Three Seas Economic Journal

140

Vol. 3 No. 1, 2022

Corresponding author:
1 National Academy of Management, Ukraine 
E-mail: osospavlo@gmail.com
ORCID: https://orcid.org/0000-0001-7036-3737

DOI: https://doi.org/10.30525/2661-5150/2022-1-20

SUPPLY CHAIN MANAGEMENT SYSTEM –  
A KEY TOOL FOR THE DEVELOPMENT  

OF THE PHARMACEUTICAL INDUSTRY IN UKRAINE
Pavlo Osos1

Abstract. The subject of this article is the supply chain management system of pharmaceutical industry enterprises 
in Ukraine. Methodology. In the course of the study, the systematic and logical approaches are mainly used. At 
the same time, during the study the following scientific methods were used: 1) analogy – an effective supply 
chain management system (hereinafter – SCM system) is defined as important for enterprises of any sector of the 
national economy of Ukraine; 2) induction – significant attention is paid to the individual components and para-
meters of the supply chain of the pharmaceutical industry in Ukraine; 3) generalization – it was found that, despite 
the diversity of views on the definition of SCM system, the basic idea of such a definition is identical; 4) others.  
The purpose of this article is to study the current state of SCM-system of pharmaceutical industry in Ukraine, as a key 
tool for its development. The results of the study show that the spread of coronavirus disease COVID-19 (hereinafter  
COVID-19) caused changes in the transport components of the SCM system in the enterprises of the pharmaceutical 
industry in Ukraine. Conclusion. The Ukrainian pharmaceutical industry is the most developed among the post-
Soviet countries and has a leading position in the production of generic drugs. Thanks to the distribution of 
COVID-19, the industry today is the guarantor of the protection of life and health of citizens, and pharmaceutical 
companies receive significant profits. Given today's realities, such companies continue to transform internal 
business processes related to the SCM system, which must first and foremost be as flexible, fast and sustainable 
as possible. At the same time, changes associated with the possibility of "online" sales of medicines can have a 
positive impact on the effectiveness of SCM system parameters in the pharmaceutical industry in Ukraine, which 
in the long term will lead to an increase in its profitability. However, such sales cannot fully guarantee high quality 
and safety of pharmaceutical products. Strict domestic legislation related to pharmaceutical industry regulation 
contributes to unpredictable situations related to the SCM system. Proper identification of key priorities and 
anticipation of possible obstacles in advance will greatly reduce their occurrence.

Key words: supply chain management system, pharmaceutical industry, business processes, parameters,  
COVID-19. 

JEL Classification: L29, L80, L81

1. Introduction
Any enterprise operating in the system of national 

economy of Ukraine, seeks to strengthen its position  
in the domestic and foreign markets, taking into 
account the rules of a market-oriented economy. 
Market competition forces companies to work on 
improving product quality and safety, in particular, 
to improve their own internal business processes. An 
essential competitive advantage for most companies is 
to have a commercial strategy that includes SCM system 
approaches. Rational use of production capacities 
promotes the possibility to avoid production of excess 
production, which always causes additional financial 

costs for enterprises. Without SCM system, most 
enterprises were forced to plan their own production 
with significant buffer intervals due to the lack of 
synchronized supply processes between the supplier and 
the potential buyer and/or consumer. The emergence 
of modern software for SCM system has significantly 
increased efficiency in the coordination of business 
processes, from production to delivery to the end 
consumer (Smerichevska et al., 2012). SCM systems 
mainly include the following business processes: 
purchasing, transportation, inventory planning, 
forecasting of future sales and other operations. 
Considering the above, SCM system is a complex 

This is an Open Access article, distributed under the terms 
of the Creative Commons Attribution CC BY 4.0



