Posts Tagged ‘pharmaceutical supply chain’

We are in the final days for offering complimentary access to the Kinaxis life sciences newsletter, which includes a Gartner Case Study: How Amgen Reinvigorated Its Supply Planning Process (Barry Blake, Hussain Mooraj: May 18, 2011). 

According to the Gartner Case study, long supply cycle times require life science manufacturers to balance supply commitments, capacity management and product expiry issues. One global biotech company, Amgen, centralized elements of its planning processes and deployed a rapid planning tool to more effectively balance these requirements.

Key findings of the report include:

• Rapid demand and supply planning processes are foundational capabilities required for a multitier sales and operations planning (S&OP) process that can propel companies beyond simple supply and demand matching to conscious, value-driven business decisions.
• Life science manufacturers don’t often incorporate into their planning processes “what-if” analysis to optimize supply. Additionally, many companies have disconnected their short-term planning from long-term capacity and supply commitment processes.
• By centralizing elements of its planning process and deploying the appropriate advanced planning tool, Amgen can now quickly model the impacts of various “what-if” scenarios and extend these analyses to multiple planning levels across the entire supply network.
• The company is now able to rapidly develop more-accurate supply plans that optimize capacity, inventory and product shelf life, decreasing the total planning cycle from 21 to 12 days. These consolidated, synchronized views of demand and supply across the entire product supply network are generated by the tool in minutes.

Last chance to download the newsletter here: http://www.kinaxis.com/campaign/kinaxis-gartner-pharma-newsletter/

We recently produced a newsletter which includes complimentary access to a 6-page Gartner report titled Case Study: How Amgen Reinvigorated Its Supply Planning Process (Barry Blake, Hussain Mooraj: May 18, 2011)

This Case Study provides insights on how Amgen transformed its supply planning processes and enabled rapid planning capabilities, with advanced planning capabilities and systems.

Key findings of the report include:

• Rapid demand and supply planning processes are foundational capabilities required for a multitier sales and operations planning (S&OP) process that can propel companies beyond simple supply and demand matching to conscious, value-driven business decisions.
• Life science manufacturers don’t often incorporate into their planning processes “what-if” scenario analysis to optimize supply. Additionally, many companies have disconnected their short-term planning from long-term capacity and supply commitment processes.
• By centralizing elements of its planning process and deploying the appropriate advanced planning tool, Amgen can now quickly model the impacts of various “what-if” scenarios and extend these analyses to multiple planning levels across the entire supply network.
• The company is now able to rapidly develop more-accurate supply plans that optimize capacity, inventory and product shelf life, decreasing the total planning cycle from 21 to 12 days. These consolidated, synchronized views of demand and supply across the entire product supply network are generated by the tool in minutes.

Download the newsletter here: http://www.kinaxis.com/campaign/kinaxis-gartner-pharma-newsletter/

I was talking to another consultant recently about issues one of their customers had with obsolescence in the high tech electronics industry. He said with all the rapid advances in technology, it is becoming increasingly difficult to avoid the effects of product obsolescence and its effects on margins, scrap, and inventory levels. He asked me if I knew of any useful methodologies that could be applied to planning with obsolescence, in order to simulate its effects and thereby try to minimize its negative results.

This got me to thinking about my experiences in the pharmaceutical industry, where product expiry and scrap due to expiry are a key planning issue. Could the methodologies we use to mitigate expiry be used when planning for obsolescence? While on the surface it would appear the two are unrelated, when looked at closer from the planning perspective, commonality begins to emerge. Both scenarios deal with supply that is unavailable (or degraded) for use after a period of time, both scenarios deal with material that must be scrapped and disposed of, and both can have severe impacts on inventory and the bottom line.

Expiry deals with product which has a defined life, usually due to efficacy and regulatory issues. Obsolescence is much more difficult to define in terms of a definitive lifecycle, but products have a finite lifecycle due to customer demands driven by technology and market changes. While obsolete products don’t necessarily result in product scrap and disposal, dealing with obsolete products can have a significant negative impact on margins and inventory levels, as well as cannibalize market share from newer products that replace them.

