Supply Chain Strategy in Life Science

Supply Chain Strategy in Life Science

In a constantly changing business environment, global life science organizations often face complex barriers while managing supply chains spread across the world. Designing and implementing a well-structured supply chain process is a challenging task which requires an in-depth analysis, followed by a profound and detailed design phase. Throughout this article, the authors provide an insight into how supply chain strategies and their workflows are designed and also share with us some of the challenges in the process.

An optimum supply chain strategy must align the physical network available, create a supporting organizational infrastructure and ensure uniformity in both the IT system and internal communication procedures.

The main operational challenges and business risks:

We explain some of the operational challenges and business risks in the list below:

  • M&A – many organizations experience operational difficulties after mergers and acquisitions. The various business units are accustomed to their own procedures, processes, management routines and IT systems. Creating a standardized and efficient supply chain flow is a challenging task. In addition, the merged organization needs to integrate a wide range of different cultures within its corporate environment.
  • Global organization – Managing a supply chain in an organization with broad geographical spread and many different regulatory structures makes the monitoring and controlling of operational performance a complex issue for
    managers. Rapid company growth can also leave little time for designing proces ses, roles and responsibilities.
     

process design


So, what exactly does a supply chain strategy consist of?

a. Aligning the physical network of procurement sources, production locations and
customers sites is critical for operational efficiency, particularly post-merger or acquisition. Single-sourced products (especially blockbusters) should be carefully analyzed and monitored. A risk mitigation plan is essential for these products, in order to reduce the company‘s dependency on specific vendors or production site availability. replacing vendors in the life science industry is a long and complex procedure due to strict regulation. Therefore, it is possible to manufacture with
RM suppliers approved by the regulator and there aren‘t any possibilities to replace the vendor due to price, quality or availability. Adding or replacing a supplier must be planned in advance and one needs to take in consideration the long period of wait till approval.

b. Any operational enhancement process needs to be backed up by a well-organized support structure along the entire supply chain: key managerial roles need to oversee the supply chain operation and position leading supply chain representatives in all relevant business units.

The supply chain team should work together according to well-defined processes and management routines. All stakeholders in the supply chain must speak the same language. “SC language“ includes uniformed working formats (reports submitted throughout the chain), planning terms for each one of the links in the chain and organizational KPIs for all areas of responsibility. In addition, structured management routines should be set up to enhance cross-functional communication and information flow between all units.
One example is to implement an S&OP (sales & operations) routine as a basic step for creating healthy communication between the sales units (market), the central supply chain and the manufacturing sites. This S&OP routine analyzes the gaps between manufacturer commitment and customer demand. The KPIs for monitoring the S&OP process success could be plant commitment accuracy which measures commitment vs. actual delivery (quantity and delivery date) or back orders, which measures the amount of unsupplied product orders with an inventory level of zero. The S&OP focuses primarily on minimizing gaps and creating a mechanism for escalating complex issues to top management via the executive S&OP forum.

Supply chain structure


The supply chain organization must build core processes to support the organizational goals, focus management attention on the operational vulnerabilities and pursue optimum functionality of the chain

The main processes needed include demand planning, S&OP, production planning, raw materials planning and procurement. Demand planning is performed by the market representatives involved in the sales processes. Ideally, the market
representatives are intimately familiar with the market trends and are equipped with forecasting models for providing a sales forecast based on sales history and market trends. Demand planning is comprised of the sales forecast and finished product market inventory planning according to a predefined inventory policy.

The demand forecast relies on the data collected by the market sales departments and statistical analyses. The sales entities provide an estimate for the rolling annual expected sales volume on a weekly/monthly level. This data must show market trends, seasonality, changes in the competition’s activities and customer activity. Statistical analysess on historical data reveal evaluation sales volumes for the customers and the products in the recent past (based on a variety of methods, such as moving average), plus evaluation of sales volumes during the same periods in previous years to identify trends in demand / seasonality with statistical significance. It is important to validate the findings with the sales department in the various markets. We also recommend that a detailed analysis of strategic customer demands be conducted. The accuracy of these forecasts must be evaluated on an ongoing basis and adjustments made to the forecasting methods used.

Within the S&OP process, a commitment should be made to supply the market demand according to the factory’s capacity and limitations. If multiple sourcing is available, efforts should be made to allocate the demands to the different factories and promote long-term planning according to the unique characteristics of the life
science industry (regulation constraints, development etc.).

Implementation of an S&OP process is expected to help the organization to improve profitability, forecast accuracy, service levels and inventory planning. The S&OP process is multilayered. Most organizations find themselves implementing
the core layer but having difficulties implementing the rest.

In the core operation layer, the focus is on balancing demand and deliveries. This helps streamline the planning processes in the organization and improve production efficiency. The main discussion point centers around quantities and dates. The next layer is the tactical layer, which is focused on balancing economical and operational planning. The expected benefits from successful implementation of this layer are an increase in sales and improved service. The main discussion point is directed at costs and profits. The highest layer of the S&OP processes is the strategic layer, which is focused on coordinating a high-level strategic plan and day-to-day operations. The expected benefits from implementation of the strategic layer are increased process profitability and development of new markets and
products. The main discussion point is product and process profitability.

To ensure successful implementation of S&OP processes, it is recommended that the process be led by a senior organization official, to ensure a high level of commitment from all stakeholders and to turn the process into a part of the longterm and short-term decision-making process.

