Executive Briefings

How to Synchronize the Pharma Supply Chain in Three Steps

Analyst Insight: In today's unpredictable pharmaceutical business climate, supply chains must be synchronized to deliver adequate supply to capture new sales while reducing costs. This is a classic case of balancing risk and opportunity, whereby synchronization allows all required parties to operate in a coordinated and flexible manner resulting in seamless delivery to the customers. Getting this right can drive millions of dollars in value, and there are ways to do this today. - Jay Welsh, principal, Ernest & Young LLP, and Srihari Rangarajan, manager, Ernst & Young LLP

How to Synchronize the Pharma Supply Chain in Three Steps

Traditional supply-chain planning has been a letdown in the last decade for drug companies. Historically, stable demand has been replaced by random demand patterns driven by tenders, rebate contracts, market disruptions, weather patterns and unexpected outbreak of diseases. The supply organization has been slow to react and unable to scale up or down to absorb this demand variability due to multiple factors such as constrained assets, new manufacturing platforms and extended lead times. Pharmaceutical companies have invested millions of dollars in planning systems, but their success in solving these issues has been very limited. An end-to-end synchronization approach can enhance the capabilities of these systems and enable stability for the supply network.

With this erratic situation, three key planning concepts within the spectrum of supply-chain synchronization exist to align planning processes in the drug industry. The main objective is to determine and solve the dissonance across the end-to-end supply chain that includes material and information flow between the nodes across the network.

The three steps toward a synchronized supply chain are as follows:

Visualize
In this first step, it is imperative to conduct a quick segmentation of the drug product portfolio based on the variation in the magnitude of demand across time periods. After this exercise, differences in demand and supply volatility are assessed at and across the various nodes in the network to understand the differences in production response given a particular demand signal or a given dispatch cycle. Combined with existing product priorities and other initiatives, this allows differentiated response strategies for each identified cluster.

Stabilize
In this second important step, pharmaceutical companies should dedicate special consideration to the design of optimal production and dispatch frequencies to stabilize production lot sizes and lead times. To generate optimal production sequences in conjunction with setup times and campaign volumes, the synchronization model relies on “rhythm wheels.” This type of modeling will generate optimal production quantities and sequences; perform line or asset assignments; and allocate capacity across time periods. With drug manufacturing plants, this is a huge plus as it reduces the inventory bullwhip effect and increases the utilization of capital-intensive, capacity-constrained equipment.

Optimize
While the first two steps focused on operational stability and efficiency, the third step focuses on end-to-end planning to better capture sales opportunities and market tenders. The impact of a holistic synchronization process is to effectively translate demand signals into profitable and coordinated supply fulfillment decisions by leveraging timing mechanisms across the entire global supply chain. This can be achieved by facilitating “what-if scenarios” to model trade-offs based on a number of parameters including inventory, capacity constraints and capital costs.

The Outlook

As we approach 2020, pharmaceutical supply chains will continue to get more complex. Executives will be under increasing pressure to dramatically reduce cost while improving service levels. Synchronization techniques involving people, process and technology can help make this happen today. Companies that pursue synchronization can unlock hundreds of millions in value by increasing sales and margin, accelerating product launches, increasing throughput and stabilizing supply while improving access to lifesaving medicines for patients around the globe.

Traditional supply-chain planning has been a letdown in the last decade for drug companies. Historically, stable demand has been replaced by random demand patterns driven by tenders, rebate contracts, market disruptions, weather patterns and unexpected outbreak of diseases. The supply organization has been slow to react and unable to scale up or down to absorb this demand variability due to multiple factors such as constrained assets, new manufacturing platforms and extended lead times. Pharmaceutical companies have invested millions of dollars in planning systems, but their success in solving these issues has been very limited. An end-to-end synchronization approach can enhance the capabilities of these systems and enable stability for the supply network.

With this erratic situation, three key planning concepts within the spectrum of supply-chain synchronization exist to align planning processes in the drug industry. The main objective is to determine and solve the dissonance across the end-to-end supply chain that includes material and information flow between the nodes across the network.

The three steps toward a synchronized supply chain are as follows:

Visualize
In this first step, it is imperative to conduct a quick segmentation of the drug product portfolio based on the variation in the magnitude of demand across time periods. After this exercise, differences in demand and supply volatility are assessed at and across the various nodes in the network to understand the differences in production response given a particular demand signal or a given dispatch cycle. Combined with existing product priorities and other initiatives, this allows differentiated response strategies for each identified cluster.

Stabilize
In this second important step, pharmaceutical companies should dedicate special consideration to the design of optimal production and dispatch frequencies to stabilize production lot sizes and lead times. To generate optimal production sequences in conjunction with setup times and campaign volumes, the synchronization model relies on “rhythm wheels.” This type of modeling will generate optimal production quantities and sequences; perform line or asset assignments; and allocate capacity across time periods. With drug manufacturing plants, this is a huge plus as it reduces the inventory bullwhip effect and increases the utilization of capital-intensive, capacity-constrained equipment.

Optimize
While the first two steps focused on operational stability and efficiency, the third step focuses on end-to-end planning to better capture sales opportunities and market tenders. The impact of a holistic synchronization process is to effectively translate demand signals into profitable and coordinated supply fulfillment decisions by leveraging timing mechanisms across the entire global supply chain. This can be achieved by facilitating “what-if scenarios” to model trade-offs based on a number of parameters including inventory, capacity constraints and capital costs.

The Outlook

As we approach 2020, pharmaceutical supply chains will continue to get more complex. Executives will be under increasing pressure to dramatically reduce cost while improving service levels. Synchronization techniques involving people, process and technology can help make this happen today. Companies that pursue synchronization can unlock hundreds of millions in value by increasing sales and margin, accelerating product launches, increasing throughput and stabilizing supply while improving access to lifesaving medicines for patients around the globe.

How to Synchronize the Pharma Supply Chain in Three Steps