The pharmaceutical supply chain is a maze of regulations, high costs, and efficiency challenges. At GenLots, we have now 6 years of experience working alongside one of the world’s leading pharmaceutical companies to transform this complexity into clarity. In the following I will try to explain how we use our unique AI to balance quality, compliance and profitability in this industry.
At the core of GenLots is our proprietary machine learning algorithm which dynamically calculates optimal order sizes and timing for manufacturing companies. Unlike traditional lot-sizing methods, our AI adapts to parameters like quality control costs, expiry timelines, and quantity discounts in real-time, making thousands of calculations that would be impossible manually.
By nature, the GenLots algorithm is very transversal across industries. The core MRP (Material Requirements Planning) from which we export data has not really changed since the early nineties, doesn’t really change from industry to industry nor from company to company. This is one reason why our ramp-up time can be so quick (< 2 Months) : standardisation.
However, incentives and pay-offs for installing GenLots can be very different for each industry.
Pharma – A special Challenge
There are several ingredients which make the pharmaceutical supply chain a special challenge.
As a planner in pharma, you have to contend with many contradicting constraints. Notably you have to:
- Comply with heavy regulation
- Ensure high availability
- Plan with expensive and time-consuming quality controls
- Handle expiry dates
- And obviously on the way, your bosses tell you to do this all in the most efficient, cost-saving and inventory-reducing way possible
So how to handle all this at once?
What is clear, is that a standard SAP implementation comes to its limits quickly and Excel workarounds are numerous. Other industries such as consumer goods have digitised their supply chain heavily as they are a competitive advantage. Pharma lags behind in this as R&D and compliance has been historically the focus and costs and efficiency came way behind.
The GenLots’ algorithm and user interface can provide a shortcut to change this very quickly and enable planners to handle all those constraints much more comfortably and efficiently.
GxP and availability
Good manufacturing practices or GMP are very strict in pharma.
It is normal, that in an industry where a bad ingredient, a wrong labelling or a simple human error can lead to the death of thousands of patients, regulations are demanding. For supply planning this has two main effects: high service level and high order costs.
Many have heard about FDA, drug approval and the role of clinical trials. What is less well known, is that drug approval also depends on the ability to manufacture the medication continuously. Imagine a patient who is on a cancer-treatment program and suddenly the medication is out of stock, unthinkable! That (and the fact that not producing costs several Million dollars a day for one single factory), means that the service level and safety stocks in pharmaceutical environments are particularly high.
Quality Control
Another GMP cost driver is quality control. This can be quite simple for i.e. packaging and labels, but also be extremely expensive for externally produced ingredients and can go up to EUR 50 000 per delivery. Those quality controls can include physical, chemical and microbiological tests and be done internally or externally. This means that ordering a bigger batch and therefore ordering one time less can have a disproportionate effect on costs.
But quality control is not only a cost driver on the inbound side, but also increases inventory and lowers service levels. Why? An ingredient can be stuck in quality control from 3 days to several months before it can be used in production. We manage some product categories which assume a standard 6-week quality inspection period. This drives inventories up and challenges the high availability.
With GenLots we have analysed those costs and in a first step had a different flat fee for different material categories. But with some clients we went further and got the quality control costs down to the material code level in order to set the cost saving incentives for the algorithm right. Those projects alone have been very useful for our clients as their planners often didn’t know the costs at all.
With our GenLots OrderAI we reduced inbound deliveries by over 50% and consequently the number of quality controls with all their negative effects on cost, inventory and availability went down by a lot.
Batch expiry and artwork changes – unplanned obsolescence
As already mentioned, pharma is heavily regulated and ingredients can be very expensive. Every ingredient has an expiry date. Some can be retested if they expire, some have to be thrown away.
This is especially true in a field which might not be immediately intuitive: pharma packaging. As regulators in different countries can decide to change packaging and notices, you have to throw away a lot of printed materials which often have large quantity discounts. For example, even a minor label change that allows a medication for pregnant women in China can force disposal of millions of pre-printed packages. It is not like in food and beverage where you can “use up” old packaging and only then start new ones. This has to be planned and is a source of several Million EUR in unnecessary cost, and that even without counting the CO2 footprint this generates.
GenLots OrderAI handles the trade-off, is punished for letting inventory expire and rewarded when discounts are achieved.
Conclusion – From Complexity to Control
GenLots’ unique AI helps pharmaceutical companies navigate the complex tradeoffs between quality, regulation and profitability when it comes to purchasing their materials and ingredients. With over six years of development, GenLots’ AI combines advanced algorithms with a deep understanding of industry-specific challenges. The results for our longest standing client are 50% fewer deliveries, 5% lower inventory and several Million Euros in discounts and avoided scrap. Our standard integrations and partnership with SAP help deliver quickly an edge in a traditionally slow and highly regulated environment.
Are you working in pharma and experience planning headaches? Don’t hesitate to contact us to get a meeting with the founders.
