Global Logistics: Strip the risk out of reverse logistics

When the FDA discovered that a second counterfeit version of the best-selling cancer drug Avastin had been found in the U.S. this past spring, an alarm was sounded in the global reverse logistics community. And for good reason: Shippers of other high-value and highly-perishable goods like electronics and food were also being judged by how well they protect the return process in their distribution channels.

According to a recent U.S. Congressional study, incidents of counterfeiting reported by drug makers had increased steadily over the decade to more than 1,700 worldwide last year—only 6 percent of those incidents were in the U.S. According to the report, the rise in counterfeiting comes as pharmaceutical supply chains are increasingly stretched across
continents, as more than 80 percent of the active ingredients used in the production of U.S. pharmaceuticals are now manufactured overseas.

“It’s becoming a huge problem,” says Dale Rogers, a professor of logistics and supply chain management at Rutgers Business School. “Not only does a shipper risk losing massive class-action lawsuits, but the damage to corporate image can be significant.”

While pharmaceutical and bio-med shippers place a premium on forward logistics, the reverse process dealing with product recalls and trade returns is getting a lot of attention these days. “The reason is simple,” says Rogers. “Once you have identified how a product moves through a sustainable loop, all players become transparent. If a bad product is not returnable, then a reaction is set off immediately.”

Indeed, the Healthcare Distribution Management Association (HDMA) estimates that 3 percent to 4 percent of product going out from pharmaceutical warehouses ultimately comes back. Some of this is redistributed, and some returned for disposition and destruction by a third party processor or manufacturer.

Furthermore, of the estimated 3 percent to 4 percent of the product returned, it’s also estimated that approximately 1.5 percent to 2 percent of pharmaceuticals manufactured will be returned for destruction with a resulting credit back to the manufacturers’ trading partners.

“Manufacturers currently spend up to 4 percent of cost of goods sold [COGS] on non-value-add distribution functions like returns and reverse logistics,” says Sameer Kumar, a professor in the operations and supply chain management department at the University of St. Thomas in Saint Paul, Minn.

“With such a large amount of product going through the reverse supply chain, returns should be an ideal touch point for mechanisms and technology to support a safer pharmaceutical supply chain,” adds Kumar.

Steve Vinsik, vice president of enterprise security at Unisys, agrees. He notes that results from the bi-annual Unisys Security Index show that shippers are demanding traceability from point-of-origin to end destination, irrespective of commodity. “Drugs and medicine are naturally among the most sensitive,” he says. “But supply chain security ranks high with shippers of mobile and high-end electronics goods as well. Shippers of any and all commodities can learn from these cautionary tales.”