In this series of articles I am going to discuss the topic of packaging complexity and outline a series of tips on approaches you can take to manage.
So to start with, what is packaging complexity? Many pharmaceutical companies have broad product portfolios that they are selling in multiple markets. Beyond the US and big five European markets, sales volumes can drop dramatically for individual SKUs (stock keeping units – lowest saleable item). Even within those markets, portfolio expansion and specialised products can result in low volumes. These effects result in an explosion of packaging components of ever decreasing volumes, creating a significant hidden factory to manage and maintain, and reducing run times on packaging lines. We have seen pharmaceutical companies where >50% of their SKU portfolio have daily sales volumes of less than 30 packs, yet where packaging batches supply years of stock.
So why does this happen? I would suggest there are four main root causes:
- Maximising the value of the portfolio
As margins are squeezed and new blockbusters are becoming increasingly difficult to find, pharmaceutical companies are focusing their attention on maximising the value that they can extract from their current assets. One of the significant ways they can achieve this is to create and launch as many existing product variants, in as many markets, through as many channels as possible. For many companies this represents a significant change of strategy as traditionally they would have focussed their attention on a few large products in the larger volume markets.
- The move to higher value, lower volume products
Many new products coming to market are for treating more complex conditions with increasingly tailored therapies. Whilst these products may be very high value, the product volume is typically much lower than traditional pharma products. Moreover they often have complex dosing regimes, devices or combination products that require specialist and complicated packaging.
- Legislation and regulation
Legislation and regulation is ever increasing in the industry – Braille, font size, authentication, tamper evidence etc. The requirements and development of this legislation is not harmonised across all of the different legislators globally, and in some cases it could appear that any effort to harmonise is met with a counter requirement for differentiation. This not only results in added complexity through new features having to be added to the packaging, but those requirements being necessary for some markets but not others – yet a product may be packed for all markets on the same packaging line.
- Local requirements and preferences
Requirements here can fall into two groups – necessary requirements to meet the needs of the market e.g. language, and local historical preferences e.g. a 28 or 30 tablet blister count. Some of these are captured in local regulation and it can be difficult to differentiate between what is a ‘must have’ and what is a ‘nice to have’. But even where it is not a mandated requirement, it can be very difficult to shift a local preference.
Packaging complexity creates a number of undesirable effects for both the pharma companies and their customer base. These include:
- Compliance issues
It is essential that the correct products and components are supplied to the correct markets with the latest approved product information. With an ever-increasing portfolio complexity exercising appropriate jurisdiction control over what is supplied where and when gets ever more difficult.
Also many companies have tried to overcome supply to the smallest markets with standard ‘general export’ type packs, only to find unexpected and uncontrolled local repacking activity where standard leaflets are replaced with locally sourced local language ones. These sorts of practices obviously present an unacceptable compliance risk.
- Lost commercial opportunities and Product unavailability
Sometimes the financial trade-off between supply of a unique variant to a specific market versus the cost of supply doesn’t merit selling that product in that location. Whilst that may be considered a victory in minimising complexity, it is a lost opportunity and there are patients in that country that don’t have that product or product-form available to them. It is therefore a bit of a hollow victory, and if the company had more cost effective capabilities to supply and maintain such variants, this could have been avoided.
- Manufacturing inefficiencies
Small volumes obviously mean small pack runs and lots of change-overs. This is generally counter to the objectives of a packaging operation, who are measured on efficiencies and line utilisation. We have seen many examples where the packaging line spends more time being changed over than actually producing product.
Complexity can also create needs for specific additional tooling, equipment and hand finishing.
- Support function inefficiencies
In addition to manufacturing inefficiencies, there is a whole hidden factory in the support functions supporting the product and component range – additional regulatory staff maintaining licenses and product information, increased volumes of artwork change, more purchasing activity, more warehouse space. This is often invisible and not considered in the cost of supply.
There are two main types of obsolescence we would consider – packaging components and finished product. Economic order quantities can mean that the volumes of packaging components purchased have a disproportionate amount of forward cover versus the typical rate of change of those components. Therefore high amounts of materials can be written off when components are changed.
Similarly, high inventories of low sales volume finished pack stock, caused by minimum packaging line order quantities risks obsolescence due to shelf life expiry, causing either product write-off or repacking.
So why is packaging complexity necessary? We would suggest there are two main reasons:
- Market access – you cannot sell the product in this market without meeting these specific requirements, whether they be legislative or not.
- Commercial advantage – providing these features gives an advantageous position in the market and the incremental impact on cost of goods is outweighed by the commercial benefits obtained.
So some complexity may be considered ‘good complexity’ because it presents value in terms of the financial return from the sale of the product. The key is to learn how to cope efficiently with this ‘good complexity’ whilst developing methods to control the other type of complexity – the ‘bad complexity’.
Unfortunately there does not seem to be any golden bullet that will do this for you. Rather it is a series of techniques to be applied across the portfolio that allows you to manage and cope with the complexity you are presented with. In the forthcoming series of articles, we will discuss a series of tips for how to do this.
If you have any thoughts or comments on this blog please contact me at Andrew.Love@be4ward.com