I recently attended the Bio Manufacturing Summit 2011 in San Diego focused on managing the supply chain in the bio pharma industry. My background is with the high tech electronics supply chain and I found the similarities and differences very interesting. I had the opportunity to attend a few presentations. Topics ranged from outsourcing to managing material supply to capacity utilization. I think that there are many lessons learned from the electronics supply chain that can be applied to pharma but the reverse is also true. Let me explain.
Degree of outsourcing
- In electronics there are many examples where 100 percent of manufacturing is outsourced. OEM’s (or as they often call them in pharma ‘sponsors’) have shed all overhead from their manufacturing environments.
- In pharma most OEM’s outsource a portion of their manufacturing. They still see manufacturing as a core competency.
- Electronics have made a noble effort to create a strategic relationship between the OEM and the outsourcing partner. The same exists with pharma as it is very difficult and costly to change partners.
- In electronics, agreements are created with rules around upside/downside flexibility, firm commit zones and cancellation policies.
- In pharma, regulations have forced a far more comprehensive approach to a partner agreement. Agreements can be up to 300 pages!
- The need for a well defined agreement may be a lesson learned from pharma. During the downturn many electronics companies were exposed with ‘weak links’ in their agreements that did not clearly define the liability associated with demand decreases and inventory levels.
- A majority of electronics companies have adopted elements of lean manufacturing. Kanbans and supermarkets are used frequently, and postponement strategies are the hot topic of the day.
- Capacity is important in both industries but the cost associated with pharma capital equipment is much higher. Utilization is very important in pharma. Pharma are considering lean and see the benefit of reducing inventory levels but there is a constant struggle between capacity utilization and pull based lean principles.
- For many electronics companies, material can represent up to 90 percent of their cost of goods. Much time has been spent stratifying inventory, adopting various days of supply policies based on value/volume and min max replenishment programs.
- In the bio pharma conference they spoke about the need to mitigate their supply chain risk through various inventory strategies to eliminate shortages of low dollar items like vials. I sensed that more attention is required in this area.
- Electronics companies struggle to maintain on time delivery objectives and when the product is not on the shelf they may face perishable demand where the consumer goes elsewhere
- In bio pharma, on time delivery is mandatory. Lives are at stake. When there are debates about inventory or delivery , delivery has to be the priority. This makes supply chain management very challenging in this industry. As pressure to reduce cost increases, it can never compromise delivery.
Distributed supply chain network
- The challenges here are very similar between both industries. Both are struggling with disparate data from different systems, and mergers and acquisitions.
- Both have complex integrated supply chains where their vertical network can span many levels with many dependencies.
- Once again I saw many similarities here. Both industries agree that evaluating opportunities and risk in demand changes, or product launches or supply issues can better prepare them for the future. This requires the need to continuously plan, monitor and respond.
During the conference high tech electronics was often referenced as a role model for the bio pharma industry. I came away with a great deal of respect for the challenges of the pharma industry but also an enthusiasm for the opportunities for improvement and the increased level of attention directed to the supply chain.