Transcript Optimizing Pharmaceutical Supply Chain Performance

Balancing Capacity, Expense And
Inventory To Maximize Customer
Service And Increase Profitability
Ken Thomas
Manager, MSSC Capabilities
Pharmaceutical Supply Chain Management:
Optimizing Customer Service and Corporate Results
Characteristics of the Industry
•Products keep people alive and healthy
……
Make Pharma SCM Unusual
• SC managed for “100% CSL”
• Low probability of success during product •Make large capital investments at high risk
development
• Regulation ties market access to process • SC design completed years before launch
validation
• Registration ties sourcing decision to
market access
• Limited, slow and expensive sourcing
changes
• Technical/regulatory complexities of
manufacturing
• Outsourcing risk evaluation needs to balance
cost reduction
• Capital intensity of manufacturing
• Idle capacity is desirable, at the right place
and right time
• Cost of inventory vs. value of a sale
• Customer service the priority, inventory
control secondary
9/18/2003
Ken Thomas
Copyright © 2000 Eli Lilly and Company
2
“Pulling the right levers” will improve the balance of customer
service level, cost, flexibility and risk management to fit the
marketplace needs of each product
Supply Chain Operation
Supply Chain Design
% of cost fixed
100
80
•Must happen during
development to support
regulatory requirements
60
•Must balance risk of clinical
failure with speed to market
of successful products
40
•Must enable a robust and
responsive supply after
launch
Submit
•Must ensure 99% customer service
in all scenarios
•Must effectively utilize fixed assets
and working capital
•Must adapt to the marketplace in
spite of regulatory influences
20
0
Hypotheses
Generation
Candidate
Development
Production
Commercialization
LAUNCH
Optimizing pharmaceutical supply chains happens before and after launch.
We will focus on Supply Chain Design first and then Supply Chain Operations.
9/18/2003
Ken Thomas
Copyright © 2000 Eli Lilly and Company
3
Pharmaceutical supply chain design:
Managing the inherent risk while designing robust chains
Supply Chain Design
Supply Chain Operations
Supply Chain Design
Submit
100
Supply chain
design begins
four years prior to
launch:
80
60
1. How much
capacity?
2. Located where
in the world?
3. Lilly owned?
Process design & construction
Capital Funding
40
Capacity &
Sourcing
20
0
Hypotheses
Generation
Candidate
Development
Production
Commercialization
LAUNCH
Capacity addition and sourcing decisions are made at time when the
probability of success is 20% - 40%
9/18/2003
Ken Thomas
Copyright © 2000 Eli Lilly and Company
4
1. Capacity Strategy: Global capacity with contingency
Sales Volumes & Inventory Targets
Sales DOT’s, Dose/DOT
Form/Fill Units/DOT
Launch Probability, Launch Timing
Clinical Trial
Material timing, sourcing
and registration
Uncertain
Probability-based
simulation
models: probability of
success is 20% - 40%
Cost of Excess
Capacity
& Cost of Lost Sales
Productivity
“Learning” Rates
Capacity Target Forecasts
For any single molecule;
• the inputs have tremendous uncertainty
• too much capacity is too expensive
• too little capacity means missing high margin sales
The solution:
• Standard technology platforms for common molecule types
allows the uncertainty to be managed using a “portfolio” approach.
• The agreement between development and manufacturing to use
standard “kits”allows accurate modeling of total product family capacity requirements.
• The common technology groups function as “manufacturing networks”.
9/18/2003
Ken Thomas
Copyright © 2000 Eli Lilly and Company
5
2. Sourcing Optimization: A Lilly-focused quantitative analysis…
Licensing
Agreements
Sales Volumes &
Inventory Targets
Available Capacity
Site
Product Mix &
Requirements
Free Sales
Certificate
Sourcing
Optimization
Models
Timing for
Source
Changes
Productivity
“Learning” Rates
Income benefits
Value of
Additional
Capacity
Goal: Maximize the value of manufacturing by selecting the
best product mix for Lilly networks
9/18/2003
Ken Thomas
Copyright © 2000 Eli Lilly and Company
6
…augmented with qualitative considerations
 Marketing Strategy
• Location of major markets
• Launch timing/sequence
 Regulatory
• Validation timing
• Compliance
 Manufacturing technology
• Processing requirements
• Complexity
• Learning curve
• Tech support requirements
 Financial/income benefit
• Manufacturing cost
• Duties and tariff barriers
• Net income
• Capital costs
• Contingency plans
 Health and safety
• Containment level
• Special hazards
• Experience
 Environmental
• Permitting
• Impact
• Treatment technology
 Manufacturing site
• Fit with site mission
• Available capacity
• Human resource requirements
• Lilly vs. non-Lilly site
Qualitative factors can’t be included in simulations: Judgment about Lilly
networks influences the design to be the best internal supply chain.
