Planning Demand and Supply in the Pharmaceutical Industry

Last year, President Obama signed a law to end the shortages of lifesaving drugs. [1] While with the new law such drugs are overproduced and can be accessed by many, lack of generic drugs can still threaten millions of people’s lives.

Pharmaceutical industry has a long Research & Development period, and the probability of having a successful product is low, compared to the other industries. Demand planning, on the other hand, is the period between the start of R&D and the product launch, which can take many years, depending on the product success and the local country regulations where the product is launched.

Planning demand and supply in the pharmaceutical industry is a challenge in today’s world. Because of the rules and regulations, drug industry is limited to produce supply. The industry faces a problem in balancing the capacity with the anticipated demand, caused by the clinical trials of the products with high costs, and the high competition. Therefore, pipeline and testing planning, which requires heavy risk management and task scheduling, comes before the capacity planning. [2]

In this case, pharmaceutical companies have a general very long forecast with shorter ranges for specific locations [3]. Being in a highly regulated environment, companies are also limiting their production to a limited number of plants, which help them forecast the demand according to the locations of those plants.

For supply planning, the long-term demand forecast is used to plan the production capacity while the short-term demand forecast is used to check whether the current production meets the supply chain. At the same time, companies are also planning to synchronize the fabrication and the circulation of medicine, which has a short shelf life.

Another problem encountered in a pharmaceutical industry is the long supply chain cycle time, when the active ingredient production and formulation takes place. [2] During this long time, market demands and needs may change. Thus, it is crucial to manage the inventory accordingly and response to the demand very quickly.

Unavailability of drug forces medical practitioners to use alternative drugs, which eventually leads to greater problems such as other illnesses, requiring other types of drugs. Consequently, drug companies are heavily investing in planning the demand and the supply.

References:

1- “How a Cabal Keeps Generics Scarce”, Margaret Clapp, Micheal A. Rie and Phillip L. Zweig; http://www.nytimes.com/2013/09/03/opinion/how-a-cabal-keeps-generics-scarce.html?_r=0, accessed on September 2, 2013.

2- “Pharmaceutical supply chains: key issues and strategies for optimisation"; Shah, Nilay; accessed on September 2, 2013.

3- “Demand Management: A Cross-Industry Analysis of Supply-Demand Planning”, Peng Kuan Tan, 1992, MIT