3 minutes

Breaking Free from the Sunk Cost Fallacy in the Pharmaceutical Industry

February 12, 2024

In 2020, Genetco faced a pivotal decision. Three years deep with what is now considered a legacy solution, they were drowning in operational issues. "Frequently, we are not seeing the DSCSA data or seeing the wrong DSCSA data in their system. Shipments are piling up at the dock, and we can't receive… It's incredibly stressful when we have pharmacy orders waiting on the products that are locked in the shipments," shared Bill Carney, VP of Operations at Genetco. Bill's decision to switch wasn't easy. Three years invested, hours with legacy solution support, and an integrated Warehouse Management System; the sunk cost was significant. However, Bill chose to break free, stating, "The sunk cost will double and triple if we don’t leave now." Genetco switched to LSPedia in 2020, and happily ever after, they receive accurate and complete DSCSA data in real-time, ensuring timely order fulfillment for their pharmacy customers.

The pharmaceutical industry often grapples with the Sunk Cost Fallacy, trapping companies in subpar DSCSA compliance providers. This cognitive bias keeps them invested despite diminishing returns. In this realm, Clay Dickson, Vice President of Morris & Dickson Co, signed with another legacy solution in 2021. Eighteen months in, only 10% of their suppliers were connected. With stress mounting as the DSCSA deadline approached, the team faced inconsistent responses and technology gaps with the legacy solution. The sunk cost was high. Stay or leave? In September 2023, Morris & Dickson chose to switch to LSPedia. In just four months, LSPedia connected with 350 suppliers, integrated with WMS systems, and added new APIs in response to the specific request from Morris & Dickson.

The fear of wasted resources and emotional aversion to perceived losses contribute to the reluctance to switch providers, even when it's evident that the current arrangement hinders efficiency.

The Sunk Cost Fallacy isn't just a challenge in day-to-day decisions; it has systemic effects, impacting companies large or small. The Concorde Fallacy serves as a cautionary tale, demonstrating how substantial investments and dedicated time persisted in a project, despite clear evidence that the returns wouldn't offset escalating costs.

In the pharmaceutical industry, dissatisfaction with current DSCSA compliance providers often leads to feeling trapped by contractual obligations. The emotional weight of past investments and the fear of failure contribute to the reluctance to break free. However, sunk costs are irreversible, and decisions should focus on present and future costs and benefits.

LSPedia offers a way out, providing a solution that not only meets DSCSA and global compliance standards but transcends them. Beyond compliance, LSPedia streamlines supply chain operations, automates receiving, pick, pack, ship, and inventory cycles. The new OneScan BI platform provides big data analytics, giving complete visibility into your supply chain.

Pharmaceutical companies must acknowledge that sunk costs with current providers will never be recovered, regardless of whether they continue or abandon the existing arrangement. The true leaders emerge with the focus on the future costs and benefits, seeking solutions that contribute to the overall success of the company.

While emotions often cloud rational decision-making, awareness of the Sunk Cost Fallacy is the first step towards liberation. The pharmaceutical industry can turn to technology, such as LSPedia's advanced compliance and supply chain cloud solutions, to make objective and rational choices. By choosing to break free from inadequate legacy providers, pharmaceutical companies can embark on a transformative journey towards enhanced operational efficiency, improved compliance, and a brighter future for their organizations.