CHEManager has interviewed people in the chemical logistics chain about the decisive developments in this special area of logistics over the past 10 years. Specialists in pharmaceutical logistics also provided information about major changes in the last decade. Both logistics groups made statements about future developments in these nationally and internationally important business sectors.

One of the most important insights related to logistics processes in the chemical industry is their growing complexity. Almost all of the respondents — people and experts involved in the supply chain — pointed out the increased complexity of chemical logistics resulting from greater globalization of business, as well as an increase in regulatory requirements.

Increasing Complexity in Chemical Logistics

“Over the past years, there has been an extreme increase in the level of complexity of chemical logistics. Ever-increasing transport volumes are faced with limited capacities and availabilities in terms of transport and infrastructures. More differentiated customer requirements demand smaller deliveries at higher frequencies,” said Andreas Gmür, partner and head of logistics practice for Camelot Management Consultants.

The tendency observed in commerce for smaller deliveries with greater frequency contributes to this mounting complexity, as does the growing number of supply-chain players with its accompanying increase in new interfaces.

This pattern, which has also been noted by providers of logistics services, is confirmed by Michael Kriegel, department head at Dachser Chem-Logistics: “The attitude toward outsourcing of logistics has changed. The reason for this is complexity. Global locations lead to a large number of new interfaces; customers order ever-smaller quantities at shorter intervals, and the requirements for safety, quality and protection of the environment are increasing. Only large logistics suppliers who provide complete integrated value chains can offer the necessary transparency and control. This is the case not only in Germany or Europe but throughout the world.”

Above all on the part of carriers, this gives rise to a demand for greater transparency, standardization, and control over the supply chain in the sense of tracking and tracing and other IT-based steering and control mechanisms.

“The requirements of customers in the chemical industry have increased considerably. More and more customers demand notification of shipments and on-time deliveries within narrow time windows. This must be accompanied by tracking and tracing solutions, which actively inform customers of any delays. This requires much closer cooperation between carriers, service providers and customers. Because of this, the cooperation between carriers and service providers is now much more intensive and strategic than it was 10 years ago,” said Manfred Fischer, vice president global distribution chemicals, Merck.

Security Through Greater Control

This increased control arises from an increased demand by carriers for greater security and quality, whereby the focus is on customers in the chemical industry. The majority of those involved in the market consider that the future of chemical logistics will be dominated by intelligent systems and a general increase in digitalization in the sense of Industry 4.0.

For Dr. Andreas Backhaus, senior vice president European site logistics operations, BASF Group, these new business models will soon become reality for the logistics sector.

“Interlinking production planning, production and transport planning creates close connections and optimization of processes, with positive effects on flexibility, stocks and costs. With the use of advanced technologies such as driverless transport systems, or data glasses, which provide a real-time overview of warehouse stocks, we take advantage of the potentials that these technologies offer. Digitalization will lead to further changes in the field of logistics and open up new business models,” Backhaus said. 

The local service provider Infraserv Logistics considers networking an important industry achievement of recent years.

As Infraserv’s Jochen Schmidt said: “The dynamics and complexity in the global value chain have increased significantly; also sensitivity to the associated risks and sustainability aspects has grown. We now provide our customers with modern IT platforms that can manage handling processes in a highly efficient and transparent manner. Ten years ago, this high level of networking and automation would have been inconceivable.”

Price Reductions and Decaying Infrastructure

However, those involved in the supply chain are also worried. Logistics service providers in particular are concerned about further declines in profit margins for transport, as well as increasing cost pressure. In general, they complain about heavy usage of the traffic infrastructure and the decay of this infrastructure.

“Reliable delivery of products will become an increasingly important factor for competitiveness and success. Order cycles are becoming shorter. Unfortunately, the ailing infrastructure in Germany is compromising this reliability. Our overseas customers often cannot understand that logistics companies here in Germany have to struggle with such challenges,” said Gerd Deimel, spokesman for the VCI traffic infrastructure initiative.

The underlying message of many of the statements is that present and future challenges in chemical logistics can be mastered through better networking and closer, long-term cooperation between carriers, service providers and customers.

Alfred Talke, group managing director of the Talke Group, said: “To maximize unused efficiency potentials in the future, we will need long-term cooperation that takes the constraints and success factors of chemical logistics more strongly into account.”

Regulations Dominate Pharmaceutical Logistics

There has also been a strong increase in the complexity of pharmaceutical logistics.

Dr. Christof Peter, senior process expert BSM pharma at SSI Schäfer in Graz, Austria, said: “Facts have shown that the pharmaceutical logistics chain is much more complex than it was just 10 years ago. The complexity continues to increase, as evidenced by requirements for tracking cooling chains and serial numbers, as well as the demand for same-day delivery to customers.”

