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Pharma distribution in Europe is changing – and changing fast

By Stephen Cain | 01/03/2011 | 11:43 AM

Most of the prescription drugs used in Europe by patients are paid for by health insurance and medical aid programs. The health insurers have substantial market power and force the pharmacies to fill prescriptions with the least expensive available drugs. Needless to say, this in turn has pressured the major drug companies in Europe to significantly change the way that they do business.

Until just the recent past, the typical drug supply chain in Europe would start at the brand owner premises and would go via wholesale to pharmacy/medical practitioner and ultimately to the patient. However, over the last few years, several trends in the supply chain and route to market set up have begun to greatly alter the business:

  • Manufacturing locations are being outsourced by the brand owner in order to free up cash and go back to the “core”-business (R&D and marketing)
  • The warehousing activities for the majority of the products are centralized over multiple countries, often in one location for the entire European market. A few products (narcotics, high risk products) are often maintained locally. While the central location is often run by an international logistics service provider, local storage is often handled by a local niche player, providing the expertise and flexibility that are necessitated by pharma related products.
  • The wholesaler is struggling to keep an ever declining share of the pie. Brand owners are increasingly delivering direct-to-pharmacy or even direct-to-patient. By doing so, costs are lowered and demand is secured by intensifying the contact with the customer

As a direct result of these changes, supply chain practitioners in the pharmaceutical companies are rapidly catching up with other supply chain professionals, adapting to logistics concepts that have been used for years in other industries. As in other sectors, the pharma supply chain equation is no longer dominated by just quality and service; costs and flexibility have also become a critical decision factor.

All in all, drug related supply chain costs have been reduced substantially over the last years and will continue to do so in the years to come. Although supply chain costs are often less than 1% of total COGS within pharmacy, I do see this evolution as a way to keep profits up and simultaneously keep health insurance affordable. What is your opinion on this?

Please email us at mail@groenewout.com

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About Stephen Cain

Stephen Cain

Stephen Cain is senior vice president, marketing and European project support, for Groenewout Consultants and Engineers, a Dutch-based supply chain and logistics consulting/engineering firm, Cain joined Groenewout in 1994, when he established its U.S. office. Today, he handles marketing and client relations in North America, and European project support for North American-based clients. Cain has managed European projects that cover sectors such as fast-moving consumer goods, OEM suppliers, electronics, pharmaceuticals, and third-party distribution. Such projects ranged from distribution center feasibility studies to detailed design and engineering through project management and realization.



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