Cost Pressure during a Climate of Major Change

This is an environment where the NHS will face the most severe and substantial financial shortfall in its history (Branwen Jeffreys, BBC News health correspondent). How then can suppliers such as Polar Speed Thermologistics, who work exclusively in the pharmaceutical sector, not only survive but thrive in this challenging climate?

In the pharmaceutical world, major changes are taking place:-

• New drugs are expensive to bring to market and most look to the biotechs to provide replacements.
• ‘Blockbusters’ coming off-licence are harder to replace.
• Mergers are seen as a practical solution with increased revenues and associated cost savings.
• The new biotechs are generally very expensive and require specialist handling to ensure their efficacy.
• Generics, being mass-produced in India and China, are taking a larger share of the market.

Alongside these changes for the Pharma companies, the country is in difficult economic times that will put further pressures on the NHS, which has already significantly reduced the pricing tariff (PPRS) in recent years.  We are already aware that David Nicholson, Chief Executive of the NHS, has targeted savings of £15-£20 billion over the next 4 years.  In his latest report he states “All bets are off.  We need to move away from the NHS being built for growth to being able to sustain itself in a prolonged limitation of resources.”

This is against an ageing population with the ‘baby boomers’ moving into old age.  This generation has grown up with the NHS and expect more than their parents who, having spent periods of their life without the NHS, tended to be grateful for what they were given.  This and later generations are more aware of what is available and, as we have recently seen, with the public campaign to get Herceptin approved, they are more than willing to use publicity and hence political pressure to ensure they are given access.

General economic factors have affected all businesses over the last few years. The cost of both fuel and power has increased significantly. With over one hundred vehicles on the road every day and several UK based refrigerated warehouses needing power, these increases are substantial in the case of Polar Speed. Especially as costs can no longer easily be passed on to clients!

Insurance rates have increased dramatically both for vehicles and premises and regulation is constantly changing. In our own case we saw the change with ambient products being required to travel in temperate (+15oC to +25oC) conditions. Clients approached us to handle this and as a result our vehicle leasing costs increased by 30%.
On the positive side it has given us a head start in a new potential market, with ambient goods that have traditionally been delivered by general parcel carriers increasingly finding their way to specialist companies.

The logistics industry by its nature is labour intensive and levels of automation are extremely limited, especially with pharma products which often require careful handling and are not suited to conveyor systems that can cause items to roll or turn upside down.

Of course there are many challenges. But these are the challenges that we have to accept and work with and gone are the days in the industry where we could simply increase prices! The major challenge being how do we increase our customer services and remain profitable?

In a labour intensive industry like ours it’s firstly about people.  You have to recruit the right personnel and we spend a great deal of time training new staff.  Although not all companies seem keen to engage staff in their fifties, this has been a success for us. People with experience are generally more reliable, they are steady drivers and have good levels of courtesy. Our warehouse men and women are also subject to the same levels of selection and training.  Investing in training and regular reviews pays dividends in getting things right first time, thus saving costs and potential frustration.

Although we have increased our vehicle lease costs by specifying dual chamber, one chilled, one temperate, we have mitigated some of our additional leasing costs by winning more business. Often from customers that we already deliver to!  The improvements in vehicle technology also mean they are 10% more fuel efficient than 3 to 4 years ago which provides us with another cost saving benefit.

We are also improving our planning systems to ensure we maximise vehicle capacity.  We use DIPS planning software and are working alongside them to use actual routes that the drivers take and feed this back into the system for future planning.  For instance, most customers tell us they are open 9am to 5pm for deliveries whereas they are actually often there earlier or later; one of our London drivers regularly does 10 deliveries before 9am.  This model, when spread across the country, would bring efficiencies of 10% - 15%. 

Like most companies, we believe that keeping staff well informed keeps them involved and motivated. With staff and depots spread across the country a regular newsletter helps to ensure that everyone is up to date with events and apart from regular on-going contact between staff, managers and regional managers, we make it a policy that Directors regularly attend depot meetings.

Customers, financed by the NHS, are facing increasing cut backs. We need to ‘share that pain’ and provide innovative cost effective solutions which benefit both our customers and ourselves.