Reverse logistics in pharma industry

Here's is something to talk about. Pharmaceutical returns management: a $2.5 billion dollars returns industry and there is an estimated reverse flow of $5 billion dollar worth of expired, recalled, damaged packaging, or wrongly delivered products. The planning of pharmaceutical returns management requires a multi-objective optimization approach: the pharmaceutical companies need to deal with liabilities arising from returns management (e.g. recalls), have to consider a cost minimizing reverse logistics network and have to act fast to avoid disruptions in the sales level. An additional complicating decision is choosing to what to do with returned products.

The increasing importance of reverse supply chain visibility is felt at the heart of pharma companies; the tracking of counterfeit and lost/stolen products in reverse stream is as important as it is in the forward supply chain. I have searched a bit and found out third party returns management firms currently dominate in the pharmaceutical returns industry. There are huge risks associated with returns management in pharmaceuticals and also, in general, these companies has very responsive and visible (early adopters of RFID) supply chains. It is possible for these companies to integrate into reverse logistics activities as an extension of their forward supply chain competences. It seems very interesting; I will be searching on this topic for a while too, meanwhile please tell me what you think.

Decision making in remanufacturing: The role of technological uncertainty

Here is the latest post of my series on the decision making in remanufacturing. The new readers can read the previous posts on the other variables here and here.

I have already started talking about uncertainty. I proposed that there are two types of uncertainty, and told you in detail about the volume uncertainty. Today, I disclose the second type of uncertainty: the technological uncertainty.

In some industries the technologies used to manufacture the new products are evolving faster than the technologies remanufacturing them. When the specification of a product changes very frequently or the product life cycles are very short, such as in cellular phones and computers, the technological uncertainty poses a problem for the remanufacturing. The inability to forecast accurately the new technical or design requirements in disassembly creates adaptation problems between departments or between the suppliers and the firm. The consequence will be high renegotiation and coordination costs. So, it could be a good alternative to vertically integrate into the remanufacturing activities to avoid the repeated coordination costs arising from the need for sequential decision-making.

But coordination costs are not the only peril of the high technological uncertainty. The rapid technological change increases the probability of obsolescence in technological investments on knowledge and routines. It may be a wise decision not to invest in any specific assets in the face of high technological obsolescence. The market mechanisms work better under high uncertainty: the suppliers that already have the technology or the scale to adapt the new technological assets can be readily available. Go ahead and partner with these companies and shift the risks to another party, who has the scale.

These variables -individually- are never powerful enough to guide the decisions about remanufacturing. It is the big picture, including these variables and others specific to the firm's industry, its product, and its organizational culture, that enables them to make the right decisions.

The series will continue with a new variable soon.

For Beginners in Remanufacturing

I started writing this blog assuming only people who are interested in remanufacturing will follow. It was intended to be a very targeted blog with a specific focus on remanufacturing among all other product recovery activities. However, in time "other" people (colleagues from other fields, and some friends), who have no idea about remanufacturing, started asking me questions: what, how, but why?

I never dedicated space to the definitions and alternative terms for remanufacturing. But for the enthusiastic mass who took interest in this field (thank you!) I want to add some documents from time to time to bring them up to speed. First one is an EPA update. Contains very much the beginner info: the definition, compare and contrast with recycling, practical examples from different industries. This is a ten year-old document, not academical nor theoretical, easy-to-read and glossy (WasteWise Update 1997), and very appropriate for beginners.

Dear beginners, to read more, please see WasteWise here.

More acquisition news

Recently, I am hearing more and more acquisition news in remanufacturing industry. For instance CAT Reman has acquired Progress Rail and very recently Franklin Power Products (FPP) and International Fuel Systems. Yesterday Detroit Diesel Remanufacturing Corp. (part of DaimlerChrysler Truck) announced they are acquiring DMR Electronics. The main motive (announced by DDR) in this deal is increasing electronics content in capital goods, and company's desire to collect this competence in-house.

Let's look at the acquisition history of CAT Reman closely. The recent acquisition by CAT Reman resulted in increasing competencies in diesel engine remanufacturing. It seems that the big companies in reman, instead of focusing on a core competence, try to expand their competence range as much as possible. The "core competence" notion was introduced by Pralahad and Hamel in 1990 (in HBR). The basic premise: core competencies are the source of competitive advantage. What is the core competency of CAT Reman, is it excelling in diesel remanufacturing, or improving and competing in remanufacturing of locomotives? Cat Reman's current strategy is diversified growth, developing core competencies on a range of products. However, given the core competencies and competitive advantage relation, in time one can expect moving on to core competence by creating spin-offs from some competencies, outsourcing some not-value-adding operations. I look at the merger and acquisition trend as a cycle, first buy-merge then, simplify, create spin-offs, independent business divisions, outsource, then start over again, buy-merge...

It is interesting to look at remanufacturing from a strategic management perspective, I think there should be more (academic and professional) work on extending the basic tenets of management theory to remanufacturing operations.