ISSN 2465-6399

An Exploration of Contemporary Issues of Supply Chain Management:

A Case on Pharmaceuticals Manufacturing Industry in Sri Lanka
Gunawardana, D. M. B. P. P.1 and Herath, H. M. R. P. 2

Supply Chain Management (SCM) has a crucial role in facilitating production, marketing,
logistics and purchasing processes of an organization since it may focus on the management’s
attempts to maintain or build competitiveness in changing environment of those. This study
was carried out as qualitative cross-sectional multiple case studies using semi-structured
interviews to collect data. Case studies were chosen on the judgmental non-probability
sampling method to explore contemporary issues and the reasons of SCM in the
pharmaceutical manufacturing industry of Sri Lanka. It further tried to recommend the
solutions to mitigate those issues to increase the effectiveness of the pharmaceutical supply
chains. Interviews were conducted with the employees who are responsible for SCM from
each case study. A thematic analysis was carried out to achieve the purpose of the study using
Nvivo 12.

Unpredictable lead time, no proper guideline or standards in custom for pharmaceutical

product regulations, lack of temperature control in warehouses at custom, underutilization of
human resources consuming, delaying duty waiver and other regulatory approval from the
National Medicines Regulatory Authority (NMRA), frequent changes of the NMRA
guidelines without any grace period, technical knowledge gap of employees for R&D, and
challenge from generic competitor products from other countries were identified as the major
drawbacks in SCM process of pharmaceutical supply chains in Sri Lanka. Further, failure to
identify correct raw materials suppliers, issue of Minimum Order Quantity (MOQ), buffer
stock maintenance issues, no proper reverse logistics management procedures, shortage of
approved vehicles for transportation, finding of trustworthy local packing materials suppliers,
forecasting errors, and communication gap or language barrier of employees also slower the
effectiveness of supply chains.

Keywords: Material resource planning, Minimum order quantity, Pharmaceutical supply

chain management, Resource based view, Transection cost economy,

Cite this paper as;

Gunawardana, D. M. B. P. P. & Herath, H. M. R. P. (2020). An Exploration of Contemporary
Issues of Supply Chain Management: A Case on Pharmaceuticals Manufacturing Industry in
Sri Lanka. The Conference Proceedings of 11th International Conference on Business &
Information ICBI, University of Kelaniya, Sri Lanka. ISSN 2465-6399 (pp. 627-640)

1
Commerce and Management Faculty, University of Kelaniya, Sri Lanka
(pgunawardana2@[Link])
2
Department of Marketing Management, University of Kelaniya, Sri Lanka

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Introduction
The World Health Organization (WHO) defines a drug or pharmaceutical preparation as any
substance or mixture of substances manufactured, sold, offered for sale or represented for use
in the diagnosis, treatment, mitigation or prevention of disease, abnormal physical state or the
symptoms thereof in man or animal; restoring, correcting or modifying organic functions in
man or animal (Shah, 2004).
The global health economy is growing at a faster pace when compared to the overall economy
(World Health Organization, 2008). Nevertheless, issues of in equity in healthcare provision
and complexities in the healthcare systems persist across the globe, highlighting the need for
efficient management of healthcare supply chains. Literature depicts an increase but a
fragmented interest in supply chains in health services (de Vries and Huijsman, 2011). The
complexity of the interactions between players such as government bodies, healthcare
purchasing groups, healthcare providers and manufacturing companies has also resulted in
attention towards the value-chain concept in healthcare (Pitta and Laric, 2004) by which it has
made the pharmaceutical industry more dynamic.
Apart from health services, supply chains of healthcare products are important contributors to
the healthcare system. Different healthcare products are distributed and traded differently and
vary in their cost, criticality to delivery of patient care and potential impact on service
improvement (Zheng et al., 2006). Among healthcare products, medicines account for 20–
30% of global health spending (World Health Organization, 2010).
The supply chain of the pharmaceutical industry is similar to that of any other industry in the
manufacturing sector. However, the pharmaceutical industry has only two drug distribution
channels, which are prescription medicines and OTC (over-the-counter) medicines. The US
Food and Drug Administration and regulatory bodies of all countries regulate both of these
channels since pharmaceuticals directly affect millions of people’s health, industry
manufacturers are very strict about ensuring the safety and quality of drugs at each level of
the supply chain.
Supply chain management (SCM) in the pharmaceutical industry can transform the
organization to make better use of assets and resources, to generate profits, to enhance
shareholder value, and to positively respond to customer demands (Bolineni, 2016). In a
global market, managing the supply chain is a significant challenge, because of the continuous
change in demands for the products with shorter lifecycles, industry consolidations, variable
conditions on the ground (Assey, 2012).
Lack of effective SCM can cause problems for organizations (Shah, 2004). This is applicable
to any industry. However, having no published literature found on the Supply Chain
Management issues in the Sri Lankan pharmaceutical industry, this study was carried out to
answer the following questions.
1.1. Research questions
1. What are the contemporary issues of supply chain management in pharmaceuticals
manufacturing industry in Sri Lanka?
2. Why these issues have arisen in the pharmaceutical industry?
3. How to mitigate the explored issues of supply chain management in pharmaceuticals
manufacturing industry in Sri Lanka?

