The expiry factor introduces unique constraints on planning

Published July 23rd, 2009 by Martin Buckley 2 Comments

I came across a very interesting response to my ‘Constrained planning vs. finite capacity scheduling: which way to go?’ article, which brought up a new angle to view constrained resource and material planning from. The response was talking about planning in the biotech industry as compared to the aerospace industry, commenting on how different the two were, and the need for a good planning tool that could accommodate the unique needs of the biotech and pharmaceutical industry.

Having worked with customers in both the aerospace and biotech industries, I can appreciate the significant differences between the two when it comes to constrained planning. While the needs of the aerospace and biotech industries may differ due to their very different products and production methods, several things they also share in common are:

  1. They are both heavily regulated and validated industries
  2. The need to holistically plan over the entire supply chain, across enterprise boundaries
  3. The need to model constrained resources and material without overly complex setup and maintenance
  4. The need to be able to simulate complex supply chain systems for what if analysis to ensure the best production plan is produced
  5. The need to be able to rapidly react to changes in supply or demand in order to quickly readjust the plan to meet real world conditions
  6. The ability to get results in real time for complex product structures and supply chain networks

Biologics differ significantly from aerospace in several regards:

  1. Biologics often tend to be supply driven (due the limitations of batch production of the drug substance), whereas aerospace is demand driven
  2. Biotech will have an inverted product portfolio (few raw components, many finished goods or presentations), whereas the opposite is true in aerospace (few FG’s, many raw materials and sub-assemblies)
  3. Biologic planning is centered around expiry, whereas aerospace planning is centered around model/unit effectivity or serialization at the lower tiers.

These differences in biotech introduce unique constraints on planning due to the expiry factor, as supplies will become unavailable over a planning horizon once they expire, usually at a significant cost to the company. In order to mitigate this risk, any planning tools hoping to meet the requirements of the biotech industry must support expiry planning. Most commercial ERP systems support expiry only from a transactional point of view (tracking the expiry of produced lots), whereas what is really needed is the ability to PLAN with expiry. This raises the question, Should I use a tool created specifically for biotech, or can I use a broader based tool that could support both aerospace and biotech planning? The advantage of the former is it would contain all the necessary functionality to meet biotech needs, but the disadvantages of vertical specific planning tools outweigh the advantages.

These include :

  • The smaller target market leads to lower sales and revenue volumes, thereby making the company supporting the tool more financially vulnerable
  • The concentration of resources in one vertical means opportunities to leverage cross industry knowledge is lost (As mentioned above, there are a lot of commonalities in supply chain planning across radically different industries). This includes community knowledge and consulting services as well.
  • The requirements needed to meet multiple industry verticals lead to the development of a more robust and feature rich tool, as many different users in many different industries ensure full utilization of all aspects of the tool

That being said, we next need to look at what functionality is required to meet biotech needs and aerospace. The tool should be able to allow rapid changes to the supply and demand picture in simulation, so the planning team can react quickly to changes in the supply chain picture. The tool should be able to get data from multiple ERP, databases, spreadsheets, and other less structured sources, and bring it together in a holistic view of the supply chain. Since many industries now sub contract or outsource production and materials, the tool must be able to cross the enterprise boundary, so a complete picture of the supply chain can be presented.

Current best practices dictate that a team approach to problem solving results in better results and faster turnaround, so the tool must be able to support collaboration between users over a large geographical area. Lastly, the tool must make it easy for the users to manipulate and change many data points in real time, create simulation scenario’s, and report on their findings in order to give relevant feedback to the organization.

Now that we have examined the general capabilities required of the planning tool, let’s look at specific requirements as it relates to biotech. As stated before, expiry plays a large part in the planning and supply chain process of biologic products. Once a product (raw material, intermediate,  or finished product) reaches its expiry limit, several factors come into play. For products with a soft expiry date (expiry can be extended by regulation or by re-sterilizing in the case of med devices), some action is still required, even if it is just re-labelling. In the case of hard expiry (product expiry cannot be extended by regulation), the product must be scrapped, disposed of, and written off the books. This can involve significant expense in disposal and scrap costs. There may be steps in the manufacturing process where expiry can be reset (fill formulation, etc.), so it becomes important to have added visibility at this stage. As well, finished goods will most likely have a stop sell date on them as well (the time offset before expiry that a product can no longer be shipped to a customer), as customers do not want to be stuck holding expired product in their inventory. This can vary by market and country, allowing the product to be used in one market but not another. When planning these types of products, the goal will be to minimize the amount of product that is not used and not sent to market. This also requires that sufficient safety stock is carried to allow proper coverage of the variations in supply and demand, as people could be depending on the product for their very lives and well being.

All of these factors make inventory turns reduction in biotech that much more difficult to accomplish, as the results of a misstep can have devastating consequences. In order to manage this difficult task, a planning tool capable of giving a clear picture of expiry, supply, and demand across the entire supply chain is a must. The ability to rapidly respond to changes in the overall business environment will help ensure that the dual goals of reduced inventory and adequate supply to meet demand can be met effectively by the planning organization with the optimal plan that accommodates the current environment.

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2 Responses to “The expiry factor introduces unique constraints on planning”

  1. Stefan de Kok

    Martin,

    I wholeheartedly agree that aerospace and biotech are very very different in terms of planning, yet still have significant similarities. But to then jump to the conclusion that the choice is between a narrow biotech-only solution or a broad one that covers the entire spectrum including aerospace is too assuming.

    Reality is, there is a whole set of industry verticals collectively called the process industries, with solutions that cover biotech, pharma, chemical, food, beverage, apparel, tobacco, … All you have written above for biotech is true for pretty much all of the process space, with at most marginal differences such as the level of documentation required by regulation, but most of these industries deal with expiry, some much more heavily than biotech (think dairy, meat, wine, even apparel since it is so fashion sensitive). As a result, the choice is not so much black or white, but there are shades of gray. There are HUGE companies that serve these industries, removing the risks mentioned above of implementing a focused solution, yet providing the benefit of such a solution.

  2. Jim Pacheco

    Martin,

    Thank you for your insights in regards to the constraints facing tools to support expiry planning constraints in biologic industries.

    Do you have any information on the planning strategies themselves? I am looking for data on planning strategies involving safety stock, demand ( historical average vs forecast) . Do you have any insight?

    Thanks!

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