Three Seas Economic Journal

141

Vol. 3 No. 1, 2022
operation of interdependent business processes, which  
provide enterprises with maximum proficiency. 
However, the SCM system may differ depending on 
the type of products, the type of enterprise and the 
industry affiliation of such enterprises. The spread 
of COVID-19 and the resulting use of quarantine 
restrictions has forced most enterprises to transform 
their internal business processes related to the SCM 
system. The application of quarantine restrictions had 
a negative impact on the national economy of Ukraine 
in 2020: real gross domestic product declined (-4%); 
exports of goods and services declined (-5.6%); 
imports declined (-9.6%) (NBU, 2021). However, 
despite the negative trend, the pharmaceutical industry 
was one of the first to adapt to the new negative realities 
due to the highest share of innovative production 
compared to other industries. A considerable part 
of enterprises of pharmaceutical industry (48%) 
invested 1.5 billion UAH into new equipment, repeated 
research innovations, etc. (Darnytsia, 2021) At the 
same time, legislative changes allowing "online" sales 
of drugs have caused significant changes in supply 
chain management, particularly in the transportation 
process, as part of the pharmaceutical industry 's 
SCM system. The importance of an effective supply 
chain management system in the national economy of 
Ukraine, in particular in the pharmaceutical industry, 
has been investigated by the following scientists: 
Smerichevska  S. V., Zhabolenko  M. V., Ibrahimkha- 
lilova T. V., Kolodizieva  T. O., Dorokhova  L. P., 
Dorokhov  O. V. et al. The scientists mentioned above  
have explored the problems associated with the 
importance of the SCM system in the context of 
economic globalization, the role of supply chains in 
improving the efficiency of the logistics activities of 
the enterprise in particular, the development of SCM 
system strategy for pharmaceuticals, etc. Despite 
minor differences in the areas of research, the above- 
mentioned scientists agree on the need for effective 
functioning of the SCM system and its strategic 
importance in the management of enterprises of the 
national economy of Ukraine. Despite minor differences 
in the areas of research, the above-mentioned scientists 
agree on the need for effective functioning of the SCM 
system and its strategic importance in the management 
of enterprises of the national economy of Ukraine. 
Despite minor differences in areas of research, the  
above scholars agree on the need for effective 
functioning of the SCM system and its strategic im-
portance in enterprise management of the national 
economy of Ukraine.

2. Features of SCM-system  
in the pharmaceutical industry of Ukraine

The Ukrainian pharmaceutical industry is the most 
developed among the post-Soviet countries and has 

a leading position in the production of generic drugs. 
Due to the spread of COVID-19, the demand for 
antibiotics, antivirals and antipyretics, etc. has increased 
during 2020–2021. At the same time, there was a need 
for pharmaceutical products designed to prevent the 
emergence and spread of COVID-19, in particular as 
defined by the Decree of the Cabinet of Ministers of 
Ukraine (hereinafter CMU) № 224 of March 20, 2020. 
According to the CMU Decree, such products must 
be supplied to the territory of Ukraine without hin- 
drance and delay. Thus, due to the spread of  
COVID-19, the effective functioning of the 
pharmaceutical industry of Ukraine is a guarantee of 
saving the lives and health of citizens. The efficiency  
of this industry depends on the internal business 
processes of pharmaceutical companies: planning, 
forecasting, transportation, etc. The above business 
processes are part of the SCM system and operate at 
the micro and macro levels. Domestic pharmaceutical 
companies were ready to instantly transform internal 
business processes in accordance with modern 
developments (Economic truth, 2020). 

According to R . Handwild, the SCM system covers 
the relevant organizations involved in relocation 
and conversion of products, from the stage of raw 
materials purchase and to delivery thereof to the 
end user, taking into account also information 
traffics. K. Rutkowski sees the SCM system as 
a physical network that connects the original supplier 
to the end user (client). According to the standard  
ISO 28000-2005, SCM system is considered as an 
interconnected set of resources and processes from  
the production of raw materials to the delivery 
of products or services to the consumer through 
transport systems (Kolodizieva, 2015). Although 
the above definitions differ somewhat, the general 
idea is the process of moving a product from its place 
of production to the final consumer, taking into 
account product characteristics and a particular supply  
strategy of individual industrial enterprises.