9/18/2003
Ken Thomas
Copyright © 2000 Eli Lilly and Company
7
3.
Final decision:
Can revenue be increased by using third party manufacturing?
Third Party
For most products, the Lilly Manufacturing strategy is
New Products
from pipeline
Lilly
Networks
Late lifecycle
products
TPO’s
Brand sale
or deletion
Continuous Lilly capacity management (capital avoidance)
via late life sourcing changes
9/18/2003
Ken Thomas
Copyright © 2000 Eli Lilly and Company
8
3. Final decision: Can revenue be increased by using third party
manufacturing?
Third Party
Exceptions Exist
TPO’s
New Products
from pipeline
Brand sale
or deletion
• Special technology
• Regulatory/registration issues
• Licensing agreement limitations
• Time to market
Excellent pharmaceutical supply chain design means optimized capital
investment and maximized revenue:
1. Managing capacity in standard technology networks
2. New products are sourced to robust and flexible sites
3. Reliable TPO’s are utilized for late lifecycle products
9/18/2003
Ken Thomas
Copyright © 2000 Eli Lilly and Company
9
Supply Chain Design Summary
Pipeline “volume”
Candidate characteristics
Probability of success
Clinical results
Approval timing and scope
Manufacturing technology
Launch forecast accuracy
Existing portfolio performance
Sources of:
Complexity
Uncertainty
Variability
Design for 100% CSL and
maximum efficiency
People with experience, skill,
knowledge, insight and judgment
9/18/2003
Outsourcing: Capital
Standard “kits”: Capital
Learning curve: Expense
Capacity utilization policy: Capital
Launch guidelines/timelines: Inventory
Sourcing: Revenue
Responses to:
Complexity
Uncertainty
Variability
Probability-based, stochastic
simulation IT tools
Ken Thomas
Copyright © 2000 Eli Lilly and Company
10
Supply Chain Operations: Maintaining 100% Customer Service
Level and Maximizing Efficiency
Supply Chain Operations
Supply Chain Design
Supply Chain Operations
100
1.
2.
80
60
Key global processes
3.
4.
40
Demand Management
Inventory, Risk & Customer
Service Level
SC Planning
SC Optimization
20
0
Hypotheses
Generation
9/18/2003
Candidate
Development
Commercialization
Production
LAUNCH
Ken Thomas
Copyright © 2000 Eli Lilly and Company
11
1. Supply chain operations are anchored by a sales and
marketing commitment to forecast accuracy
Demand Management
1 month completeness
97
100
90
% Complete
European Performance – June 2003
Forecast completeness and monthly accuracy reviewed by
the senior marketing executive committee monthly
9/18/2003
Ken Thomas
Copyright © 2000 Eli Lilly and Company
12
2. Inventory Management: Patient Needs and Financial Realities Demand
a Service-based Approach to API and Finished Stock Inventories.
Inventory Management
99+% Customer Service
Lot/Campaign size
Demand/Supply Variability
Risk Management
Packaging order size
and campaign planning
to balance cost of
inventory and utilization
of capacity
Joint probability
analysis of demand and
supply uncertainties
ensure 99% customer
service
Launch guidelines and
global timeline to
ensure robust launches
in spite of forecast
uncertainty
Time
Risk management analyses protect
sales from “special cause” upsets in
supply or demand
Inventory targets developed from a supply chain perspective establish the
foundation for an operations plan that ensures 99% CSL in predictable and
unpredictable circumstances.
9/18/2003
Ken Thomas
Copyright © 2000 Eli Lilly and Company
13
3. Global Supply Chain Planning (GS&OP)
F/F/F
Site
US market
API
Site
F/F/F
Site
API
Site
F/F/F
Site
EU market
Japan market
How to reconcile?
Inventory Targeting
SC plans are built for
one product in all
markets
9/18/2003
GS&OP
Ken Thomas
Copyright © 2000 Eli Lilly and Company
S&OP
Site operational plans are
built for many products in a
few markets
14
A Global S&OP for 11 Products, 7 Sites, 4 TPO’s and 4000 SKUs
Sales
Forecast
(2 years)
Long range
Plan
(each
product)
SAP
Probablized
Family
Scenarios
Additional
Demand
(CT, etc)
APO
Demand
Planning
APO
Supply
Network
Scenarios
GS&OP
Packet
Inventory
Forecasts
Inventory
Targets
Inventory and
Investment Plans
(Finance/Treasury)
Other
Executive
Approval
9/18/2003
Global S&OP
Plan
(Manufacturing)
Ken Thomas
Copyright © 2000 Eli Lilly and Company
15
4. Global capacity balancing and profitability optimization: Making
the ‘doable’ version 1 plan better
V1 Global Network S&OP
CAN $6,031
Working Capital:
“Best” investment plan?
