GlaxoSmithKline – Supply Chain Challenges – Part 1

Supply chains have improved drastically in the past ten to fifteen years. The revolution can be attributed to companies’ shift in focus to efficiency. This applies both to the supply and manufacturing operations. GlaxoSmithKline is an example in case. Its efforts in improving production processes and packaging and enhanced supply to meet demand better are proof enough. This article highlights some of the challenges GlaxoSmithKline faced and how it overcame them.

GlaxoSmithKline – The Company

GlaxoSmithKline (GSK) is the world’s second largest pharmaceutical, biologicals and healthcare company (as per 2004 figures). Its sales touched GBP 20 billion yielding a profit of GBP 6 billion approximately. It employs around 100,000 people worldwide, with over 40,000 in the sales and marketing teams. Primarily headquartered in London, with dual US headquarters in Philadelphia and Research Triangle Park. GSK’s prime activities include creation, discovery, development, manufacture, and marketing pharmaceutical and consumer health-related products the world over.

GSK operates largely in two segments, Pharmaceuticals and Consumer Healthcare. GSK has more than 36,000 SKU’s manufactured across over 80 manufacturing plants worldwide. GSK has a market share of seven percent in the pharmaceutical business.

Year Merger/Acquisition New Company Name
1989
Beecham merged with SmithKline Beckman SmithKline Beecham
1995
Glaxo acquires Burroughs Wellcome & Co. Glaxo Wellcome
2000
Glaxo Wellcome merged with SmithKline Beecham GlaxoSmithKline
2001 GlaxoSmithKline acquires consumer health care company Block Drug Co. GlaxoSmithKline
Exhibit 1: Merger and Acquisition activity at GSK

The Challenges

Post merger Integration Issues
With the spate of mergers and acquisitions, GSK faces three major integration challenges:

* Integrating the separate identities
* Integrating different strategies and
* Integrating the packaging and manufacturing operations of Glaxo, Burroughs Wellcome, Beecham, SmithKline Beckman and Block Drug Co.

Complex product portfolio
Market dynamics and short life expectancy of patients have tilted the demand in favour of specialised drugs. GSK, like its competitors has to combat the need for specialised drugs continuously and reaping quick rewards. Such market forces alongside a changing industry make creative marketing and innovative products crucial.

Multi faceted US Markets
The US market mainly comprises of chain pharmacy stores, more traditional mom and pop stores and high-end deliveries. Such diverse markets have diverse needs. Catering to different customers brings forth the challenge of managing small volumes of niche packages.

Regulatory and operational challenges
Frequent merger and acquisition activity implies complicated paper work (re-registration and labelling) compliance with regulatory frameworks of different countries. With over 250 legal entities across the world, printing and other associated challenges emerge with different names that have to appear on different products distributed in different countries. The complexity increased manifold with the mergers owing to labelling changes. Moreover, different markets have different schedules on when GSK must incorporate the labelling changes.

Different departments could always make different packaging design changes. Communicating packaging specifications, graphics and artwork changes across the entire pharmaceutical organization was challenging if not an insurmountable task.

Outsourcing/supplier challenges
One of GSK’s products, Aquafresh Floss‘N’Cap (AFNC) is symbolic of the typical outsourcing challenges. AFNC has a flip top containing dental floss and toothpaste in the tube. AFNC had three custom designed sub assemblies outsourced to three different suppliers. The suppliers worked in sequence on the custom designed cap. Once the package reaches GSK, only filling of the tube with toothpaste remained. Coordinating with these three cross Atlantic suppliers, especially outside GSK’s manufacturing facilities was a challenging task.

Finding alternate/multiple suppliers
GSK had a bad experience early on with supply disruptions from a single source supplier. Almost a decade ago, one of its sole resin supplier’s plants exploded. It had no alternate suppliers and consequently had to lose market share not to mention customer goodwill, as customers have to do without critical drugs or life saving devices. GSK wanted to eliminate such situations. The challenge was not only to find alternate suppliers but ones who complied with the FDA regulations and supplied in time.

On the major machinery and equipment side, GSK’s goals were different though. It wanted to limit the number of machinery suppliers to better familiarise with the manufacturer’s equipment and establish partnerships with machine suppliers who offered total packages when compared to independent system integrators.

Operational/production challenges
The foremost challenge in production operations was synchronising with different manufacturing locations and multiple suppliers. With different packaging and assembly lines, implementing automation and advanced technology or process improvement programmes was a huge challenge. Other considerations were quick machine setup, minimum production stoppages, better equipment availability and flexibility besides handling innumerable design changes.

Technological Challenges
Technologies, for example RFID in anti-counterfeiting are largely untested or simply not the best. GSK has RFID supply chain projects planned but faces a tough test with respect to being the first mover in investing huge sums into the technology or adopt a wait and watch policy. GSK may lose out in both cases owing to failure of the relatively new technology or lose out to competitors who can gain significantly by adopting the technology faster

* Originally published by me in TMM

Glaxo Smithkline (GSK) spends about GBP 800 million to develop a drug. Its efforts and money will go waste unless its customers get the product in time without any defects and have no difficulty in handling the package. In other words, every facet of GSK’s supply chain should be up to the mark. This article (Glaxo Smithkline Supply Chain Challenges –Part I) highlighted some of the supply chain challenges GSK faces. Part II of this article (Glaxo Smithkline Supply Chain Challenges –Part II)illustrates GSK’s response to those supply chain challenges.