Although the above definitions differ slightly, the 
general idea is to move the product from its production 
process to the end consumer, taking into account the 
characteristics of the product and a certain supply 
strategy by individual companies in the industry.

Given the realities of modern life, with the 
proliferation of COVID-19, the SCM system must be 
as flexible, fast and resilient to failure as possible. At 
the same time, the strategy for the SCM system must 
ensure the need to reduce costs, given the current  
global instability (Deloitte, 2021). As of the end 
of April 2020, the production of pharmaceutical 
products increased by 22%, in particular, the number 
of manufacturing companies increased by 600%. 
This result was certain-ly influenced by the CMU's 
positive decision to allow the "online" sale of drugs and 
medical supplies, subject to appropriate transportation 



Three Seas Economic Journal

142

Vol. 3 No. 1, 2022
conditions. "Online" sales services in Ukraine have 
shown significant demand. During the period from 
April 10 to May 10, 2020 (the first month of the  
service), the Ukrainian company Nova Poshta, 
which provides express delivery services, made 
32,000 orders for shipments of medicines:  
24% (villages and settlements); 36% (for urban 
residents); 40% (Kyiv and regional centers). At the 
same time, the domestic state en-terprise "Ukrainian 
Railways" JSC, which provides the transportation 
services (grain, ore, and metal), reported about 
a decrease of traffic volumes by about 9% in the first  
half of 2020 (CAR , et al., 2020). 

Thus, enterprises providing express delivery 
services create indirect competition for traditional 
transportation companies. For example, an increase in 
the volume of online sales of pharmaceutical products 
from the manufacturer to the end consumer will  
affect the reduction in the supply of such drugs to 
wholesalers and retailers (pharmacies) through 
traditional transport operators (logistics). In the future, 
logistics as part of the SCM system in the pharma- 
ceutical industry will be defined in terms of 
transportation services by traditional transportation 
companies and companies providing express delivery 
services. 

3. Parameters of SCM system efficiency  
in the enterprises of pharmaceutical industry 
in Ukraine

The effectiveness of the SCM system directly affects 
the cost of pharmaceutical products. The variable 
manifestations of the growth of COVID-19 infections 
force governments to tighten or lower quarantine 
restrictions depending on the epidemiological  
situation. Such "merry-go-rounds" jeopardize 
the functioning of the pharmaceutical industry. 

The chaotic situation in the SCM system of the 
pharmaceutical industry and not only directly 
affects production processes, international trade and  
domestic distribution. Today there are many  
indicators that reflect the effectiveness of SCM system 
in the industry. A large part of them is aimed at the  
study of customer satisfaction, because it has 
a direct impact on the demand for products. Thus, 
pharmaceutical companies, based on the assessment 
of the level of satisfaction of their customers and their 
needs, form a unique strategy of SCM system and 
determine its possible risks. Parameters of SCM system 
are the main indicators to assess their effectiveness.

The overall effectiveness of the entire SCM system 
can be judged only after a detailed evaluation of each 
parameter of such a system. Only high values of all 
the above parameters can guarantee the productivity  
of the entire SCM system. For example, high speed 
parameters alone will not have a positive effect on 
the overall supply chain in the case of excessive raw 
material and/or final product inventories, indicating 
a low flexibility parameter. At the same time, the SCM 
system cannot be considered effective only due to 
high parameters of flexibility, speed and reliability, in 
particular, without taking into account the low level of 
cost optimization. Thus, the basis for determining the 
state of performance of SCM system at the enterprises 
of national economy of Ukraine, in particular, the 
pharmaceutical industry, is the planning process. The 
efficiency of supply chain management parameters 
depends on their deviation from the planned para-
meters. In the case of consistently low performance of 
one or more parameters, it is necessary to examine in 
detail the factors that may influence the negative result. 
For example, there may be cases where an unreasonably 
high target rate parameter can lead to an overestimation 
of supply chain costs (cost parameter). At the same 
time, incorrect forecasting of product demand can  