What if we used expiry planning tools to model obsolescence? If we assign the anticipated time to obsolescence to the minimum shelf life (time remaining to expiry for a product in the market), we can actually model and plan for the ‘expiry’ of our products. Armed with that knowledge, we can look at effects on margins, scrap, disposal costs, and inventory levels. Are those safety stock levels we are currently setting going to result in significant amounts of unusable inventory down the road? Are our minimum economic buy levels really that economical, or are we losing all the cost benefits in obsolete inventory losses? Are our projected margins going to hold, or will we see a drop as obsolete product factors come into play (price cuts to move inventory)?

In order to answer these important questions, we could use planning tools to effectively simulate some ‘what-if’ scenarios. We could play with ‘expiry’ to simulate multiple different scenarios, and look for best case scenarios to minimize scrap risk or margin loss. In order to perform an effective what-if simulation, we would want a tool to be able to handle complex (where a component determines expiry of a parent) as well as simple (the item itself determines expiry) expiry planning. This is because a component or components (a CPU or drive for instance), at several levels in the BoM or supply chain, could actually determine the life of the end product, and we would want to simulate the effects of these relationships.

A planning tool can help identify these ‘inflection points’ in the planning cycle, and thereby alert the planners to manage the supply chain in different ways to generate a better outcome for the business.

In summary, even though pharma and electronics are very different industries, there are elements of one which can be applied to the needs of another in new ways in order to improve business performance and planning.

More food for thought: What can supply chain optimization techniques in the electronics business teach pharma?

Taking note of best practices across industries

As mentioned in Part 1 of this post, despite the unique aspects of the Pharma industry, the bulk of the supply chain management issues are largely common to many other industries.  And without the same degree of supply chain focus that is present in the high tech space for example, the net result generates a degree of waste almost unfathomable by those outside the industry. The chief question is, “can you achieve an acceptable level of supply availability without the waste?” It’s understood that the definition of “acceptable” ranges from 100% availability for some life sustaining medications to more conservative fill rates for OTC generics. There are enough examples of supply chain mastery in the high tech and automotive industries to suggest the answer is an absolute yes.

The high tech and automotive industries have for years been focused on adopting the precepts of Lean that deal with the elimination of waste and the rapid reaction to change. That is not to say that Pharma industries haven’t leveraged lean principles, but the key difference has been the high tech focus on the entire value chain rather than individual sub-processes. An operational sub process focus can yield what appears to be cost improvements, but without addressing the broader connection to customer demand patterns and other supply chain steps, they often fail to significantly affect the overall cost. It is the consideration of the cost trade-offs of the entire supply chain’s ability to meet demand that seems to be missing.

It is in the area of demand planning where the difference is most evident. In high tech, with the economic pressures to minimize the inventory investment, the ability to rapidly and economically adjust to demand shifts is a major factor in business performance. Saddled to that is a focus on improving forecasts accuracy through investments in collecting and analyzing more meaningful data , while also more broadly collaborating on a consensus plan. As part of this effort, many leading high tech companies have embarked on collaborative forecasting and planning with distributors and sub-contractors.

In Pharma, the inventory buffers make similar investments seem less important. A February 2010 article by Wayne McDonnell of Gartner Research, “Just how long do we have to wait for True S&OP in Life Sciences,” proffered that the two most important areas where life sciences companies need to invest is on improving forecast accuracy and end to end supply chain management.

Pharma companies have also followed many of the outsourcing trends as high tech with essentially the same consequences. Limited visibility and collaboration challenges in synchronizing the supply chain when volatility strikes. As the pressure to control costs and optimize inventory increase, these challenges take on increased importance. Global supply chain visibility and synchronization has been on the strategic initiative list for high tech companies for several years, while it has gained importance in the Pharma space much more recently.

In recent years, Pharma companies have begun to recognize the potential of adopting a high tech approach to both demand planning and supply chain management. Given the pre-existing emphasis on fulfillment, the improvements being sought are more in the areas of end to end cost and working capital turnover. The key to achieving those are through better demand management and an end to end supply chain management focus.

