Turning up late for a key meeting wasn’t the end of the world. But when the Wyeth executive got tied up tracking a shipment of clinical-trials materials through Russian customs instead of making his meeting, it was just one more tell-tale sign that the pharmaceuticals giant needed to attend to some serious supply chain issues.

Like others in its industry, Wyeth Pharmaceuticals is challenged to “fill the pipeline” with new drugs. The company develops drugs for women’s health care, infectious disease, gastrointestinal health, central nervous system, inflammation, hemophilia, oncology, and vaccines, and its ability to do so quickly and efficiently has major implications for the wellbeing of individuals everywhere.

Those challenges also have obvious ramifications for the shareholders of parent company Wyeth—one of the world’s largest research-driven pharmaceutical and health care products companies. Most “pharmas” today are under terrific pressure to discover and develop new drugs faster and more frequently as patents on existing drugs expire and generics push into their markets. And, oh, by the way, they also have to contain costs across the organization—drug research activities included.

Long story short: Recognizing the size of the challenges, Wyeth found a way to streamline its new global drug discovery supply chain by outsourcing a substantial amount of its logistics function to DHL. With better visibility and cost control, the company says it’s gained a significant edge in what has become a white-knuckle market. Wyeth now has the tools and the insights needed to be able to prod its in-trial drugs through customs controls and speed them through every supply chain stage.

To bring home the significance of Wyeth Pharmaceuticals’ bold move, it’s important to take a closer look at the environment in which the company must operate. Worldwide, the global life sciences sector—pharmaceuticals, biotechnology products and medical devices—has slowed from a 12 percent compound annual growth rate through the first half of the decade to little more than half that rate.

At the same time, 13 “blockbuster” drugs, collectively representing revenues of about $67 billion from 2007 to 2012, are about to come off patent. That is especially troubling given the litigation claims from aggressive generic drug producers such as India’s Ranbaxy. Management consultancy Accenture believes that the established biopharmaceutical companies’ pipelines are poorly positioned to replace and add to the sales that will be lost to generics. According to an Accenture estimate, only about a third of their products seem “safe” from generic threat—an alarming drop from roughly half just five years ago.

Meanwhile, there are diminishing returns from traditional sales and marketing methods; physicians, pressed for time, are less and less receptive to the same kinds of pitches from pharma sales reps. Prices are also under assault: Worldwide, prices are falling and developing countries are applying pressure for separate pricing arrangements.

Health care payers are insisting on generic substitutions and looking to negotiate price decreases for standard medications. And research-and-development (R&D) productivity is falling sharply, accentuated by the U.S. Food and Drug Administration’s (FDA) tighter requirements for approvals of new molecular entities.

Globalization has reared its head, stretching pharma supply chains farther. Emerging markets—from Brazil and Russia to Vietnam and China—want to test the efficacy of potential new drugs in their own labs. Drug trials are constantly on the move in search of populations of patients who have not been exposed to a particular pharmaceutical; and in turn, customs compliance has become a much more complex process.

And pharma products themselves are becoming more challenging to transport. More and more are bioengineered, and their larger molecular structures are more susceptible to temperature and humidity.

All in all, pharma’s woes have made Wall Street less confident of their prospects for growth. Accenture’s research shows that investors continue to discount the industry’s growth prospects. Whereas in 2000, more than 70 percent of the typical biopharmaceutical company’s total shareholder value came from buoyant expectations for its future product portfolio, today the figure is half that.

Three years ago, Wyeth had its own set of challenges to getting new drugs into its pipeline. “We had a lot of decentralization,” recalls Bruce Guenter, the director of global materials logistics for Wyeth Pharmaceuticals’ research operations. “We might have had dozens of inventory-staging models globally.”

Two research facilities in Europe might have been shipping materials overnight to the same Singapore laboratory without knowing each other’s activities; there was no central mechanism for seeing what was happening to materials movements, let alone achieving economies of scale among the logistics requirements of the various research units. “Respective therapeutic areas were doing their own thing,” adds Guenter. “We had a broad spectrum of suppliers, some under contract and some not.”

Shipments of clinical trials materials within the European Union were especially likely to involve transportation by courier because that was the mode most familiar to hurried staff at Wyeth’s therapeutic research operation there. “They wouldn’t necessarily understand that “speedy” equals dollars,” says Guenter.

None of the managers at Wyeth’s therapeutic units were trained logisticians. Yet they were responsible for figuring out how to get their products securely, quickly, and cost-effectively through customs and managing shipping and storage regulations at every turn—all the while under pressure to do everything faster.

It didn’t matter whether if it was an oncology drug being tested in the U.K. or a medicine to alleviate the effect of Alzheimer’s disease that was about to undergo trials in China; while the specifics of each supply chain situation differed, the generalities were the same. Wyeth’s research managers found tracking materials over the course of a study to be a very time-consuming and inefficient process. And they might not know what their shipment efforts were costing the company—let alone how much they could save if they could cooperate with their counterparts in other research units.

Wyeth’s response to its logistics challenges got its start early in 2005, when the research organization’s top management team gathered to launch a proactive initiative to improve their system efficiencies. They were not looking for dramatic breakthroughs: It would be realistic, though, to expect solid incremental improvements in operations efficiency across the entire therapeutics portfolio.

A critical step was the team’s recognition that the core strength of their organization was in discovery and development of new drugs—not in managing supply chain activities. That made it easy to decide to outsource any functions that were non-core. “This was a perfect opportunity to find a global logistics partner that could manage our clinical trials logistics operations,” recalls Guenter.