Table 1
Parameters for assessing the effectiveness of the SCM system

Parameter Name Parameter definition

Flexibility

The company 's ability to adjust its supply chain in a timely manner in response to changes in customer needs. A positive 
indicator of flexibility is the absence of excessive stocks of raw active pharmaceutical ingredients at manufacturing 
plants, in particular stocks of finished products in warehouses of wholesale companies, as well as the stable availability of 
pharmaceutical products in retail chains.

Rate

And the period of time from the purchase of raw materials to the receipt of the final product by the consumer. The speed 
of the supply chain is often called its length and is measured in days. Enterprises constantly take into account possible 
risks on the timing of delivery associated with various delays at customs, force majeure, in particular, when they occur, 
with the implementation of alternative measures.

Reliability

And the guarantee of meeting established delivery deadlines. Receipt of active pharmaceutical ingredient raw material 
producers and wholesalers and retailers of finished products in a clearly defined time frame is a positive criterion for 
reliability in the pharmaceutical industry. A reliable supply chain prevents companies from incurring additional financial 
losses.

Costs
The total cost of supply chain operation, which covers the significant business processes of the company (purchasing, 
transportation, inventory write-offs, warehouse management, etc.). The efficiency of this parameter is measured by the 
company 's ability to optimize costs at each stage of the supply chain.

Source: added by the author according to (Kolodizieva, 2016)



Three Seas Economic Journal

143

Vol. 3 No. 1, 2022
lead to an excess or shortage of raw materials and/or 
final products in warehouses (flexibility parameter). 
Lack of raw materials and/or final products in stock 
may result in non-compliance with delivery conditions 
(reliability parameter). At the same time, the excess of 
raw materials and/or products in warehouses indicates 
the additional costs of enterprises. Considering the 
above, it can be assumed that the system of SCM system 
efficiency evaluation has cyclicality. The evaluation 
of the effectiveness of the SCM system parameters is 
determined only by taking into account the correct 
planned execution. At the same time, the establishment 
of planned indicators takes place only taking into 
account the evaluation of the effectiveness of the SCM 
system parameters, in particular the factors that may 
negatively affect the final result of such parameters. 

The implementation of an effective SCM system 
in the pharmaceutical industry is necessary not only 
for the pharmaceutical industry, but also for the state. 
A large mass of the added value of pharmaceutical 
products is formed at all stages of supply. It is beneficial 
for the business environment to work on reducing  
costs at all stages of the supply chain at the expense of 
revenue growth. The state is interested in increasing 
the revenues of pharmaceutical companies, as budget 
expenditures will increase at the expense of the tax 
system.

4. Possible consequences  
of an ineffective SCM system

A stable and flexible SCM system is the key to 
the success of the pharmaceutical industry. With 
the onset of quarantine measures caused by the 
COVID-19 pandemic, logistics processes are in a state 
of uncertainty and chaos. For example, China was 
one of the first countries to experience the severe 
consequences of the pandemic. Japan is close to 
deciding to move its own production facilities out of 
China. The trend of global corporations, particularly 
pharmaceutical corporations, to move their production 
facilities existed even before the COVID-19 pandemic 
due to the increased costs associated with workers' 
compensation. Many multinational corporations are 
moving their production facilities to the European 
continent for a more flexible and predictable process of 
product delivery to consumers. Ukrainian businesses 
are avoiding long-term warehouse lease offers due to 
the contingency of the SCM system sector related to 
the application of quarantine measures. This approach 
allows companies to respond much faster to new 
challenges (Trans.EU, 2020). 

