APICS CEO Abe Eshkenazi CSCP, CPA, CAE -
September 09, 2011
In this week's issue of the Economist, there's a brief, two-column article on the drug shortage in the United States. While the article is short, the problem is widespread and complex. This year, the United States already has a shortage of 198 drugs; in 2004, that number was 58.
"As the problem has spread, so too has a sense of panic, with patients lacking essential medicines, doctors fretting over alternatives, and hospitals navigating a 'gray market' for drugs."
According to the Economist, the shortage is mainly with generic, injected drugs, and there are several factors contributing to the scarcity. First, manufacturing problems are increasing, and companies are importing cheap ingredients of unreliable quality. Next, generic drug makers have consolidated; therefore, the same drugs are made by fewer companies. Lastly, there's a pricing problem. Once a drug's patent expires, prices can drop. This last cause is further complicated by Medicare Part B, which can also keep drug prices low.
"Squeezed by slim margins, a firm may simply discontinue a drug. Dysfunction ensues. Grey-market vendors, health care's scalpers, hoard drugs and then sell them for many times their usual cost."
Of course, complex problems don't come with easy answers. Impending legislation requires that drug companies notify the US Food and Drug Administration (FDA) six months before they stop making a drug. Politicians also are examining Medicare Part B and increasing funding for the FDA. On another front, the FDA has been allowed in the past to import drugs that aren't approved in the United States but are used elsewhere.
Supply chain expertise needed
Many of you in the APICS community work for or with pharmaceutical companies. Therefore, it shouldn't be a surprise that there are many concepts in the APICS Operations Management Body of Knowledge (OMBOK) Framework that apply to the drug shortage in the United States, including risk management, quality, and six sigma. Consider the APICS OMBOK Framework definition of sales and operations planning (S&OP): "S&OP develops a midrange plan to operations using input from top management. The plan identiﬁes key resources to achieve the ﬁrm's strategic objectives and goals, and is the basis of all subsequent material and labor resource decisions and for the master production schedule."
Of course, the Economist article describes issues that go well beyond the APICS body of knowledge and cross over into areas of government. However, when drugs come off of patent and pricing protection, S&OP can play a key role. Drug manufacturers know when this is going to happen; the only thing they don't know is how many generic manufacturers will enter the market.
How well does your S&OP process work? If it's not working, do you know why? The APICS S&OP Folio: How to Be an S&OP Champion can help you identify problems in your process__or establish a process that works. It's time to make sure your company's S&OP is the best it can be.
In other news
How APICS Operations Management Now relates to you
Operations management is everywhere. Today, operations management professionals have unprecedented impacts on the global economy. Consider these questions and how today's edition of APICS Operations Management Now relates to you and your career.
- Have you or has someone you know experienced a drug shortage or price spike firsthand?
- Are shortages a problem in your industry, or does your industry have a similar situation surrounding patent protection? What measures do you take to prevent shortages and price spikes, and how can these be applied to the pharmaceutical industry?
- How does sales and operations planning benefit your organization?