply Chain Strategies
The current objective is to reduce the TAT/lead times to keep a check on cost and inventory carrying. Therefore, we monitor existing shipments on T AT / lead time performance and explore opportunities to reduce lead times by identifying new liners or new services by existing liners/ forwarders. Norms like CTPAT drive the overall guiding policy.
On the basis of products characteristics like profits, temperature sensitive, new products, penalty clauses, etc. logistics strategies are decided. Having right contracts in place ensures executions with required smoothness. There are always continuous improvement initiatives happening periodically to reduce Muda (wastage) to make it leader. Designing the elements of the supply chain to ensure full utilization of truck or container is a key aspect to achieve the desired efficiency in TAT and cost. For example, a cold chain container is now divided into two parts using a customised metal divider to cater to the requirement of half container space for controlled drugs. This ensures a separate temperature control system for the compartments for both organisations using the services. It is also supported by IOT to provide alarms for counterfeit and theft.
The most important supply chain factors in pharmaceutical industry are inventory reduction and reduction of order cycle time. Operational performance could be directly linked to logistics costs, while inventory reduction and the demand to decrease order cycle time are related to just-in- time deliveries and supply chain speed.
Avinash Kumar Talwar
Director – Global Supply Chain Management, Head – Global Sourcing PM & MRO (Strategic & Plant), Dr Reddy’s Laboratories Ltd explains the vital role of SCM in driving business and achieving business targets like OTIF and customer service levels.
A flexible supply chain is incorporated to adapt to unexpected changes in demand and external factors like weather, natural calamities, strike, etc.
Technology IT has been the backbone of SCM to enable paperless logistics, automated KPIs- both Lead and Lag indicators to understand the health of logistics.
Warehousing Strategies and Tactics
3PL service providers across major geographies primarily manage warehousing. Here the idea is to spend energy on improving core functions related to the pharma industry and utilise the expert services available in the market for non-core functions, thereby constantly up-grading the non-core functions as per benchmarks in the market.
As there is consolidation happening at the customer’s end leading to double-digit sales price erosion, there is huge pressure on profit margins. With only a few new products going off, patent and fierce competition to capture the market from multiple players in generics business, there is limited scope for earning high profits from new l aunches f or gener i cs organisations. With increased awareness of climate change and subsequent changes in countries regulations related to carbon emission, etc. it has created short to medium term shortages of input materials in the market. All these changes are impacting supply chain performance badly on key parameters like cost, OTIF, inventory etc. Also, regulations like NLEM in India and price control in the US are affecting top-line profoundly.
With double-digit price erosion and increasing input materials prices, profit margins are under tremendous pressure. The only option left is to improve cost expense structure- Total Variable Cost. To overcome the above issue multiple actions taken at the organization level are:
- Reducing lead times, MOQs for sourcing and logistics,
- Re-Negotiating contracts with suppliers or introducing new suppliers,
- Making supply chain more agile and lean to reduce inventory so that more working capital is released, Most importantly bringing more products in- house than out sourced,
- Improving the OEE of in-house manufacturing facilities with the least expenses, and,
- Building the Lean Supply Chain Culture.
Partnering with LSPs
The front leg of logistics is outsourced and supplies till mother warehouses are controlled by us. Operations like order punching to delivery and in some cases managing stock levels at customer’s locations are done by LSPs.
While choosing any ser vice pr ovider, below parameters are evaluated:
- Culture Fit and Strategic Fit,
- Performance on Lead and Lag indicators,
- Financial/Taxes due diligence,
- Risk Analysis, IP/Legal Due diligence, and, Customer due diligence.