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2. Literature Review
The effective supply chain management can impact and expand upon virtually all business
processes, such as data accuracy, operational complexity reduction, supplier selection,
purchasing, warehousing and distribution (Dubey and Kumar, 2007) According to
Arifuzzaman (2016) the benefits of SCM are included as quicker customer response and
fulfillment rates, shorter lead time, greater productivity and lower costs, reduced inventory
supply throughout the chain, improved forecasting precision, fewer suppliers and shorter
planning cycles.
The term Supply chain is increasingly being applied instead of logistics and includes planning,
sourcing, production and distribution. Supply chain evolution includes three periods; the first
period is “inventory push” (1960-1975), in which the main focus is storage and financial
management. The Second period is “customer pull” (1975-1990) focusing on customer
attraction and product management and the third period is supply chain management, focusing
on supply chain and managing relationships with customers (Yousefi & Albabaei, 2015).
According to the Halldorsson & Skjott-larsen (2006) and Knemeyer (2009), the application
of multiple theories is gaining more attention to better understanding of dynamic supply chain.
Ketchen and Hult’s (2007) also have separated traditional supply chain and best value supply
chain as; traditional supply chain focuses on limited outcome factors such as speed and cost
while the best value supply chain is integrated with priorities such as cost, quality, speed and
flexibility. Therefore, dramatic changes in the organizational values influenced by
competitive forces can be considered as the driving factor behind the supposed paradigm shift
in the business management that has advised the application of multiple theories for better
understanding. Therefore, this study tried to use multiple theories for the better understanding
and for ensuring the reliability and the validity of the research.
2.1. Transaction Cost Economics (TCE)
Transaction cost economics (TCE) says that during any economic interchange, the cost of the
product or service should include all hidden costs like the time spent developing the
relationship, the creation of contracts by a lawyer, or travel between various locations
(Williamson 2002). Transaction cost economics applied to the critical decision points of
purchasing of Make or buy decision and the Single or multiple sourcing. The decision to make
a component tag within the company can be done to avoid risk (Geyskens et al. 2006) which
sometimes leads to lower transaction costs. Williamson (2010) provides a guiding tool on
when to buy a component from the market and when to build a component in the company. If
smooth collaboration cannot be guaranteed through the security lines that leads to the failure
of the supplier, and the buyer must produce the component in his own company, and
reorganize the process to produce it himself, with the cost of reorganization and additional
uncertainty (Williamson, 2010). Looking at multiple sourcing, the company might take the
decision to use multiple suppliers in order to save costs. Using a single supplier outside the
company to procure key activities, means simultaneously a loss of degree of control for the
buyer and increased control over those key activities for the supplier. “Since it is possible for
the supplier to have an impact on the buyer performance, the supplier could claim increased
market prices” (Geyskens et al. 2006). The buyer might be trapped in that situation, knowing
that switching costs occur when utilizing another supplier. Therefore, “the buyer might