Experiencing escalating costs and working capital strain, companies are rethinking their supply chain model, changing their approach and increasing their capabilities in order to drive better alignment and performance. Evidence of the change is seen in recent hiring trends with executives and middle managers from the high tech and other industries being lured into the Pharma space. As one example, a January 2010 article in the Wall Street Journal discussed how Mr. Jimenez, the new CEO at Novartis, one of the largest drug companies, had spent most of his career at consumer packaged goods companies, and thus, one would believe that a primary benefit of the appointment would be that Mr. Jimenez could bring a cost and efficiency focus to the role.

As Pharma companies make the transition to better forecasting methods and end to end supply chain management, a new era of cost competitiveness will ensue. With lower inventories, cash will be freed up to address growth and investment opportunities, but it will also introduce the need for competencies in Lean and Response Management to ensure that fulfillment objectives are not compromised. Analysts have for years heralded what the transformation can deliver —$43 billon in working capital alone according to the A. T. Kearney analysis. With the recent influx of supply chain expertise from outside the industry it could be that the transformation will finally take a leap forward.

Can you achieve an acceptable level of supply availability without the current waste?

There is no question that the Pharma industry must deal with a unique combination of supply chain and regulatory issues to meet its obligations to consumers, supply chain partners and shareholders. For some biotech companies, availability of their products are literally a life saving necessity and disruptions in the supply chain can result in a form of supply triage that is uncomfortable to even consider.

Unlike other industries, the Pharma industry has traditionally treated supply availability as a prime factor, even to the extent that several months of safety stock was not considered excessive. While in the other industries, best in class performance inventory turnover performance is double digit, the Pharma companies seem satisfied with low single digits despite the impact on cash and working capital.

In an April 2010 article in Pharma Pro, entitled, “How to Unlock $43 Billion in Value by Improving Working Capital Management,” A.T. Kearney reported that an analysis of Pharmaceutical companies revealed an average inventory level of 170 days.

Supply availability though is just one key difference to other industries. In a number of the Bio-tech companies, they’ve had to invent equipment and manufacturing processes to produce the new wonder drugs. Early manufacturing is just targeted on producing enough to satisfy trials and is less focused on cost and efficiency. Unlike engineering changes in the high tech industry that change the content of a product, changes in the Pharma space usually target the cost and yield of the manufacturing process. To add to the complexity, these changes must satisfy the quality control requirements of regulatory agencies. The approval process can take months and uncertainty in the timing creates a variety of risk management issues. In addition to the regulatory control over manufacturing, there are different regulatory issues to face in each of the market regions that govern a wide variety of factors including packaging, labelling and shelf life requirements. Combine these factors with the extremely high margins on non generic drugs, and it’s no wonder that the Pharma industry has historically put little emphasis on minimizing the non-production aspects of the supply chain costs.

BUT despite the unique aspects of the Pharma industry, the bulk of the supply chain management issues are largely common to many other industries. Planning for raw materials, dealing with manufacturing constraints, establishing and monitoring distribution inventory levels, and dealing with significant market demand volatility, are just a few. It is important to note that the dynamics that have introduced unparalleled volatility in the high tech industry (short life cycles, internet purchasing behaviors, and intense price competition), have had less of an impact on Pharma, but other factors have achieved much the same result.

Increased global competition, economic conditions, and changes in both regulatory factors and insurance coverage have collectively produced higher levels of demand volatility. Without the same degree of supply chain focus that is present in the high tech space, the net result generates a degree of waste almost unfathomable by those outside the industry. The chief question is, “can you achieve an acceptable level of supply availability without the waste?” It’s understood that the definition of “acceptable” ranges from 100% availability for some life sustaining medications to more conservative fill rates for OTC generics. There are enough examples of supply chain mastery in the high tech and automotive industries to suggest the answer is an absolute yes.  The next question is “How?” 

Stay tuned for Part 2 of this discussion tomorrow.

Having had some disagreement with a previous post by Kevin O’Marah of Gartner about S&OP, I was very pleased to get his weekly “First Thing Monday” in my inbox the other day.  It is titled “Healthcare Needs Supply Chain … Stat!”  Yes, it does.  Like Kevin mentions, I too have played at being US President for a day and fiddled with the New York Times “Budget Puzzle: You Fix the Budget” game.  These are tough choices and a lot more complex than the game suggests.  But healthcare is one of the greatest contributors to the US budget deficit.  Kevin refers to an article in The Guardian that points out that

… U.S. citizens are dramatically more likely to lack access to healthcare, but that spending per person is higher than it is in Britain by $7,538.

