Supply Chain Management at Nicholas Piramal India
Supply Chain Management at Nicholas Piramal India

Supply Chain Management at Nicholas Piramal India

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  • Pages: 4 (1616 words)
  • Published: October 8, 2017
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Supply Chain Management at Nicholas Piramal India Case Study Noemie Bisserbie, ET Intelligence Group, Oct-Nov 2006 Supply chain management (SCM) is one of the leading cost saving and revenue enhancement strategies in use today. Pharmaceutical companies are increasingly using this technique to improve the entire functional process.

SCM has also helped companies enhance their efficiency in managing resources and improving relationships. In the case of Nicholas Piramal, SCM has proved to be one of the most powerful engines of business transformation.Since the company’s decision to enter the high growth contract manufacturing and research services (CRAMS) segment, SCM has become key to the company’s strategy. After the acquisition of Avecia (UK) in 2005, and more recently, Pfizer’s UK Morepeth facility, the company’s ability to integrate over seas businesses and ramp up of supplies becomes key to the profitability it’s CRAMS business.

Background Three years ago, India’s fourth largest pharmaceutical company, NPIL, came up with a total restructure plan. Post patent regime, the company identified CRAMS as a major growth opportunity.With a slowdown in patented drugs sales and drying R&D pipelines, global pharmaceutical companies are increasingly exploring low cost options for outsourcing research and manufacturing. According to industry sources, the global pharmaceutical outsourcing market, which currently stands at $24 billion, could reach $53 billion by 2010. Low cost manpower and a large base of FDA approved plants, positions India high on the outsourcing list, Suven Lifesciences, GVK Biosciences, Jubilant Organosys, Nicholas Piramal and Shasun Chemicals & Drugs now featuring among the leading I

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ndian players in this segment.

Custom manufacturing for innovator companies stands out as the most attractive outsourcing opportunity for pharma companies. This market could reach, from an estimated $16 billion today, to $25. 7 billion by 2010. With the largest number of FDA approved plants after the US, India could potentially capture 10% of this opportunity. Change was inevitable Within just three years, NPIL has changed its entire business model.

NPIL’s recent buyout of Pfizer’s Morpeth facility, puts it on top of the league of Indian contract manufacturers with expected annual revenues of Rs 900 crore.While its international business accounted for just 3% of revenues in 2002-03, today it represents 50% of NPIL’s business, while domestic revenues account for the remaining 50%. SCM has played a crucial part in this transition. Since its decision in 2003 to enter the contract manufacturing business, NPIL has invested close to $175 million (Rs 806 crore) towards creating capacity in the segment. The company has spent about $100m on greenfield projects in India, and paid up around $25m and $50m towards the acquisition of Avecia and Pfizer’s Morepeth facilities, respectively.

The acquisition of Pfizer’s Morpeth facility is a big win for NPIL, as it fulfils its search for a significant acquisition in the contract manufacturing space. The facility comes with a five – year supply contract that could yield revenues of $350 million (Rs 1610 crore) during the tenure. The domestic company also expects to tie up with new customers. Morepeth’s base in Western Europe could enhance its appeal with other global pharmaceutical companies who may be more comfortable about sourcing from a UK-based plant.NPIL i

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confident that the track record of the company should help it attract new customers. While Nicholas Piramal’s acquisitions have allowed the company to build a critical mass and increase its technology range, the company will need to rationalize costs by synchronizing operations with the Indian assets and by sourcing intermediates from new locations to make the Avecia and Morpeth businesses competitive.

NPIL is notably looking at China as an opportunity to reduce sourcing costs significantly. Through these means, NPIL expects to cut costs by as much as 30%.Avecia sourced intermediates from Europe, notably Italy. The increase in topline as well as higher productivity combined with an integration with the Indian operations, should allow Avecia to breakeven by the end of this year. In case of Morepeth’s facility, NPIL is not looking at major restructuring but synergies with Indian operations should make the facility more profitable.

Notwithstanding the global foray, NPIL’s strategy should not be construed as a move to reduce its focus on the domestic market. India remains the core of its strategy.Domestic formulations market will continue to drive overall margins and provide a strong cash flow for the contract manufacturing business and for research. NPIL continues to upgrade its research and development facility and its talent base in order to meet the needs of its contract research business. Going forward, NPIL will look at both inorganic and organic growth in order to increase its product portfolio, as well as its technology range.

To fund future acquisitions, the board has approved a resolution to rise up to $1bn (Rs 4,608 crore), through the issue of securities in the domestic or international markets.While the company is not looking at a major acquisition, it could complete small to medium takeovers, if the opportunities arise. Investments in contract manufacturing have affected the company’s profitability in the short term, but margins are set to increase as revenues from its CRAMS business start flowing in. Integrating the Avecia and Morpeth businesses, acquired in the last year and ramping up supplies is expected to be the key to profitability. SCM has and will continue to play a crucial part in this transition.

Challenges for SCM at NPILToday, NPIL faces three major challenges in order to integrate its Indian and international businesses. The first challenge is cultural. Integrating cultures across India, Canada and UK has not proved easy. NPIL has found itself confronted to ego issues, senior executives in UK subsidiaries finding it difficult to report to Indian managers, as well as communication problems.

Sharing data between NPIL’s newly acquired business entities has also sometimes proved difficult. In the midst of changes, the company cannot stick to one rigid system.Sourcing and manufacturing will be another issue supply management executives will need to look close at. NPIL will need to change its sourcing locations for its Avecia business. China’s conscious effort to increase the quality of its bulk drugs makes it an attractive sourcing location. For certain formulations, Chinese manufacturers can offer one-tenth the price offered by European manufacturers.

There are however a few drawbacks. The Chinese Government has reduced export subsidies, manufacturing facilities are affected by an

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