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contract the single supplier with enough safeguarding proficiencies, such as punishments, data
divulgence, check techniques such as monitoring or incentives” (Williamson 2010, p.24-25)
to coordinate the supplier and to ensure a sufficient collaboration. Since outsourcing by using
multiple suppliers also means coordinating more vendor activities, managing more
relationships and monitoring more suppliers (Schiele 2010), one can conclude that the
regulation of transaction costs is widely branched.
2.2. Resource Based View
The resource-based view (RBV) explains how the unique deployment and combination of
tangible and intangible resources might assist companies to achieve a sustainable competitive
advantage (Grant, 1991; Priem & Swink, 2012). Applications of RBV in SCM is mainly
focused on structural analysis (Miller & Ross, 2003) and identification of the qualifications
for competitive advantage in the supply chain (Barratt & Oke, 2007). The majority of SCM
decisions is supported by RBV (Halldórsson et al, 2007). Inter-organizational arrangements
are made to enjoy the resource-position constraints built up by the collaborative efforts of
companies to respond to uncertainties and changes. This is especially true when organizations
do not realize that relying solely on internal resources is not sufficient to achieve competitive
advantage (Jap, 2001). Supply chain capabilities refer to the ability of an organization to
identify, utilize, and integrate both internal and external resources/information to facilitate the
entire supply chain activities (Amit & Schoemaker, 1993; Bharadwaj, 2000).
2.3. Network Theory
Network Theory (NT) provides a comprehensive view of inter-organizational interactions in
a network environment. It highlights the dynamics of network environments and identifies the
impact of partner-partner relationships on the operations of the organization (Haldorsson et
al., 2007). Emphasizing the concept of strong and weak Ties, the NT states that a network
resource perspective helps managers to develop a more realistic assessment of individual node
resources and their implications for businesses. By taking a network approach, organizations
can plan their supply chains so they can take advantage of strong ties to build credibility and
weak ties to build flexibility in managing their responsiveness. Another implication of NT for
supply chain innovation is the demonstration of knowledge sharing mechanisms and
management across the network (Miles and Snow, 2007).
2.4. Issues in Pharmaceutical Supply Chains
Booth (1999) says that in the recent past, the high return on investment and high revenue
obtained from “blockbuster” products by pharmaceutical companies facilitated high
productivity of R&D operations resulting in the creation of innovative compounds that helped
in treating previously untreatable diseases. For effective patent for this type of molecule, the
manufacturer should have the high R&D productivity. The patents led to the creation of
technological barriers that prevent new entry. Therefore, limited number of substitute products
are available in the market in a given therapeutic area for the patency period. The limitation
of substitute products, thereby resulted in the price inelasticity of available product facilitated
by the separation of prescribing and paying responsibility (Booth, 1999). To maintain a
healthy product pipeline, pharmaceutical companies exploited the price inelasticity to achieve
high margin and invest a large portion of their resultant profit in R&D (Shah, 2004).

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Due to the above-mentioned regime that characterized the pharmaceutical industry has
evolved and has made the current circumstances more complex and challenging (Shah, 2004).
According to Shah (2004), based on the number of new chemical entities registered per unit
of investment, R&D productivity is declining. Due to that, effective patent lives are shortening
and their ability to make a barrier to new entry is also declining even while active. As a result,
now there are many substitute or alternative products including off-patent generics available
in many therapeutic areas. Even according to a CNBC 2017 report, amazon also is considering
entering the prescription drug business. The key players in the health sector have now been
able to put pressure on the price elasticity and influence the practices now prescribed.
The global marketplace has become more liberalized, thereby exposing products to
competition on a global level. There have been increased governmental and regulatory
authorities’ interventions due to the concerns for the increasing healthcare cost associated with
the aging population. The type of intervention includes strict controls on the prices of new
drugs, more cost-benefit analysis and encouragement of the use of substitute products or
genetic substitutes where possible (Shah, 2004). As a result of these changes, “blockbuster”
drugs are declining (Shah, 2004). As the result of the above, the current operating
environments of the pharmaceutical industry have evolved and are more challenging than
earlier. The establishment of regulatory authorities and market maturity have led to the
increasing cost of production, increasing new drug introduction lead-time, increasing the
number of substitute drugs, decreasing productivity of R&D, shortening the patent lives of
new molecules, the reducing exclusivity period of new product, increasing pressure on price
and prescription policies (Shah, 2004; Sousa et al., 2011).
In other words, the pharmaceutical industry is undergoing drastic changes to meet the new
challenges of the global economy (Bravo, & Carvalho, 2013). Intensive globalization
processes, increased competitiveness, the fast-changing structure of competitors, complex
strategic positioning, shrinking pipelines, expiring patents, counterfeit drugs, increased
regulatory scrutiny on profits and a fight for global market share are some of the factors
contributing to new challenges facing the pharmaceutical industry (Bravo & Carvalho, 2013).
3. Methodology
This research required an inductive approach to explore the pharmaceutical industry and its
supply chain issues and reasons for those issues. Hence a qualitative case study approach was
used where the pharmaceutical manufacturing industry is selected as a case. The research
methodology was ontological interpret inductive research approach. A study can be
approached in three different ways whereas inductive, deductive and adductive. The main
difference between inductive and deductive approaches to research is that whilst a deductive
approach is aimed at testing theory, an inductive approach is concerned with the generation
of new theory emerging from the data. As a qualitative research of this study, research
approach was inductive while exploring new concept for pharmaceutical manufacturing
industry.
There are different ways to select the methodology for specific research based on the
philosophical assumptions and interpretative frame work. Quantitative, qualitative and mixed
methodologies are the distinctive methodological choices available for a researcher.
Qualitative research is research involved in analyzing and interpreting texts and interviews in

