In 2013, the National Health Interview Survey (NHIS) reported that nearly half of U.S. households no longer use landline phones, a number that has continued to decline from 15 years ago when more than 96% of homes had wired phone service. Despite what could have been a devastating loss in business for both telemarketing and telephone companies, these industries have adjusted by investing in mobile marketing campaigns and, for telephone companies, new wireless service offerings. It is this type of response that allows a business to re-route and reconfigure in order to survive and thrive. With change comes the obligation to respond.
In the pharmaceutical industry, we have seen a number of changes over the last few years that have altered how companies operate and interact. Legislative changes, such as breakthrough therapy designation and other programs through the Food and Drug Administration Safety and Innovation Act (FDASIA), carry significant implications for the drug regulations process. On the commercial side, the rippling effects of the patent cliff, which won’t fully be known for almost another half decade, will have a significant financial impact on big pharma. While all of this has created a need for change and adaptation on several levels, one segment particularly affected by all of it is the pharmaceutical supply chain. What was once a steady churn of supply and demand that allowed companies to carry high inventory levels with no threat to consistently large margins is now a competitive marketplace requiring agility and flexibility.
|Mark Holder, executive director, North American regional supply chain at AstraZeneca|
To understand the impact of this trend and learn how some of the industry’s biggest names are adjusting to the transformation, I recently spoke to supply chain experts from AstraZeneca, GSK, Novartis, and Valeant Pharmaceuticals to find out what they’re doing to successfully ride this wave of change into the future. The first of these conversations was with Mark Holder, executive director, North American regional supply chain at AstraZeneca, who talked about how this strategic reconfiguration has required AstraZeneca to leverage their infrastructure and integrate it in a key way that saves money.
Make The Right Footprint
About the adjustments Astra Zeneca’s had to make, Holder says, “Your ability to flex your supply chain in response to any particular market is important. Where a one size fits all with the big blockbuster drugs seemed to work in the past, now you have to segment your supply chains and have a deeper understanding of how to respond. You also have to have the ability to execute that response, depending on the particular market in that customer set,” says Holder. “Achieving this deeper understanding requires end-to-end supply chain visibility and that starts with ensuring you have the right global footprint. By executing a strategic placement of each phase of your supply chain, you’ll be able to shrink both your inventory and working capital, which will improve efficiency and reduce costs.”
At AstraZeneca, API is purchased from strategic suppliers and brought in-house for formulation, which is typically done at one large global site. Final packaging is then done as close to the market as possible. While not every single market has a pack site, major markets will, which allows multiple products to be packaged at a location close to where it will be distributed. By implementing a LEAN culture and focusing on a demand-driven process at this stage, AstraZeneca is able to optimize customer service levels while minimizing finished goods levels. Leveraging a coordinated and globally-integrated distribution network is key as well. “You need a system to help you do this,” explains Holder. “Most pharmaceutical companies are SAP-driven, but to do advanced planning, you needed a bit of an upgrade, which we've done. We've installed their APO (advanced planner and optimizer) system, and that has helped give us that end to end visibility.”
The Five Stages Of Gartner
In September 2013, Gartner, a leading information technology research and advisory company, released an updated version of their Demand-Driven Maturity Model for Supply Chain Leaders. It is a 5-step model designed by Gartner analysts, who spent years observing supply chain management in several industries in order to learn the most effective ways to optimize supply chain operations. In an effort to offer additional guidance, the Gartner model now includes five phases. They are: React, Anticipate, Integrate, Collaborate, and Orchestrate.
In the first phase, companies must be able to leverage information vital to their supply chain operations in order to plan, or react, appropriately. Manufacturers have to not only capture data accurately but also analyze it effectively. When this happens, data is no longer just data; it’s a tool used to make decisions. Holder says this is a best practice he recommends in supply chain management. “You have to have the right transparency and visibility to information in real time, as well as a process to ensure your master data is maintained and accurate. This allows you to maximize the use of the data that’s in your systems,” he explains. “You want to be able to see where everything is and respond to that.”
The second phase of the model focuses on reducing internal costs and improving synergy across all involved business units. After all, the right plan means nothing without a secure team to execute it. Holder says it’s also important there is a clear accountability about who has what role. “You want to have a very strong global supply chain team that is organizationally separate but equal and collaborates with your regional supply and supply site organizations as well,” he says. “You also have to be sure you have the governance structure in place to make all of this work.” As AstraZeneca continues to move through this phase, the focus is not just velocity but also maintaining the high level of service that keeps the company on pharma’s Top 10 list year after year.
The continued strengthening of the relationships across a company’s supply chain is at the heart of the third phase, which is Integrate. “You have to have what I would call an integrated business model, where you have your commercial, your financial, and your operations organizations sitting down and having conversations about volume forecast versus value forecast versus tradeoffs.” he explains. “The discussion between these three organizations has to happen in a meaningful way and everyone has to have a fair seat at the table.”
In the fourth and fifth phases, Collaborate and Orchestrate, the goal of improving internal relationships and demand management merges with a focus on customer and partner relationships. With a clear understanding of how your business integrates with the ideals of your partners and the needs of your customers, the result is a holistic approach to transforming your supply chain into one that is flexible enough to adapt to whatever else is in store for the future of pharma.
Holder, along with several other supply chain experts, is speaking at the LogiPharma Conference in Princeton, New Jersey where a number of topics related to the future of the pharmaceutical supply chain will be addressed.
In my next article of this series, I’ll talk to Michael Trocchia, Supply Chain Global Lead for Cell Therapy Products at Novartis, about the biggest strategic issues he has to deal with in his role and what best practices he recommends to overcome those issues as well as others.