Wyeth’s research executives quickly appointed a task force to specify requirements for a capable logistics provider. Given the reach of clinical trials supply chains, the candidates had to be able to demonstrate global reach and, of course, an intimacy with clinical trials logistics in the pharma businesses. They had to be able to show that they had the documented processes, the relationship savvy, the holistic supply chain approach, and the “can do” initiative to solve problems as partners rather than as hired hands.

The successful partner would also have to show that it could significantly improve Wyeth’s visibility of its “chain of custody,” giving the pharma detailed visibility of product in shipment anywhere from the production facility to warehouse, to customs hall, to point of receipt at a trials lab. The cost saving objective? Between 12 and 18 percent of that year’s logistics spend.

DHL quickly made the short list since the global services provider had worked extensively with Wyeth Pharmaceuticals’ commercial business units, taking care of secure, traceable shipments of drugs from factories to retailers and pharmacies. DHL also had a dedicated global relationship management team—a group of cross-functional professionals with expertise in everything from cold-chain shipment to customs clearance. For some, the job was to be on-premises with the client; others were tasked with meeting regularly with clients’ transportation supervisors while others would discuss broader goals and milestones from time to time with Wyeth’s senior managers. DHL also had a well-established global life sciences organization with a dedicated clinical trials team.

The list of seven candidates was whittled down to two; their representatives were invited to Wyeth’s headquarters to make their case. DHL won out. To ensure a solid basis for a long-term partnership, DHL and Wyeth took several months to craft a master service agreement.

The broad objective calls for DHL to improve Wyeth’s clinical trial materials distribution, and increase efficiencies by “uniting the flow of information and physical goods through automation, visibility, and improved collaboration,” according to Robert Krautheim, DHL’s president of Life Science and Healthcare.

Specifically, the agreement would give Wyeth improved visibility and control of its clinical shipments by using DHL’s global distribution network, local relationships, customs brokerage expertise, and IT solutions. Strategically, it would greatly simplify management responsibilities for Wyeth and give the pharma the central control of logistics operations that it needed to be sure it could tighten up on its costs and shorten drug development cycles.

DHL dedicates four regional customer managers to Wyeth, with many other local-level managers devoting time to the pharmaceutical company. For its part, Wyeth’s research organization hired its first full-time logistics professionals—a team led by 24-year Wyeth veteran Guenter—who would be the front-lines interface with DHL.

Once Wyeth and DHL had inked their agreement in late 2006, the logistics provider got to work migrating Wyeth’s overnight integrator business into its Express delivery network. Then came the decisions about which elements of the clinical materials production outputs could be built into DHL’s distribution systems.

An IT support infrastructure helped one of the most useful results of the IT initiatives, the ability to improve visibility of the chain of custody, by tracking a shipment without having to know the DHL tracking number. That is important for the doctors and scientists who regularly handle logistics activities in the research units. For example, when shipping test article materials to investigator sites, Wyeth employees can identify the tracking of a shipment by project-protocol, destination city, state, zip code, and other shipment “filters.”

Wyeth can also be alerted when a shipment has been detained at customs or when there is an exception to the conventional transit time. These exception shipments are tracked and resolved daily by DHL personnel, some of whom are on-site at Wyeth’s facilities.

Lastly, a confirmation of receipt from the consignee is identified within Allogis, the software tool developed by DHL whose track-and-trace messaging ensures that the chain of custody has been transferred to the respective investigator site. Allogis can also host other functions such as reporting tools, and it can integrate specialty courier data. If shipments are isolated for monitoring at customs, the automated alert can prompt a quick call or e-mail from Wyeth’s DHL team, helping prevent potential logjams.

Wyeth has also benefited from the reduction in administrative costs of dealing with one lead logistics provider instead of a host of suppliers of transportation services, warehousing solutions, and so on. The pharma has also gained economies of scale by using DHL’s Express shipments services. And Wyeth has worked closely with DHL on a new warehousing strategy, utilizing DHL’s warehousing rationalization and optimization software. Guenter describes one important gain: “We’re in the midst of reducing our stocking locations. We had over 60 a couple of years ago; now we’re targeting roughly 25 by the end of this year.” Among those that Wyeth will use are DHL’s Exel centers in locations such as Tokyo and Sydney.

According to Guenter, Wyeth is seeing substantial cost savings already. “We’ve been tracking very closely to the 15 percent average target reduction,” says Guenter. There are “soft” savings in the reduced number of audits that Wyeth must be exposed to. And of course there are cost savings involved in shifting the organization’s logistics function from a fixed to a variable cost structure.

DHL and Wyeth are only partway through their five-year agreement, and with the current wins behind them, they are now looking at new ways to get value from DHL’s longtime investments in information systems. Just one for-instance: Wyeth has challenged the logistics provider to find innovative ways to track temperature and location together—a combined data point that will add considerable value to the supply chain data stream.

For the moment, Bruce Guenter is more concerned about aligning more of Wyeth’s therapeutic research units with the goal of making the clinical trials supply chain as efficient as possible. DHL does not handle 100 percent of the research organizations’ needs, and although almost all the research managers now comply with the centralized logistics approach, not everyone is on board. Guenter’s response: “We don’t want to slow the process down, but we want to be informed if people are using other logistics providers.”

Interestingly, Wyeth’s successful relationship with DHL may be having unintended consequences. “I think it has made other logistics companies sit up and say 'We should be a bit more proactive about Wyeth’s needs,’” observes Guenter. That, from Wyeth’s perspective, is a very good consequence to have.