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order to discover meaningful patterns, descriptive of a particular phenomenon (Auerbach and

Silverstein, 2003). Merriam (2002) highlights that the main point to understand in qualitative
research is that the findings or meanings are socially constructed based on individuals’
interactions and experiences in the real world relevant to the research area. Many
pharmaceutical supply chains related researches were conducted as case studies since case
studies give in depth knowledge and understanding on what is going on within an organization
(Shah, 2005). Zainal (2007), case study is defined as a method that enables a researcher to
closely examine the data within a specific context. This study tries to identify contemporary
issues in pharmaceutical supply chain management and there are no clearly identified
boundaries with phenomenon in the context of this study. Therefore the study used a case
study. Case study may adopt either a single-case or multiple-case design depending on the
issue in question. The multiple-case design can be adopted with real-life events that show
numerous sources of evidence through replication rather than sampling logic (Zainal, 2007).
Therefore in this study selected multiple case study design to increase the confidence level of
this study and to generalize finding with the Sri Lankan pharmaceutical industry.
It is consisted of five case studies through the data saturation and data triangulation techniques
to identify the number of case studies. The study was cross sectional multiple case study
design qualitative research. Sample design was non-probability judgmental sample due to the
nature of the method. The data collection was completed using semi-structured interviews
method. It was direct face-to-face interviews with supply chain managers, those who were
working in the chosen organizations. The interviews were recorded verbatim and each of them
was transcribed word to word. The transcribed interview guides were then, thoroughly
referred to carry out a thematic analysis as the data analysis tool via Nvivo 12 software. The
used coding strategies were in-vivo and prior coding. The trustworthiness/quality of the data
was assured through triangulation of the theories of RBV, TCA and Network theory and
transcriptions being verified by the interviewees.
4. Finding of the study
Figure 1, illustrates an overview of contemporary issues that were identified through this
study. The identified issues are highly related with the upward supply chain and in-bound
logistics whereas pharmaceutical manufacturers were not involved with the backward supply
chain process. The only step was transportation of finished goods to the subsidiary company
of them through State Pharmaceutical Corporation (SPC) and Medical Supply Division
(MSD).
Bolineni (2016) noted the importance of having the right trading partner to source the raw
materials and to destroy timely expired products for reducing the overall costs. This study has
found the issues of raw materials and packing materials suppliers those who acts as primary
suppliers who are with lack of trustworthiness. Furthermore, the mismatch of Minimum Order
Quantity (MOQ) between supplier and agent, delayed deliveries and having no local raw
materials suppliers are also some other issues revealed.
This study also found the significance of choosing the right trading partner for the raw
materials supply. Since Sri Lanka is too small market for raw material suppliers, they are
focusing more on the agents who are providing the service to manufactures. Agents are
supporting to minimize the issues that are noted above

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Figure 1: Contemporary Issues of the Sri Lankan Pharmaceutical Supply Chain.