The article in The Guardian is based on a survey run by The Commonwealth Fund which shows a dramatically lower access to healthcare in the US; despite a much greater spend per person.

Click to view larger

Click to view larger

While the argument that the survey by The Commonwealth Fund focused on those in the US without access to healthcare and doesn’t measure the overall satisfaction with the US healthcare system has some merit, the survey still points to an ineffective and inefficient US healthcare system.

Last week I attended the Gartner Healthcare Exchange in Boston.  This was one of the most fulfilling and eye-opening days I have spent recently on a professional basis.  As Bob Ferrari comments,

…one of the most insightful portions of the program involved a lively panel discussion that included four industry executives representing Orlando Health, Dana Faber Cancer Institute, Cook Medical, and Broadline Group.  It was one of the better executive panel discussions I’ve observed this year.

Some startling statistics and observations came out of this discussion which I have not been able to verify.  But I will assume that they are directionally correct, if not absolutely correct.

• “Three breast implants go out by overnight Fedex, and two come back overnight Fedex.”
  Who pays for this?  Where is the incentive to reduce this cost?  Why were three implants required in the first place?  I am sure this was not emergency surgery, so why were the implants sent by overnight Fedex?  You can bet your bottom dollar that the operating room was scheduled some time ahead.
• “40% of nursing time is spent looking for items not on the shelf.”
  “15% of product expiring on hospital shelves.”
  Even if these numbers are off by a long way, and I have no reason to believe they are, these two statements side-by-side are a clear example of the wrong inventory at the wrong place at the wrong time.  Even if we halve these numbers and assume the reference to nursing looking for items is related to the manner in which the materials are organized and the reference to products expiring refers only to drugs, these numbers add up to huge inefficiencies in the supply chain.  While undoubtedly there are inefficiencies in grocery stores, there are examples from other industries, particularly grocery retail, that address many of these issues more effectively and more efficiently.
• “Hospitals think consignment stock is not a problem.  They should be charging for the storage space.”
  At the very least the cost of financing the inventory, not to mention the cost of scrapping the inventory that has expired, will be passed on to the hospitals and therefore to the patients.
• “Most people who take care of inventory in hospitals have no training in inventory management.  They are usually nurses who have been reassigned.”
  Let’s face it, there is a big difference in an out-of-stock condition in your local electronics store and in a hospital pharmacy.  But the nurses are already struggling to find items on the shelf, some of which has to do with inefficient stocking policies.  Would you get an inventory analyst to administer a morphine drip?

The 2 parts of the healthcare supply chain that distorts the system the most are the distributors and the payers, not necessarily in and of themselves, but because the demand signal is so distorted by these parties. But these are easy targets and my sense is they were being used to deflect from inefficiencies throughout the healthcare supply chain from manufacturers to distributors to retail pharmacies to HMO’s to hospitals to payers and whatever other actors there are in the supply chain, or, as Gartner prefers to call it, the value chain.  But I left the conference wondering who represented the patient?  No-one at the conference anyway.  The reason this is important is that Wal-Mart’s “everyday low prices” mantra is driven largely by consumers voting with their feet.  Without the “voice of the customer” being loud and clear it will be left to the government to mandate change in the healthcare supply chain through legislation.  Which is something no-one wants.

Having lived as an adult in six different countries with six different health systems, I can state categorically that while the issues of inefficiency in the healthcare supply chain are not restricted to the US, it is where the inefficiencies are most apparent.  While I hesitate to suggest a change, end-to-end visibility of the demand signal has been demonstrated to have a dramatic effect on behavior throughout the supply chain.  The famous MIT Beer Game, dating from the 1960’s, springs to mind.  So let’s get started and let’s use supply chain principals from other industries as guideposts.

Special Notice: Kinaxis would like to invite the public to participate in an open Twitter chat about S&OP trends and strategies.  Follow the discussion tomorrow (Oct 5th) from 1:00pm – 2:00pm EDT using the hashtag #SOPchat.  Come participate in what we hope will be a lively and valuable conversation by posting your questions and opinions.

