Managing supply chains from the cloud

May 10, 2016
By Allen Jacques, FusionOps

Pharmaceutical Commerce, Pharmaceutical Commerce - May/June 2016,

New IT data-science and visualization tools advance supply chain management

For many years, the problems inherent in managing biopharma supply chains have been attacked by IT tools. Today’s systems do a good job of gathering and storing data; producing reports; and executing purchasing, production and disposition orders. “Plan, Source, Make and Deliver” are the commanding goals. But this capability has come at a cost. Installing and operating a supply chain management (SCM) system is expensive, time-consuming and relatively inflexible to change. Especially in the life sciences industry, where regulation of validated systems is the norm, the tendency is to install a system and live with it, for better or for worse.

Meanwhile, new IT tools and resources, driven in part by the “Big Data” transformation of IT systems, is giving a new perspective on SCM. The first and most readily accessed change is employing a cloud-based system, with the controlling software existing on a remote server. In general, cloud-based systems offer vastly improved flexibility; the systems can be upgraded on a continual basis, and separating the IT system from its hardware platform significantly reduces the capital cost of the IT infrastructure. Another benefit of cloud-based SCM is a more open and flexible approach to data management. Rather than building and maintaining on-site data warehouses, which have their own complex IT needs, cloud-based data storage generally allows for rapid compilation of data and faster reporting of results.

Cloud-based IT systems also provide a platform for today’s driver in SCM: collaboration. More and more, manufacturers are seeking to coordinate data reporting between themselves and their business partners; the relationship between a pharma manufacturer and its contract manufacturing organizations (CMOs) is an obvious example; a similar driver is coordination between the manufacturer, with finished goods, and downstream trading partners.

Pharma’s SCM challenges

It is probable that for as long as pharma SCM has existed, it has been compared—unfavorably—to other industries, where the time from raw materials to finished goods can be measured in days or weeks (as compared to months or years for pharma), and where holdups in the flow of production can subtract valuable time from the shelf life of the finished goods. The reality is pharmaceutical supply chains deal with dynamics and complexities that in combination make them unique and more challenging than many other industries. Consider for a moment the circumstances that surround pharma supply chain management:

  • Traditionally, pharmaceutical supply chains have been focused on maintaining high customer service levels in order to maximize the revenue of high margin products, since gross profit dwarfs any carrying cost penalties. Because of this, inventory levels have tended to be excessive to ensure achievement of these targets. This focus is changing as generics grow and margins drop. Most companies in the industry now have significant efforts around cycle time and inventory reduction, but it will take time to catch up to other industries that have been investing in “lean” for decades. In fact, there is a recognition that segmented supply chain strategies are necessary to 1) protect growing, patented product revenue while 2) driving cost reductions for products with declining margins and market share.
  • The pharmaceutical industry is highly regulated by government agencies to ensure patient safety, product efficacy and product availability. As a result, there are quality testing and quality assurance steps throughout the supply chain that inherently take more time and cause supply variability. Two examples are the mycoplasma testing in Biotech, with an incubation period of 28 days, and sterility testing for injectables, with an incubation period of 14 days. That is a month and a half of waiting before testing can even begin. When you add steps like this to manufacturing and transportation lead-times you can explain around 15% of the two years for my tablets.
  • Most pharma companies are the result of at least some level of M&A and there has been a tremendous consolidation in the industry over the last two decades. The result of this is that many companies are sitting on a hodgepodge of ERP platforms and data sources that make End-to-End visibility nearly impossible. This results in internal bullwhip effects and inefficiencies leading to excess cycle times and inventory. Many of these companies have a long-term goal of consolidating onto one platform, however, M&A doesn’t seem as if it will slow down anytime soon and the light at the end of the tunnel seems to be getting further away.
  • The handoffs in pharmaceutical supply chains are significant, typically from manufacturer to distributor to pharmacy to patient. If you have access to Barry Blake’s article on the End-to-End Value Chain, this will help give you a full appreciation of how formidable these handoffs are. There is little, if any, visibility or collaboration among these entities with each focused on optimizing their piece of the puzzle.

Despite these challenges, the good news is that technology and supply chain techniques have continued to advance, and there are fewer and fewer obstacles in the way thanks to supply chain-specific cloud solutions like those offered by FusionOps.