Due to the strict domestic legislation on the 
regulation of the pharmaceutical industry, companies 
repeatedly face unpredictable situations, largely related 
to the SCM system. To overcome such obstacles, it is 
necessary to properly identify the main priorities and 

model possible situations in advance. This approach 
will allow pharmaceutical companies to control 
possible contingencies (Dorokhova et al., 2020). 
Significant failures and incorrect forecasts in the SCM 
system can have negative financial consequences 
for manufacturing, wholesale and retail businesses. 
Depending on the characteristics of possible problems 
in SCM system, such consequences can be: reduction 
of production, excess of final products in warehouses, 
increase in transportation costs, etc. To avoid negative 
consequences, it is necessary to implement SCM  
system taking into account the effectiveness of the 
above-mentioned parameters. 

5. Research methodology
Theoretical and methodological basis of the study 

is the SCM system as a major component of the 
pharmaceutical industry in Ukraine. The results of 
the study are based on scientific works of leading  
domestic scientists, public and state organizations 
and others. At the same time, modern research mainly 
uses systemic, process and logical approaches. In this 
regard, the following scientific methods were used in 
the re-study: 1) analogy – an effective supply chain 
management system (hereinafter – SCM system) is 
defined as important for enter-prises of any sector  
of the national economy of Ukraine; 2) induction –  
significant attention is paid to the individual  
components and parameters of the supply chain 
of the pharmaceutical industry in Ukraine;  
3) generalization – it was found that, despite the 
diversity of views on the definition of SCM system,  
the basic idea of such a definition is identical; 4) others.

6. Conclusions
Having a commercial strategy that provides SCM 

system approaches is a significant advantage for most 
businesses. Commercial strategy and SCM system 
management strategy are interrelated, as SCM system 
also provides research and forecasting of demand 
for products. Modern software for SCM systems has 
helped to improve the efficiency of coordination of 
business processes, from the production of goods to 
their delivery to the end consumer. The spread of the 
COVID-19 pandemic has forced most businesses to 
transform their own supply chain business processes. 
Today the pharmaceutical industry of Ukraine is 
the guarantor of preservation of life and health of 
citizens. For further development of this industry, 
pharmaceutical companies need to implement SCM 
systems in accordance with modern realities and  
taking into account the effectiveness of parameters 
(flexibility, speed, reliability, costs). The overall 
effectiveness of the entire SCM system can be judged 
only after a detailed evaluation of each parameter 



Three Seas Economic Journal

144

Vol. 3 No. 1, 2022
of such a system. Only high values of all the above 
parameters can guarantee the performance of the 
entire SCM system. Changes related to the possibility 
of online sales of medicines may have a positive impact 
on the efficiency of supply chain management system  
of pharmaceutical industry in Ukraine, which will 
further increase its profitability. Nevertheless, such  
sales cannot fully guarantee high quality and product 
safety.

At the same time, it can be assumed that the 
performance evaluation system for the SCM system 
is cyclical. An effective SCM system of the pharma-
ceutical industry has a positive impact on the state 

budget. Rigid domestic legislation on the regulation  
of the pharmaceutical industry greatly contributes  
to the occurrence of unpredictable situations in  
relation to the SCM system. Correctly defined 
main priorities of SCM system, in particular, the 
possible negative situations modeled in advance are a  
guarantee of overcoming any obstacles. Despite the 
large number of definitions relating to SCM system, 
the general idea is the process of moving goods from 
the process of production to the end consumer, taking  
into account the characteristics of the product  
and certain supply strategy of individual industry 
enterprises.