Companies in the life sciences industry now see tremendous growth opportunity around the world. Consequently, many of them are expanding aggressively into these markets with new global and outsourcing strategies designed to keep costs low and bring products to market faster.

One of the problems, however, is that as the supply chain grows more complex, it correspondingly becomes more difficult to know where drugs—for example–and their active ingredients originate. In fact, according to the Government Accountability Office, up to 80 percent of the active ingredients used in U.S. drugs are now made overseas, and, in many cases, often in countries where regulatory oversight does not meet U.S. standards.

That doesn’t necessarily mean there will be manufacturing quality issues, but accumulating evidence certainly indicates that there is the potential for problems. While much has been said about high-profile drug recalls, it’s the number of less publicized recalls that’s of note. In fact, in 2009, there were 1,742 drug recalls, which is a four-fold increase from the prior year. Most of those recalls were related to manufacturing quality and testing.

A second key challenge is to minimize the threat of counterfeit pharmaceuticals entering the supply chain. In less developed countries, there are gaps throughout the supply chain because standards are not as strict as they are in more developed regions. Indeed, the World Health Organization (WHO) estimates that counterfeit pharmaceutical levels range from less than one percent in the developed world to more than 30 percent in less developed regions. Accounts vary, but in China, for example, counterfeit drugs can account for as much as 50 percent to 85 percent of the market.

With those challenges in mind, it was interesting to read an article that ran in IndustryWeek a few weeks ago, where the author, Duane Sword, who is a vice president at Thermo Fisher Scientific, wrote about technologies used to safeguard the drug supply chain. These include, first, electronic pedigrees (e-Pedigrees) and RFID, which provide a documented and complete history of a given product’s chain of custody–from the manufacturer to the point of dispensing. A second technology increasingly used within the pharmaceutical supply chain, is spectroscopy, which is used to accurately identify chemicals through sealed glass, plastic bottles, plastic bags and blister packs, and can be used to ensure product integrity.

Use of e-Pedigrees and RFID tagging delivers the means to secure the legitimate supply chain because product information such as national drug codes, lot numbers and expiration dates is gathered from the original manufacturing process, Sword notes. These codes are then securely linked to extensive transaction detail covering the changes of possession that a drug undergoes from manufacture on to final distribution.  If serialized products are shipped, these numbers are also incorporated into the pedigree. As a result, Sword says, the e-Pedigree secures the chain of custody, which ultimately prevents phony transactions and products from getting into or remaining in the legitimate supply chain.

The other technology seeing increased usage, spectroscopy, can be used to accurately identify the chemical make-up of raw materials and finished products at ports of inspection, loading docks, points of sale and manufacturing plants, Sword explains. The benefit of this technique is that raw materials and finished products are analyzed at the chemical level to ensure they indeed are the materials and products they are supposed to be, Sword says.

In the end, Sword says that the ideal solutions are those capable of tracking and authenticating product from the earliest point in the supply chain all the way until it reaches the consumer to ensure quality and safety. He concludes that, for many companies, the winning formula will incorporate some combination of technologies.

While I believe that to be true, I also think there’s more to overcoming these obstacles than the application of these technologies.  Another vital aspect is supplier relationship management. By that, I mean having a good relationship with reputable suppliers and partners—and understanding who their downstream suppliers and partners are—as well as having visibility into their operations.

The other important thing that will be required in order to implement a cost effective and efficient tracking system will be proper system integration. This means the supply chain will need some way to bring all these disparate data points together, in order to ‘speak a common language’ among different systems and suppliers. This will require greater discipline across the supply chain.

What do you think? I’d like to hear from you.

A few weeks ago we sponsored a very successful webinar with SCMWorld entitled: “High product value, short product shelf-life: Solving the Biopharma-supply chain conundrum through enhanced flexibility, visibility and responsiveness“ 

This webinar showcased the methodologies and systems that are enabling some of the most advanced Biopharma supply chains to adapt and respond to changing customer demands, reduce inventory and improve financial performance, all while cutting waste and maintaining high service levels.

The archived presentation, which includes speakers from Amgen, Aberdeen Group and Kinaxis, examines all of these issues, and gives participants a framework of processes, tools and examples to help drive significant improvements within your global operation.

Feedback from the webinar was really positive.  Check it out for yourself.