Supply Chain Remedied
Anita Devasahayam , 1-Nov-2001

Seven years ago, Remedi Pharmaceuticals—the logistics and distribution arm of healthcare company Pharmaniaga—won a 15-year government concession to distribute pharmaceuticals and medical products to 149 district and general hospitals including those that came under the purview of the ministries of defence and education in Malaysia.

Under the agreement, Remedi has the exclusive rights to manufacture, purchase, store and distribute pharmaceutical and medical products. The contract held lucrative returns in the long term but as in any government dealing, battling bureaucracy proved to be a technological and administrative nightmare.

So in December 1994, the company decided to use IT to drive volume in its manufacturing and distribution chain with the aim to flatten the supply chain from the hospital pharmacies to the warehouse.

Turnover in 1995 for the distribution business at Pharmaniaga stood at US$47.4 million. Today, it is above US$94.7 million, contributing over 80% to total group turnover.

According to Gavin Hoh, general manager of Group IT Services and E-commerce at Pharmaniaga, for those in the distribution business, cash is tied up in inventory.

By making inventory fluid, Hoh realised that valuable time and money can be saved in the distribution process. He set out to create a centralised warehousing operation using an integrated logistic system based on IBM AS/400 servers. But the system quickly outgrew user needs, prompting the setup of a virtual private pharmaceutical network, Pharma*Net in 1995.

Pharma*Net links 149 hospitals to 20 regional nodes that are hooked onto remote warehouses via leased line. This allows hospital pharmacies to place direct online orders and provide order status inquiry facilities.

“Initially, hospitals were still faxing in orders and a great deal of the work was paper based, which was prone to mistakes. So we decided to computerise the process to reduce lead time between transactions and reduce data entry errors,” he said.

Hoh said that hospitals were given PCs equipped with a basic Hospital Inventory System (HIS) and pharmacists were also taught to manage their pharmaceutical and medical inventory. By allowing pharmacists to order online, it eliminated the data entry process by a hefty 90%.

At the distribution end, an online tracking system of medical products and drugs was introduced to ensure uninterrupted supply to hospitals through bar-coding and radio frequency terminals.

Despite equipping pharmacists with HIS, hiccups occurred. Among them were differing inventory placing and indenting formulae used at each hospital.

“So we decided to standardise, enhance the system, and make it as fool-proof as possible. Among the new changes made include an automated information trigger, updating inventory between distributor and hospital, and migrating from an indent-based order cycle to a just-in-time (JIT) practice where the distribution planning system automatically generates an electronic order when inventory reaches a specified level,” said Hoh.

Everybody in the entire pharmaceutical supply chain—from manufacturers and suppliers down to the hospitals and patients—gains as order processing, inventory management, warehousing, distribution and logistic management are connected.

Its efficient supply chain management has also brought in big players such as Pfizer, Bristol-Meyers and Witehall, which have contracted the group to manufacture and distribute some of its drugs. Remedi is also able to provide logistics and warehousing services to third parties such as Ranbaxy, Pahang Pharmacy, Ansell Medical and AC Cossor & Sons Surgical of UK. It also conducts order management and customer services for B Braun Medical Supplies.

Hoh added that the improvements allowed the Ministry of Health to monitor its medical products inventory and track drug consumption at hospitals. “Previously, hospitals bought without knowing if they had reached the budget ceiling, now they know their actual expenditure and can easily determine if they are running low on stocks.”

Increase Efficiency

The enhanced HIS, implemented in 1998, tracks over 22,000 codes for medical and pharmaceutical products. “Now we are looking into a tighter integration of our logistics and distribution side, as well as sending delivery orders and invoices online, and improving the payment cycle from the current 60 days to 30 days.”

A total of US$3.94 million was spent over the seven years to create a smooth supply chain. With a strong network infrastructure in place, the company started looking at strengthening its position using the Internet.

With telecommunications cost for Pharma*Net running up to US$395,000 a year, the company has no wish to replicate the network as it reaches out to the private sector. Instead, it set up an online mall Ehealth4all.com—targeted at both consumers
and businesses.

“The B2C market is small although we have 38 tenants selling over 1600 products. For this market, it (the Internet) is an important branding tool. The larger segment is in the B2B arena as we use the portal for our suppliers to route orders to us.”

The company then gradually replaced conventional procurement processes with online means using the portal as users from the manufacturing, inventory management, warehousing, logistics units are connected through the ’Net.

Hoh revealed that the virtual procurement channel raked in over US$15.8 million worth of orders since it was opened to suppliers in June this year. “We expect all our suppliers to sign up before the end of this month,” he said, adding that 75% had registered by September.

By helping other brick-and-mortars smoothen their supply chain, suppliers can save up to 60% of their time invested in processing an order. “This translates to US$131.6 million savings a year.”

Tenders can also be invited online allowing tender submissions, document purchases and award notifications to be done quickly and transparently. “The tender information is automated, consolidated and a comparison chart is drawn up allowing decisions to be made faster,” he said, adding that over US$7.9 million worth of tenders have been awarded since May this year.

The returns on investment are impressive. “We had over 400 people in 1995 with a turnover of US$47.4 million. Today it is 300 people with US$94.7 million revenues. We realise that volume increase contains the costs and our direction is to automate everything that need to be automated,” Hoh said.

Anita Devasahayam can be reached at anitadm@pc. jaring.my

More on supply chain management:
intelligentasia.com/scm
intelligentasia.com/pharmaceuticals

The Company

Remedi Pharmaceuticals won a 15-year government concession to distribute medical products to 149 district and general hospitals. It embraces IT to drive volume in its manufacturing and distribution chain.

Competitive Strategy

A centralised warehouse using an integrated logistic system based on IBM AS/400 server was built. The company also set up a virtual private network, Pharma*Net, that links 149 hospitals to 20 regional nodes that are connected to remote warehouses via leased lines.

ROI

• Increased 1995 revenues of US$47.4 million to US94.7 million today.
• Automation reduced workforce headcount from 400 to 300 during the same period.
• Online ordering system saves time for data entry by 90%.