Wednesday, September 4, 2013

Demand and Supply Planning in Pharmaceutical Industry

Yiming Wang

This week’s topic is “New Product Design for Operational Effectiveness and Planning Demand and Supply in a Supply Chain”. And I want to specifically talk about demand and supply planning in pharmaceutical industry.

Nowadays pharmaceutical industry faces fierce competition. In order to squeeze some profit and be successful in the tough market, pharmaceutical companies have to be able to manage drug demand and supply based on its financial impact. Pharmaceutical industry is very unique because consumers usually not the only ones who make purchase decision and make payment. Behind the scene, the industry has a sophisticate network that involves patients (consumers), doctors, pharmacies, regulation authority, and payers; in specialty drug area, besides the normal players, there are specialists, special pharmacies, and patient hubs involved, which makes the network more sophisticate. When forecast demand and supply in pharmaceutical industry, one has to consider all stakeholders in the network, which can’t be fit in the normal model. Hence, I think the supply chain in pharmaceutical industry is very interesting and noteworthy to learn.

There are generally two stages in the process. First stage is prescription writing. There are many factors that incentivizes or constrains a physician prescribe certain drugs: managed care programs the physician belongs to, patient price sensitivity, insurance program plan coverage, etc. The second stage is drug distribution. There are also many factors to consider especially in the “multi-source” environment. For example, which drug to dispense – branded drug or its cheaper generic version. Here the major decision maker is the pharmacies. According to researches, pharmacies usually gain better profit when dispensing cheaper generic version. Factors that incentivize or constrain pharmacies at this stage are insurance companies that reimburse the drug, hospital/clinics the pharmacies are affiliated with, patient support programs pharmacies are involved in, etc.

Hence, when pharmaceutical companies forecast demand and supply, they should consider all above components and correlate manufacturing, operations, distribution and sales planning when make the business plan and strategy. An interesting question here is that for orphan drugs, they are developing a novel route for drug distribution since patients (demand) are very hard to find and predict (less than 200,000 case per year). It will be interesting to see how they design the distribution plan correlates with the unique situation.

2.       Sara Fisher. Characteristics of demand for pharmaceutical products: an examination of four cephalosporins. RAND Journal of Economics Vol. 28, No. 3, Autumn 1997 pp. 426-446.


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