It is also apparent that revision and reforms of the World Health Organization Good Distribution Practice and the EU GDP Guideline 2013 have had a great influence on pharmaceutical logistics processes in recent years. All in all, this has resulted in improved quality and compliance, especially in distribution.

“There has almost been a hype due to the high level of awareness of the EU GDP Guideline beyond the field of pharmaceuticals. Logistic service providers saw their salvation in handling pharmaceutical orders. Those involved only gradually became aware that ‘doing pharmaceuticals’ is associated with the necessity for long-term changes in processes and investments, long before the first pharmaceutical contract is on the order books,” said Dr. Nicola Spiggelkötter of Knowledge & Support.

The introduction of new control mechanisms has also resulted in greater transparency in the supply chain. Traceability over the entire supply chain and active temperature control are the decisive concepts here.

These developments are also pointed out by Professor Wolfgang Stölzle of St. Gallen University in Switzerland and Peter-Johannes Barth, manager of the Barth Logistics Group: “The greater focus on logistics services must be seen against the background of the reform of the GDP — Good Distribution Practice. Here in particular, transportation regulations on practices such as temperature control and monitoring, e.g., in the form of geofencing and storage conditions, have become more stringent. This is driving up costs even more.”

Greater Control Implies Higher Costs

In addition to increased regulatory requirements and the associated controls and increased costs, globalization also plays a significant role in the changes experienced by the market. Logistics are increasingly becoming the link between global production associations and emerging markets.

Dr. Martin Egger, head of Pharmaserv Logistics: “While traditional markets in Western Europe are characterized by stagnation, on a global level the almost explosive growth of emerging markets has forced changes in pharmaceutical logistics. On one hand it is necessary to move increasing quantities in these countries, while on the other hand, distribution structures are developing toward smaller batches.”

In the opinion of the insiders who were interviewed, the industry has recognized the strategic relevance of logistics. Closer cooperation between carriers and logistics companies is essential. To counteract increasing cost pressure, which is also due to expiration of patents, increased use of specialized service providers will play an important role.

Those involved in the pharmaceutical logistics chain consider handling of increasingly temperature-controlled transports in different temperature ranges and increased security in the supply chain as two of the most important topics at present and in the years to come. “Publication of the EU Guideline on Good Distribution Practice in 2013 triggered a veritable GDP wave in the pharmaceutical logistics sector. This is a new playing field. Suddenly, the specifications apply to all temperature ranges, i.e., from +15 degrees C to +25 degrees C as well. These are intended to ensure that the integrity of pharmaceutical products is guaranteed along the entire supply chain. The more stringent requirements have presented both manufacturers and logistics companies with major challenges,” said Peter Norheimer, managing director of Frigo Trans.

The Future: Smaller Batches and Individualization

Individualization of therapies and medication requires greater segmentation into supply chains specific to products and customer groups — and smaller batches; these factors will also have a greater effect on pharmaceutical logistics in the future.

“It is expected that oncological, diabetes and anti-rheumatic medications will be the sectors demonstrating the most rapid growth. We have also observed an increase in outpatient care, which will have an effect on health-care supply chains. It presents a huge opportunity for the health-care sector to develop an integrated system where health-care professionals and patients, manufacturers, world-class technology companies and health-care experts in the supply chain work hand-in-hand to foster greater efficiency and better patient outcomes,” said Jan Denecker, marketing director health care for UPS Europe.

Because of increasing individualization of medication, as well as growing demand for medicines in emerging markets, the postponement approach will become increasingly important for service providers.

Johann Strobl, manager of sales and marketing for Loxxess Pharma, sees the future of pharmaceutical logistics as strongly associated with innovation on the part of logistics service providers.

“With the growth of the postponement approach — the transfer of market-oriented final packaging production to the latest possible stage in the value creation chain — the production GMP and approval for sale will become a part of the logistics process. In the future, the benchmarks for pharmaceutical logistics will be innovative strength and practiced quality standards by service providers in the supply chain, from temperature-controlled transport all the way to the central warehouse with attached production,” Strobl said.

Summary

In recent years, business models for the chemical and pharmaceutical industries have increasingly diverged. This is reflected in the requirements for individual services in chemical logistics and pharmaceutical logistics, which have drifted apart in various aspects. Economic pressure and organizational changes in companies resulted in the outsourcing of services such as logistics.

However, it has recently become apparent that external services are having a deeper effect on company processes, which applies in equal measure to the pharmaceutical and chemical industries. This is associated with increasingly stringent requirements for service providers — with regard to both quality and transparency. On the other hand, to cater for these increased requirements, logistics companies have developed further and have become even more specialized.

For both sides — carriers and logistics companies — in both the chemical and pharmaceutical industries, it is necessary to face up to rising regulatory requirements, growing global production chains and soaring technical challenges, and to satisfy increasingly demanding customers. Now and in the future, this will be possible only through common approaches, partnerships, trust and fair play on both sides.