Fig. 1. Snapshot of a hypothetical pharma supply chain. Credit: FusionOps[/caption]

Data visualization

The goal for most SCM managers is to have a view of overall operations that looks like Fig. 1. For a stable, completely internalized supply chain of one organization, views like this are possible, after expending much effort to compile and normalize the data. For the more common scenario today—of merged or acquired organizations with different ERP systems, and for relationships between CMOs and pharma companies—achieving this dashboard is a challenge.

With the latest IT tools, however, the task becomes much easier. Algorithms to translate or normalize data from diverse sources are available, and companies like FusionOps have prebuilt libraries of these interfaces. An important value of a dashboard like this is that it opens up a view of a company to others besides the SCM manager: the purchasing department, finance, marketing and others. This, too, is a hallmark of modern organization’s drive toward collaborative efforts, and away from the traditional siloed view of an organization.

Fig. 2. A detailed dashboard gives a color-coded view of the status of production steps.[/caption]

For the SCM manager specifically, though, it is now possible to have a view of operations like that of Fig. 2. Here, simple color codes indicate high- or low-performing links in the supply chain, and enable the SCM manager to drill down to see what it going on at a granular level. Statistical techniques can be applied to understand the variability of these functions. Root cause analysis of the data presented in this fashion can lead to improvements in overall operations.

Two critical functions of a well-run supply chain are minimum cycle time (the time between initiation and completion of a supply chain step) and inventory metrics. Traditionally, the pharma industry has operated with excessive safety stock, resulting in excessive overstock and expired-product problems, and tying up working capital to the detriment of overall financial performance. Safety stock cannot be reduced to zero—the manufacturer needs to ensure an adequate supply of product reaching the market regardless of process upsets—but better analytical tools enable safety stock to be calculated in a more rational manner.

Raising performance

Some examples of the benefits of this cloud-based, multisourced view of supply chain data:

  • One manufacturer who had been trying to reconcile two completely separate SCM systems realized that production in one site was unnecessary because of inventory in another site; only by having a harmonized visualization across the enterprise could this problem be revealed.
  • One client was surprised to find that implementation of a FusionOps system was up and running in a matter of days; moreover, reports that used to be available only after being batched for the month or quarter could now be delivered daily.
  • Another client, using the safety stock calculation capability, was able to build a system that could recalculate this measurement on a routine basis; previously, a burdensome data-collection effort had to be undertaken, resulting in sporadic calculations of safety stock that would, in time, become inaccurate.

Achieving results like these is not a matter of simply dropping in a cloud-based system; it is desirable for the organization to approach its data resources differently. By tapping into and unleashing the transactional detail of their ERP platform, they can quickly build dashboards that visualize high-level supply chain performance across Plan, Source, Make and Deliver. This high-level “health check” quickly identifies areas of concern and our root cause functionality enables efficient drill down to the performance drivers. This will allow companies to quickly identify areas for improvement and a way to monitor performance going forward. Cycle time and inventory metrics are a key part of these analytics.

Second, pharma companies should consider opening up—with the right security measures in place—their internal data to supply chain partners. They will always need to have absolute control over what data both internal and external users are able to see, to the extent that core ERP data can be shared with external parties, including pharmacies. They also need powerful analytics that allow users to quickly drill down from high-level indicators to the root causes driving performance and supply. Information such as order status, delivery dates, inventory and future demand signals can be made transparent across the supply chain network. Imagine a world where all key stakeholders (manufacturers, distributors, pharmacies and regulatory bodies) have visibility into the supply chain. Not only would the pharmaceutical industry get past its reputation of supply chain inefficiency, but much more importantly, it would create efficient processes to improve drug supply and reduce the drug shortages that most of the world has been dealing with over the last decade. A solution like FusionOps can enable this kind of visibility through robust role profiling and data API’s.

And lastly, let’s not forget global serialization. This may be a key reason for pharma to consider its move to the cloud and analytics. Our industry is on the cusp of implementing a capability far beyond leading edge: the ability to follow and authenticate a product through every step of the supply chain all the way to the end user. With the on-demand and real-time systems that cloud can enable, pharma companies gain timely visibility across the entire operations, as well as the capabilities to zero in the minute details that this systematic change will require.

Allen Jacques, VP of pharma supply chain, recently joined FusionOps from Pfizer, Inc., where he was VP of network supply planning. Prior work includes Wyeth and Baxter Bioscience.