References:
Smerichevska, S. V., Zhabolenko, M. V., & Ibrahimkhalilova, T. V. (2012). Supply Chain Management (SCM)  
yak nova ideolohiya upravlinnya biznesom v umovakh hlobalizatsiyi ekonomiky [Supply Chain  
Management (SCM) as a new ideology of business management in a globalizing economy]. Scientific World.  
Available at: https://www.sworld.com.ua/index.php/an-innovative-approach-to-the-development-c112/11863- 
c112-138 (accessed 13 December 2021).
National Bank of Ukraine (2021). Tempy zrostannia realnoho vvp v Ukraini u 2020 rotsi [Real GDP growth 
rates in Ukraine in 2020]. National Bank of Ukraine. Available at: https://bank.gov.ua/ua/news/all/komentar-
natsionalnogo-banku-schodo-zmini-realnogo-vvp-u-2020-rotsi (accessed 13 December 2021).
Darnytsia (2021). Innovatsii v farmvyrobnytstvi stymuliuiut pozytyvni zminy v systemi okhorony zdorovia –  
dani doslidzhennia [Innovations in the pharmaceutical industry stimulate positive changes in the healthcare  
system – research data]. Darnytsia. Available at: https://www.darnitsa.ua/press-center/novini-kompan/
ukrayinska-farmindustriya-dolaie-vikliki-koronakrizi-i-prodovzhuie-trend-zrostannya---dani-doslidzhennya 
(accessed 10 December 2021).
Economic truth (2020). Farmatsevty na peredovii [Pharmacists at the forefront]. Economic truth. Available at: 
https://www.epravda.com.ua/projects/farmak/2020/05/7/660199/ (accesses 13 December 2021).
Kolodizieva, T. O. (2015). Vyznachennia lantsiuhiv postavok ta yikhnia rol u pidvyshchenni efektyvnosti 
lohistychnoi diialnosti pidpryiemstv [Definition of supply chains and its role in improving the efficiency of logistics 
activities of enterprises]. Problems of the economy, no. 2, pp. 133–139. Available at: http://nbuv.gov.ua/UJRN/
Pekon_2015_2_20 (accessed 11 December 2021).
Deloitte (2021). Lantsiuh postachannia. Zbilshuite pokaznyky zrostannia, zmenshuiuchy vytraty [Supply chain. 
Increase growth by reducing costs]. Deloitte. Available at: https://www2.deloitte.com/ua/uk/pages/operations/
solutions/supply-chain-offerings.html (accessed 12 December 2021).
Non-Governmental Organization "Center for Applied Research", Konrad-Adenauer-Stiftung (2020). Vplyv 
COVID-19 ta karantynnykh obmezhen na ekonomiku Ukrainy [Impact of COVID-19 and quarantine restrictions 
on the economy of Ukraine]. Non-Governmental Organization "Center for Applied Research", Konrad-Adenauer-
Stiftung (representative office in Ukraine). Available at: https://cpd.com.ua/vplyv-COVID-19-na-ekonomiku-
Ukrainy.pdf (accessed 13 December 2021) 
Kolodizieva, T. O. (2016). Upravlinnia lantsiuhamy postavok [Supply chain management]. Kharkiv: KhNEU them. 
S. Kuznets. (in Ukrainian)
Trans.EU (2020). Lantsiuhy postachannia – nova realnist pislia pandemii [Supply chains – a new reality after 
the pandemic]. Trans.EU. Available at: https://www.trans.eu/ua/blog/block-chain-nova-realnist/ (accessed  
13 December 2021).
Dorokhova, L. P., & Dorokhov, O. V. (2020). Rozrobka stratehii upravlinnia lantsiuhamy postavok likarskykh 
zasobiv metodamy analitychnoi iierarkhii i adekvatnoho zvazhuvannia [Development of a strategy of drug  
supply chain management by analytical hierarchy and adequate weighing methods]. Proceedings of the  
Menedzhment ta marketynh u skladi suchasnoi ekonomiky, nauky, osvity, praktyky: VIII International scientific-practical 
distance conf. (Ukraine, Kharkiv, March 19, 2020), Kharkiv: Menedzhment ta marketynh u skladi suchasnoi 
ekonomiky, nauky, osvity, praktyky, pp. 233–235. Available at: http://91.234.42.22/handle/123456789/22120 
(accessed 12 December 2021).