Production planning is carried out by the production sites. Care must be taken to ensure that preliminary meetings are held with all the stakeholders in the factory to ensure alignment between the work plans in each department and the factory’s overall production plan. Emphasis must be placed on the bottlenecks and detailed
work plans executed for them.

Raw materials inventory planning is carried out by inventory managers at the factories. In companies where there are centralized logistics centers, inventory planning is carried out by a central inventory manager. The company must specify
an inventory policy which must refreshed at regular intervals for strategic products. In the life science field, the product‘s expiration must be considered. This emphasizes the need in a well-planned raw material policy and its inventory levels. Not taking these in to consideration may resemble in material destruction or repeated quality checks at a constant period of time, as long as the material stays still. Moreover, in this industry there is need in planning inventory levels of finished goods and a special attention to regulatory requirements from the different markets, sometimes there is a demand to receive finished goods with a few month before the expiration date. Procurement planning is carried out according to the inventory plans and includes procurement of raw materials from external and internal suppliers. As in the finished product forecast from the market to the factories, the factories must provide a demand forecast in order to enable an efficient, long-term procurement program with a reliable forecast. The company procurement organization routinely manages the company’s suppliers, while maintaining an ongoing audit of their performance, including on-time delivery, quality of the delivered goods, compliance with the defined standards and so forth.
It is important to define structured processes for managing the suppliers, fixed frequencies must be defined for supplier audits, for opening procurement
agreements for review, and evaluation of alternatives for more suppliers and maintaining personal relationships with the suppliers (visits, routine conversations).
Since the business environment is rapidly becoming more competitive, a true partnership with strategic suppliers, which means the creation of an S&OP process for raw materials with strategic partners, sharing information on demand forecasts and production plans, can yield considerable improvements in raw material deliveries (reducing lead times, shortfalls and costs).

It is important to understand that usually in life science, such as pharma or medical devices, the quality processes in the factories are not part of the supply chain, but may become the bottleneck in the chain. The quality processes are critical in the release of raw material from quarantine as well as the release of finish goods. Therefore, it is important to manage the relationship with the QA/QC and synchronize their activities in order maximize the chain‘s success.

“Switching to a common language” –

Creation of built-in processes for intraorganizational communication are one of the key parameters for the creation of an end-to-end supply chain with leading performance.

A “common language” includes both clearly defined management routines, thoroughly in corporated into the workforce DNA, and uniform formats for exchange of information between the various links in the chain.

a. All management routines must be fully defined – agenda, participants, frequency and required outputs. It is also very important to create a mechanism for escalation of complex issues. The management routines must include both internal routines and routines between the links in the chain (for example: S&OP).

b. Mode of information transmission – the formats for sending information between
the links in the chain must be uniform and well structured – use of reports, modules within the information systems etc. Each piece of information to be sent must have an appointed owner, a destination and a definition of transmission frequency.

Information systems

Many organizations define their core planning processes in Excel. This is problematic since there is no integral, ongoing updating process for the master data, making it difficult to use real time data such as inventory levels etc. and to exchange this data between links in the chain or steps in the planning process.
Working with this format is cumbersome and time-consuming, all of which contribute to delays in the supply chain cycle. Furthermore, use of Excel is not conducive to standardization of the planning processes and the parametters needed for formation of a forecast. An efficient planning system for the various links in the supply chain requires a Material Requirement Planning (MRP) system which is customized to the organization’s needs.

This system should permit a degree of flexibility but also require users to enter real-time data updates whenever there are activities relating to production volumes, inventory transactions and so forth.

This type of system supports the calculation of a required quantity for a purchase order, based on the production planning and according to the defined inventorypolicy. It should be able to “explode” product trees defined in the system and according to the demand for products, define the quantity of raw materials for an order, taking into consideration the minimum units per order, yield etc.

See the diagram below for an illustration of this:

Efficient system outputs


Production planning and monitoring is carried out via a dedicated system which performs two main processes:

  • Production status control systems determine how to control WIP in the factory. Production planning defines the order in which to release products into the line (known as “scheduling“ or “dispatching“).
  • Production planning - Order release and scheduling have a major impact on manufacturing performance. Therefore their design should ensure support of the facility’s objective with the given resources, as shown in the following diagram:

Production planning

Capacity planning requires the use of a capacity model –

  • Capacity models provides management with a valuable analysis of product quantities produced in a given period and of the resources needed to achieve target production volumes
  • The model indicates which resources will form a bottleneck for production and to what degree
  • The capacity model helps you to translate the unconstrained demand from the market -> into max throughput -> into commitment . The following diagram illustrates the above:

Production planning

There is a range of system solutions available on the market, from companies such as SAP, Demand solutions, Preactor. To summarize, well-structured and detailed planning of the supply chain is one of the key factors for an organization’s operational success and excellence. The actual procedure for implementation of these processes and the routines defined is also highly significant as the organization must ensure full alignment between all links in the chain. It is only by creating an end-to-end supply chain that a complete and efficient flow of information and optimum functioning along the entire chain can be achieved. A well-synchronized system with all links in the chain collaborating reminds us of the harmony in a perfectly tuned orchestra and can contribute significantly to the organization’s activity infrastructure.

 

By Tamar Mass, Project Manager, Tefen Israel
and Danielle Goldstein, Senior Consultant, Tefen Israel