while providing a comparably better service. Due to the extension of supply chains, delivery
delays are still there and hence some companies keep two or three suppliers for the critical
raw materials to minimize the issues of trustworthiness and the delaying.
However, minimum order quantity is a large issue according to the findings. Therefore,
strategically some companies purchase quantities that suppliers are requesting then
inventories are building up for the usage after re-validation. This can be an alternative strategy
but inventory management cost will be increased and working capital issue may arise.
All imported raw materials and packing materials are coming through the custom. At the
custom, many delays happen due to the reasons of: the lack of resource persons to deal with
pharmaceutical items, lack of temperature control in warehouses to store pharmaceuticals until
finished clearance procedure and lack of proper guidelines for the pharmaceuticals.
Packing materials and raw materials suppliers related issues as well as customs related issues
are directly linked to the problems in inventory management. The short-term objectives of
SCM are to enhance productivity, reduce inventory and lead-time. The long-term objectives

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of SCM are to increase market share and integration of supply chain (Koh et al., 2007).
However, in this study, it was identified that the effectiveness Supply Chain Management is
challenged due to accumulation of high inventories, long lead-times, small minimum order
quantities and issues of buffer stock maintenance. Custom delays happen due to the National
Medicines Regulatory Authority rules and regulation changes, and duty waiver delays.
Pharmaceutical industry is highly regulated with the National Medicines Regulatory
Authority. According the findings of this research, National Medicines Regulatory Authority
procedures are very dynamic. Delaying duty waiver has universal impact on the total global
supply chain. Not only that; registrations, manufacturing licenses and Good Manufacturing
Process (GMP) approval are delayed but also they negatively impact on the Pharmaceutical
Supply Chain. There is no agreed lead-time to approve a duty waiver from the National
Medicines Regulatory Authority. Due to that, the identification of lead-time for the raw
material sourcing is uncertain. With the uncertainty of lead-time, buffer stock maintaining is
also difficult. To cope up with this issue they maintain three months stock. Case Study B uses
the best strategy which is MRP planning and outsourcing to minimize the errors of buffer
stock calculations.
The National Medicines Regulatory Authority is introducing new rules, regulations and
guidelines without giving any grace period. It directly affects the supply chains of
pharmaceutical industry. Due the rapid changes, the entire pharmaceutical industry is
sometimes disrupting. Many researchers have identified various issues that are related to the
Pharmaceutical Supply Chain such as R&D expenditures effect, government regulatory
authority intervention, higher competition and sudden changes in global economy. The
pharmaceutical industry traditionally has been constrained by rigid global manufacturing with
specialized production equipment, long lead times for materials and extensive regulatory
requirements. This has led to inflexibility and inability to react quickly to changes that are
either capacity constrained or underutilized. These issues and National Medicines Regulatory
Authority approval delays are mainly linked with the identified themes that were discussed
above; shipment delays, extended lead time, minimum order quantity issues and buffer stock
maintenance.
The National Medicines Regulatory Authority and government policies lead to restrict the
investments on R&D and local manufacturing. The imported product prices are less than the
same generic product which is manufactured locally due to the factors of not having to duties,
for the imported medicine but the local manufacturers have to pay taxes other than the duty
for raw materials.
In-bound logistic related issues were also noted: inventory management, product forecasting,
reverse logistic management, communication gap between the departments, language barriers
to deal with suppliers and finished goods distribution issues like lack of approved vehicles.
According to Baltzan and Phillips (2010), the successful implementation of supply chain
management, inventory management, cost, information, customer service and relationships
are more important.

5. Discussion & Recommendation

The identification of these issues provides the opportunity for the industry to pay the attention
to development strategies to mitigate such issues on correct way.

