Business Accent

Role of IT in pharma growth

Ipshita Basu Guha analyses the scope of IT in the pharmaceutical sector.

The pharmaceutical sector in India is on an upswing. McKinsey has projected that it is expected to touch Rs 1,200 billion by the end of 2010. The projected growth will be a result of rise in exports of generic drugs to regulated markets of the US and Europe. It will make the pharma sector highly lucrative in terms of investment and opportunities and lead to fierce competition from MNCs due to increased focus on R&D activities.

The increase in competition and regulatory compliance will affect the medium to large manufacturers the most. As these companies have to manage the data and information of their loan licensees and trading partners as well, apart from their own. To compete with MNCs, our indigenous manufacturers have to give high priority to automation. That implies IT-enabled processes for data accuracy, availability, accessibility and traceability. The importance of accurate and timely data and the subsequent information generation is very critical in the pharma sector. Hence, use of IT is important for the sector.

Basic processes

A company which is manufacturing and marketing its own products as well as involved in Loan Licensee and Trading arrangements usually undertakes three processes. (Loan licensee partners produce products of the main company by levying a labour charge. The raw/packing materials are provided to them. Companies buy the finished goods from the trading partners at a fixed rate and then sell at a markup. These arrangements are made due to license requirements for manufacturing pharma products and to reduce the cost of machinery installation).

The three processes are purchase, produce and sell.

The first process deals with mainly the production planning, purchase, stores and quality control functions. Production planning estimates the need for raw materials based on the orders on hand, stock, sales trends and goods-in-process quantities. Requisitions are raised by them for further procurement based on shortfall.

Raw materials in pharma are mainly of two types - raw and packing material. The former consists of vitamins and minerals, which form the actual edible product. The latter comprises cartons, bottles and foils in which the medicine is preserved till final consumption. Hence, calculation and planning is required for both the materials. Purchase function involves raising direct purchase orders to approved vendors or via quotation comparison in case of L1 purchase. (The latter means ordering from the vendor offering the lowest rates irrespective of quality and other terms.) Goods are received at the manufacturing stores and material inward is done. These items have to be cleared by Quality Control before considered as Good Stock for issues. An Analytical Report Number is must for each of the items used in production as per FDA guidelines. Accounts can make payments only on the basis of AR status of the items.

Tablets, capsules, syrups, suspensions and drops comprise pharma-finished goods. These come under the produce process, which deals with production planning, production, stores and quality control functions. Every item produced is identified by a unique batch number qualified by a manufacturing and expiry date that is fundamental in pharma production. It is allotted at the start of the batch or by production planning during the planning stage. A Batch Manufacturing Record is maintained throughout the stages of production to note each and every usage of material and process indicators. The raw/packing material usage has to be tracked based on the AR numbers and expiry date. An item which may expire before the expiry of the batch cannot be utilised. This is critical information which has to be managed at all instances right from entry of the material in the company stores. Any material unutilised during production is returned to stores. The finished goods undergo quality control check and once passed are ready for sales. A certificate of analysis is prepared and maintained as a proof for future verification in case of any complaints or issues. A small part of the finished goods are stored as Controlled Samples in the laboratories for observation.

The selling process involves marketing, distribution, logistics, excise and production planning functions. The finished goods are stored in bonded warehouses and later shifted to warehouses if required. Distribution personnel dispatch the goods in coordination with logistics function based on the marketing plan. Excise registers are maintained for all goods moving in and out of the factory premises. Production planning is a core function involved in all the processes in some form or the other. Accounts can book sales orders in the accounts system and receive payments.

Thus, the amount of data and information moving through the company in the three processes is huge and managing it becomes a big task. Same is the case with the company’s loan licensees and trading partners as well.

IT-enabled processes

There is considerable scope for introducing IT in pharma processes for gaining a competitive edge. Above all automation should be aimed at the purchase processes—linking purchase, stores and QC. Subsequently requisition, material issue and sales processes can be automated.

Inventory management (raw and finished goods both) is the most crucial area which should be automated and aimed for real-time data. All raw materials have a fixed expiry period. If the item nears expiry then the only option as per FDA norms is to destroy it. Destruction of material means loss of money. Raw materials with only specified life should be purchased. The inventory level of items should not be too high. Backward integration with suppliers’ systems can play an important role to safeguard against this issue.

The purchase function can be automated along with inventory as they are most closely related. This automation will lead to creation of an Item Master and Vendor Master. It will help in standardising the systems and meeting ISO certification requirements.

Many companies opt for LIMS—(Laboratory Information Management Software) for managing their QA/QC activities. These are slightly advanced and expensive software. The companies should look for some basic automation in terms of generating AR Reports, Certificate of Analysis, Test Details, GRN Passing Details and QC standards.

Requisition and material issue process automation will lead to linkage between stores and production. If this process is IT-enabled then it can enable two functions—keeping track of the items used in specific production batches and managing the stock level in stores in real-time. This will lead to efficient inventory management. Low inventory means less inventory carrying cost. It is an essential requirement in pharma production to track batch-wise AR numbers of raw/packing material used for a particular finished item. The Bill of Process for production is another area which is very complex and dynamic. There are frequent changes in the input items due to various marketing and regulatory reasons. It is essential to keep track of these changes and share the information with all concerned functions.

Finally, automation of sales and distribution function. Pharma sales are done mainly through various channels like C&F agents, super-distributors and OTC (over-the-counter). There is only transfer of goods in case of Carry & Forwarding agents whereas outright sale in case of super-distributors. OTC sale is simply selling through various stores without the need for a prescription. Apart from this, there are institutional sales to hospitals and defence services. Sales in different states mean different tax structure for different category of products (pharmaceuticals and food products such as vitamin supplements). These tax rates keep on changing at different intervals and the systems should be updated according to the same. Sales stock level management is essential from production planning and profitability angles. There should be a system to record the warehouse stocks, projected finished goods from production, and goods with C&F agents, outright sales, sale returns, amount receivable and closing stock in order to carry optimum stocks and hedge from stock-out situations.

Connecting all the above functions through IT will lead to a centralised accounting system which can have online status of receivables and payables, and produce the balance sheet status. Data entry and cross–checking of data can be avoided.

Companies should try to go for phase-wise automation so that the burden on resources is minimal and there is visible improvement in output.

The future of pharma in India is that of consolidation and concentration on generics. Smaller companies will end up being loan licensees to larger ones or will get acquired. The focus will be on innovation. MNCs are expected to focus on manufacturing their products in India due to the cost advantage of cheap labour and land compared to developed countries. IT-enabling the various functions and processes will lead to better and efficient management along with scalability.

The author works with a pharma company as Business Systems Analyst. The views expressed here are her own and not necessarily those of her employer. She my be reached at ipbasu@rediffmail.com