Supply chain

Can blockchain applications disrupt the broken pharmaceutical supply chain?

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Read the original article, published July 12, 2019 on Smartereum.

pill bottlesWhile their research and development will have taken around 12 years and cost around $2.6 billion, medicines that cure or help manage pain and suffering often do not have a very comfortable journey as they become available to patients. The ‘factory-to-pharmacy’ supply chain is old, often broken and ripe for disruption.

The pharmaceutical industry has been one of the best-performing industries of the past decades with companies excelling in many disciplines (research and development, manufacturing, sales and marketing) while maintaining the highest safety and quality standards. As a result, both sales and profits have risen more than in most other industries.

In healthcare, the supply chain stretches from the basic chemicals bought by pharmaceutical manufacturers, and the materials and components used by device manufacturers right up to the patient, and has different functions depending on where you stand on that continuum.

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The patient wants assurance that at each stage, every care has been taken to ensure the product is precisely “what the doctor ordered”. The lawyers and regulators want complete traceability of every ingredient, material and component, the healthcare providers want products available when needed and production managers want everything “just in time”. Sales and marketing want to monitor downstream distribution and accountants want everything at the best possible price at a time when budgets are constrained.

The most comprehensive systems start with sourcing suppliers, adding in their catalogues, defining SKUs (stock-keeping units — a unique identifier for each distinct product and service that can be purchased) setting up suppliers in the ‘shopping’ environment with images and product descriptions using standardized descriptions and categorizations.

Then, there is a requisitioning system, order approval and transmission, goods receipt, inventory management and payment. Finally, the system outputs the financial details to the ERP system.

Good supply chain management software is able to hook into business intelligence (BI) applications to provide data on the performance of both suppliers and customers and also to use BI to inform supply chain decisions.

A thousand things can disrupt a chain; suppliers have their own suppliers, they use logistics companies, ports, airports. They trade in multiple currencies and often in countries where civil and political unrest are common. Weather and other natural phenomena can disrupt the best plans. Monitoring every link in all the supply chains connecting to a large manufacturing company is very difficult — unless you have help. Information from Supplier and Risk Monitor can be linked into ERP or supply chain software so that up-to-date information about suppliers and logistics is flagged up to anyone about to place an order.

In addition, pharma companies are increasingly relying on a global network of R&D partners, suppliers, logistics providers and contract manufacturing organizations (CMOs) to develop, test, produce, ship and distribute their products. Using specialized outsourcing partners for key supply chain activities provides companies with significant cost and flexibility benefits. Few large pharma companies are not outsourcing to some degree.

However, this new outsourced model brings additional complexity. How do you run a supply chain tightly that is increasingly virtual? How do you run an outsourced supply chain when the in-house enterprise resource planning (ERP) system(s) only see(s) what is inside the four walls of the company? How do you manage workflows that involve exchanging information with outside parties across the multiple tiers of your supply chain?

New strategies use the experience of consumer product companies but take into account the specifics of the pharma industry. A cloud-based network to enable end-to-end visibility and collaboration among supply chain partners, combined with dedicated decision-support applications that leverage the data in this network is the best set-up. The benefits are substantial:

  • Up-to-date, end-to-end supply chain visibility — “one version of the truth” shared across all partners
  • Full quality control of CMOs — as required for traceability and serialization
  • Higher on-shelf availability, generally with lower inventories
  • Through smarter channel allocations, better margins and ultimately higher market share

The early adopters are already capturing these benefits, putting themselves ahead of their peers.

Where blockchain fits in

Blockchain technology — made famous by the digital currency Bitcoin — is essentially a distributed ledger system, where all participants on the blockchain share the entire copy of all transactions on the network. While the financial industry has embraced the technology for payments, settlements, securitization, etc., other industries are starting to see applications of blockchain for themselves.

Companies like IBM have pioneered the use of blockchain to improve traceability of “goods” as they move through supply chains. For example, IBM’s FoodTrust has been used by companies such as Walmart, Carrefour and Albertsons to track produce from the farm to the store. Global container carriers CMA CGM and MSC have joined TradeLens — a blockchain-enabled digital shipping platform, developed jointly by IBM and shipping giant Maersk — to improve “trust, transparency and collaboration across supply chains.”

IBM also announced a collaboration with KPMG, Merck and Walmart to build a pilot to track drugs through the supply chain. Drugs, including over-the-counter, accounted for $35 billion of sales in their latest fiscal year ending January 2019.

Companies are usually wary of sharing information that they deem proprietary, including details of their supply chains. However, the US Drug Supply Chain Security Act, enacted by the US Congress in 2013, is forcing pharmaceutical companies to collaborate in order to comply with the Act’s requirement of being able to track and trace certain prescription drugs through to their distribution in the US. Even outside of regulatory requirements, the industry has been fighting the scourge of counterfeit drugs. With over 73 billion in counterfeit medicines being traded annually, this is a global problem with serious consequences.

A permissioned blockchain-based tracking mechanism, similar to IBM FoodTrust, would be an ideal solution for this application.

Permissioned blockchains

A detailed explanation of permissioned vs public blockchains is outside the scope of this article. But briefly, all information on a public blockchain, like Bitcoin and Ethereum, is available for anyone to read. On the other hand, participants must be authorized to be able to read from a permissioned blockchain. This allows for sensitive information about a company’s relationship with its partners and suppliers to be shielded, while allowing pertinent information about the goods themselves to be shared with all stakeholders.

In the case of prescription drugs, this would mean that everyone in the supply chain could potentially trace their product from the raw materials all the way to the consumer. The decentralized and immutable aspects of blockchain technology ensures that no single entity “owns” the data (it will be shared by all), and records can never be tampered with. This can inspire confidence in the system among all stakeholders, and can be used as a system of record for regulatory purposes.

The system can also be used to quickly identify the source of tainted drugs involved in recalls, and remedy the issue.


While blockchain technology is relatively new and comes with a lot of hype, the pharmaceutical industry should pay attention to its evolving capabilities to improve the ability to track and trace drugs as they flow through the complex supply chains.

Learn more about blockchain today

CMO & Cofounder,

Salil Kallianpur

Marketing, strategy and digital/business transformation adviser

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