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5.1. Contemporary Issues

This research has identified number of contemporary issues which affect to supply chain
practices in pharmaceutical manufacturing industry. The issues can be classified as regulatory
barriers, supplier selection issues, custom issues, inventory management issues, supply chain
practicing issues R&D issues and distribution issues.
As per the previous research also it was clearly found that major crucial factors for overall
industry performance include the SCM. The major issues of Sri Lankan context is delaying
duty waiver which is only applicable to Sri Lankan pharmaceutical manufacturers. Implication
of new rules and regulations without prior information and the time period also are significant
factors. This issue reduce the overall performance of SCM directly as well as indirectly.
Correct supplier selection is a crucial factor for the effective and efficient SCM practices that
is highlighted at previous chapters. This industry is facing another major issue of the selection
of RM and PM supplier, such as selection of correct RM and PM suppliers. In addition to that
the other issues were selection of trustworthy suppliers, language barrier and define lead time
for the delivery without delays.
Another contemporary issue is related with the custom. For the effective SCM, information
exchange with RBV, good TCE and agency relationship is mandatory. This study has
identified custom issues which lack proper guideline and standards, lack of temperature
control system in custom and lack of proper usage of human resources for the appropriate
assignment are the identified issues. RBV theoretical application can minimize those issues
in effective manner.
Inventory management is also critical for SCM practices in each type of industry. PSC is a
complex process when compared with other industry. Due to the complexity, bulk stock
maintain, MOQ and identify lead time for the each and every step in SCM.
R&D is a main pharmaceutical driver for the industry. However when compared with the
other world, R&D practices are somewhat different as discussed at the literature review. Gap
of technical knowledge, MOQ for raw materials and cost factor are the major issues for PSC.
5.2 Reasons for the supply chain issues
The Sri Lankan pharmaceutical manufacturing is still in the embryonic stage. Therefore issues
are also very significant as discussed above. Supplier delays, custom delays, NMRA duty
waiver delays are major reason for the many issues such are bulk stock maintain, lead time.
Sri Lanka does not have raw material manufacturers in the country. Therefore industry is
always looking for the foreign supplier. It leads to many issues which are directly related to
the supplier selection. Lack of proper implication of theories that are related to the SCM is
another reason for the industry issue. Lack of proper usage of knowledge person for the
respective work task is an issue for the custom as well as organization perspective. Forecasting
error is another reason for bulk stock maintains and lead time. The NMRA change of rule and
regulation negatively impacts for all the issues that were discussed in the above section.

5.3. How to mitigate issues

This study identified the contemporary issues and reasons for these issues. Then the study
focused the strategies which are taken by the case studies to mitigate the issues. This section

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concluded the strategies that were taken by the companies as well as strategies that are needed
to be taken for the effective SCM practices in pharmaceutical industry.
To increase the effectiveness of SCM industry, dealing with agent of the some RM to
minimize the issues can be considered. Application TCE as well as RBV for the minimization
of the issue of MOQ, built strong relationship between suppliers and manufacturer while
keeping minimum number of suppliers, practicing the MRP planning and outsourcing for the
inventory are already practiced by the industry to some extent. From case to case the
implications of those strategies are different. Therefore as industry has not practiced better
supply chain management practices hence it had increased contemporary issues day by day.
Better applications of RBV practices will help to reduce the issues that are linked with custom
as discussed in the above section. It is better to practice network theory while working with
NMRA and other regulatory bodies to make strong relationship between the parties which
will help to minimize such issues. Keeping the coordination, information exchange and
increasing the supply chain responsiveness helps in effective supply chain practices.
5.4. Conclusion
This study was carried out with the purpose of exploring the supply chain related
contemporary issues in Sri Lankan pharmaceutical industry.

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 Lack of Duty Waiver
Pharmaceuti Lack of
Delay
cal Temperature
Knowledge Control

Custom
Lack of Delays Cost &
proper Time
Guideline

Lead time

Buffer
Stock R&D
Trustworthines
s

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RM/PM MOQ
Supplier
Technical
Agen Gap
No Local
Supplier Supplier Changes
Delays NMRA

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Communication Gap, Lack of Knowledge Pharmaceutical Supply Chain

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Figure 2 - Interrelationships among the identified issues

The findings
overall discuss how they have influenced in making the Sri Lankan pharmaceutical supply
chain vulnerable in the global scenario and what kind of strategies are being used by these
companies to overcome them. Nevertheless, when the identified issues and the way they are
influencing on the overall pharmaceutical industry were carefully reviewed, the following
interrelationships (Figure 2) among them is clearly visible as a virtue of summarizing the
overall study.
The findings of this study will also be useful in understanding the nature of the Sri Lankan
pharmaceutical industry supply chain in a nut shell so the policy makers can assist in
formulating the best strategies to overcome certain regulatory and administrative issues, too.

5.5. Recommendations for future research

This research has come up with many questions for further investigation from different
perspectives: Identify issues with pharmaceutical distribution network in Sri Lanka with
comparison in between small scale manufacturers with large scale manufacturers.
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