The life sciences manufacturing world is changing, with product innovation no longer the main driver of success. It is still important, but it can no longer come at the expense of operational efficiencies. Leading companies are now starting to look at their supply chains as strategic weapons in the war against bloat.
-Hussain Mooraj, research director at AMR Research
Life sciences manufacturers are struggling to enter a new phase of innovation and growth based on advances in research and development, product supply, and sales and marketing. Seeking to understand key business processes, strategies, and capabilities that make and keep companies successful, we've spoken with a variety of branded, generic, bio-tech, and medical device manufacturers. Here are a few key insights on the status and direction of the product supply process:
Manufacturers are looking to build the global end-to-end value chain, but current product supply competency is weak. Manufacturers may not have seen the implications of this weakness in the past, but with heightened compliance, generic competition, expiring patents, weak pipeline and commercial growth becoming ever more pressing factors, product supply excellence is evolving as a cornerstone strategy.
As companies implement lean and Six Sigma practices to control costs and improve processes, they face tremendous hurdles when attempting to improve demand forecast accuracy and create downstream and upstream visibility into their operations.
Life sciences companies will be shifting their focus in the future from applying lean manufacturing practices toward two areas: (1) Improved collaboration with the enterprise across R&D, manufacturing, supply chain, and sales and marketing, especially around new product introductions, and (2) Improved manufacturing efficiency and productivity through outsourcing
Contract manufacturing is becoming a strategic part of the emerging business model. Intensifying pricing pressures on life sciences companies will need to be offset by faster product launches and better operational efficiencies. These are not far-reaching goals, but life sciences companies must augment their productivity by changing their business model. The traditional value chain will need to be transformed into a more networked structure in order to improve operational effectiveness and reduce infrastructure costs.
From the 2007 AMR Healthcare Value Chain survey for which we interviewed 275 companies across the branded, generic, bio-tech and medical device manufacturing segments, we noted that the use of strategic contract manufacturing was growing at a rapid pace. By 2010 29 percent of all manufacturing output is expected to be produced through third-parties. The branded manufacturing segment is expected to grow the most in the use of CMOs as a strategic part of the emerging business model.
However, implementing a contract manufacturing strategy involves a business transformation, one that requires substantial change management, analysis and measurement.
Transforming traditional supply chains to demand-driven value networks. The demand-driven transformation requires that a company identify the capabilities needed to harness information to understand customer demand. In order to deliver the product with the least cost and complexity, this information is then translated back into operations and product supply.
Manufacturers need to unify and translate the demand intelligence, and then connect the dots across the value chain to deliver perfect orders and improve inventory management. Many companies continue to experience stockouts despite maintaining a high finished goods inventory. Life sciences companies embarking on a demand-driven transformation are able to lower working capital costs, reduce stockouts, improve perfect order, and have more successful product launches.
Life sciences companies must do a better job of architecting their value chain. To enable change, companies must become more business-process focused. Over the past few years, enterprise architecture at the most successful manufacturers has moved beyond the IT department to encompass the latest business methodologies-simultaneously combining business management excellence with IT best practices. This will pay off, literally, in strong financial results.
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