Pharmaceutical Company Case Study

Pharmaceutical Company and Value Logistics Partnership

History

• The case study is about the distribution model chosen by a pharmaceutical company that is listed on the JSE, and is considered as one of the top 3 pharmaceutical companies in South Africa. The pharmaceutical company provides world class medicines to the public and private sectors.
• In 2010 the pharmaceutical company initiated a search for a new LSP for the implementation of a true national logistics solution for the company’s various product ranges. With the main objectives being a reduction in supply chain cost and increased service levels.
• The pharmaceutical company and Value Logistics started its partnership in March of 2010. The partnership extends to a solution driven 3PL service offering, focusing on collaboration, flexible service offerings, cost reduction and improvements on service delivery.
• The pharmaceutical company and Value Logistics have worked hand in hand to find the most cost effective distribution solution, whilst focusing on customer service of the highest levels. The company currently enjoys the benefits of the full range of distribution services offered by Value Logistics.

Problem:

• High distribution costs were incurred, the company was charged on a % of invoice value pricing structure, the company’s products are characterized as having a high value to weight ratio which together with the pricing structure lends itself to high distribution cost.
• Consignments to specific customer groups are time sensitive and access constraints to customer sites restricted larger vehicles.
• Consignments are often of relatively low weight and physically small.
• Delivery points include metropolitan areas as well as outlying public hospitals and medical facilities in rural areas.
• High degree of in-transit losses were experienced with the existing service provider.

Approach:

• The initial approach from Value Logistics was to obtain a clear understanding of the complexities of the company’s business and to understand and align with the company’s strategic objectives and goals.
• A cross functional team of highly trained and experienced staff were assigned to analyse the business and formulate solutions that would cater for customer specific needs.
• To truly recognise the business as a partnership and create a sustainable win-win environment benefiting both parties.
• Immediate feedback and follow-ups supported by clear communication channels.
• Having the ability to adapt and react to changing business conditions by being operationally flexible.

Solution and Implementation:

• The distribution billing structure was changed from a % of invoice value billing structure to a rate per KG structure.
• Value Logistics designed and introduced a customised solution created through a combination of Value’s existing service offerings to cater for the different service requirements of the company’s various customer groups. Full truck loads, shuttles, customised rental options, freight consolidation, leveraging economies of scale and the optimal use of established service offerings were also considered and implemented to meet requirements in regards to lead times and cost.
• Small low weight consignments are distributed cost effectively through the Value Express division, improving lead times, service levels and eliminating the access constraints at customers of larger vehicles.
• Technology and engineering:
  • Reporting plans are in place for the company to have visibility on KPI’s, jointly calculating logistics cost ratios, the monitoring of outbound freight, claims and outstanding POD’s.
  • An EDI interface was implemented to streamline processes, the transfer of information and support.

Results and achievements:

Service improvements:

• Improved lead times to certain regions by up to 50% enabling the company to reduced inventory holding.
• Reduced Failed deliveries enabling the company’s customer representatives to spend less time resolving problems and more time selling.
• Improvement of on time delivery KPI’s.
• Fast response times

Cost :

• Immediate reduction in total distribution cost as a result of Value’s operational efficiencies and alternative billing methodology.
• Control of cost: With greater visibility of cost to the customer the stage is set for an environment where cost can be better controlled.
• Loss Control – Claims and damages have been significantly reduced as a result of freight handling and debriefing procedures as well as driver training programmes.
• POD’s are electronically available to the company within hours of the delivery taking place, in turn improving customer cash flow and stock control.

Operational Improvements:

• Information technology system integration – achieved real-time visibility of shipments that leads to minimum manual intervention, improved accuracy and reduced manpower.
• A highly automated flow of information allows for improved accuracy and planning using real time information.

Key Outcome:

The end solution requires human resources, the implementation of physical systems and IT to be seamlessly integrated in order to achieve the desired results. The logistical solutions and service offerings implemented for the company, enables the business to have a competitive advantage in the market place, that is valuable, rare, hard to imitate and of which a ready substitute cannot be easily found.