How will CHC supply chains evolve in Covid-19’s wake?

CHCINACTION

Supply chain issues are high on the agenda of consumer healthcare marketers in the wake of the Covid-19 pandemic. Bayer said in its Q1 results that its Consumer Health division was able to respond very flexibly to significantly higher volumes and shifts in the product mix thanks to its supply chain operation. In addition, RB last week appointed Sami Naffakh as Chief Supply Officer and member of the Executive Committee, effective 1st July 2020. RB CEO, Laxman Narasimhan, said: “Throughout the Covid-19 pandemic, the global supply chain teams have worked tirelessly to step up for our consumers and our customers. As we continue to ‘navigate our new normal’, we must also start to focus on our medium-to-longer-term supply needs across the entire, diverse portfolio.”

Novartis’ supply chain has also coped well during the pandemic, thanks to the extraordinary efforts of its staff – as outlined in this report – but some companies have been harder hit. In February 2020, Blackmores downgraded its FY2020 forecast saying that, while the outbreak has increased demand for key immunity products, this has been countered by supply chain disruptions that the company expected would continue to affect China sales for at least 2-3 months.

As our graphic below shows, China is a key producer of active ingredients (APIs), and absolutely vital to the world supply of ascorbic acid (vitamin C), for example. India, which imports most of its APIs from China, has been hit hard by disruptions in the supply chain, and in March 2020 the Government banned the export of 20+ APIs to protect the supply of essential medicines in the domestic market. This had knock-on effects around the globe, however last week India’s Directorate General of Foreign Trade lifted restrictions on the export of active pharmaceutical ingredients of paracetamol.

China, IndiaIn a recent report by the Economist Intelligence Unit (EIU), called “The Great Unwinding”, more and more companies are said to be moving parts of their supply chains away from China, a trend accelerated by Covid-19, with multinationals seeking to build “quasi-independent regional supply chains in the Americas and Europe”, to ensure future resilience. In addition, the report indicates that another long-lasting impact of Covid-19 will be companies looking to store inventory in “strategic locations from where it can be easily accessed and delivered to customers”.

The pharmaceutical industry is also facing rising prices of raw material. According to data from India’s Pharmaceutical Export Promotion Council (Pharmexcil), the cost of paracetamol went up up 50-60% at the start of the Covid-19 pandemic, and the prices of vitamins increased by 40-50%. As the EIU report indicates, companies will need to think strategically about pricing models, given that “both the regionalisation of supply chains and the build-up of strategic inventories will push up final goods prices, denting a product’s competitiveness”. However, one of the upsides to this change is that “a more regionalised supply chain will offer opportunities for companies to focus more on local tastes amid a greater capacity for product differentiation”.

Very soon we will be publishing the second edition of our hot topic review, Coronavirus 2020 and its potential impact on CHCThis report from our Competitive Intelligence & Market Analysis (CIMA) division explores the response to the pandemic from CHC brands and marketers as well as the overall impact on CHC to date. You will also be able to read about trends observed so far (key categories impacted, how consumer behaviour has changed etc), how key CHC players performed in Q1 and projections for the near and longer-term.  If you have purchased the original Coronavirus 2020 Review, you will receive the 2nd edition free of charge. For more information, or to purchase your copy, please contact Melissa.Lee@NicholasHall.com