% Theoretical
Strategic Inventory
Carrying cost of inventory exceeds gross margin of sales
70%
60%
50%
40%
30%
BRA $4,790
ARG $1,998
20%
$Millions
10%
0%
AUS $2,717 TUR $3,256
POL $2,041 MX $2,579
HUN $2,027
VZ $1,744
NZ $424
Cost of inventory
$2,000
$4,000
$6,000
EVA$ ('000s, 3-YR NPV)
114
Days Sales/Days forward coverage
Version 2: A global supply plan that is
possible and more profitable
9/18/2003
Ken Thomas
Copyright © 2000 Eli Lilly and Company
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117
111
99
108
105
102
87
96
93
90
81
84
78
69
75
63
72
66
60
57
54
51
48
45
36
42
39
33
30
27
24
21
18
9
15
3
6
Loss of gross margin
0
12
$8,000
$6,000
$4,000
$2,000
$1,000
$800
$600
$400
$200
$$-
Analysis of Portfolio Change
Sales$ vs. EVA
Balance Capacity:
“Best” utilization plan?
0
Sales$ ('000s, 3 years)
Review the portfolio:
“Best” SKU plan?
SC Operations Summary
Regulations
Competition (generic or therapeutic)
Forecast accuracy
Supply reliability
Special cause events (Hurricane)
Sourcing changes
Technology transfer
SRM issues
Sources of:
Complexity
Uncertainty
Variability
Operate for 100% CSL and
maximum efficiency
People with experience, skill,
knowledge, insight and judgment
9/18/2003
Scheduling: Expense
Inventory: Inventory
Capacity: Capital
Sourcing: Revenue
SKU adjustment: Expense
EOQ adjustment: Inventory
Risk Mitigation: Capital/Inventory
Responses to:
Complexity
Uncertainty
Variability
Integrated ERP: Information, simulation
and execution
Ken Thomas
Copyright © 2000 Eli Lilly and Company
17
The opportunities for impact are increased when the scope of thinking
extends beyond manufacturing to all functions in the Value Chain.
Research
And
Development
Manufacturing
Sales and
Marketing
The value chain is as strong as it’s weakest link. Care must be taken
to ensure manufacturing is an integral part of the firm’s business
model.
9/18/2003
Ken Thomas
Copyright © 2000 Eli Lilly and Company
18
Stronger integration is critical
•“Robust control strategies”
•“Standard technology platform”
•“High yields at launch”
R&D
Integration
+
“Make what we
need:
Never run out”
+
S&M
Integration
-
“Throw the process
over the wall”
•“Accountable
for forecast”
•“Engaged in
capacity
decisions”
•“Line
extension
reviews”
Integration will increase business opportunity, increase speed to
market and reduce cost
9/18/2003
Ken Thomas
Copyright © 2000 Eli Lilly and Company
19
Lilly’s own journey towards a better integration.
•“Robust control strategies”
•“Standard technology platform”
•“High yields at launch”
Manufacturability
Reviews
+
Shared accountability
for investment
decisions
Development
Manufacturing
Staff
+
S&M
Integration
MRPII Class A sales affiliates
75% forecast accuracy
-
90’s
9/18/2003
2010
R&D
Integration
100% Toolkit
Development
“Make what we
need:
Never run out”
Global Value Chain
Optimization
“Throw the process
over the wall”
Ken Thomas
Copyright © 2000 Eli Lilly and Company
•“Accountable
for forecast”
•“Engaged in
capacity
decisions”
•“Line
extension
reviews”
20
Virtual Firms
•“Robust control strategies”
•“Standard technology platform”
•“High yields at launch”
Integration
with External
Research
Partners
R&D
Integration
+
Lilly engaged in supply
Chain design and sourcing
“Make what we
need:
Never run out”
Collaborative Value Chains
2010
Collaborative
Forecasting
-
+
S&M
Integration
Manufacturing on
In-licensing team
Collaborative IT Transactions
Collaborative SCM
Processes
•“Accountable
for forecast”
•“Engaged in
capacity
Integration
with Sales
decisions”
Partners
•“Line
extension
reviews”
-
90’s
9/18/2003
“Throw the process
over the wall”
Ken Thomas
Copyright © 2000 Eli Lilly and Company
21
For each product, at each point in the life cycle,
an optimum balance for the supply chain exists
Product XYZ
Inventory
At launch
At peak
At deletion
9/18/2003
Expense
+
Capital
+
+
+
Customer
Service
=
+
+
Ken Thomas
Copyright © 2000 Eli Lilly and Company
=
=
22
The IT Tools We Know
Can Simulate Our Supply Chains
…but optimization remains a human activity.
Business
Process
Selection
Criteria
Individual
Training
Plan
Role-specific
Competencies
IT Tool
Training
Events
Skill
Qualification
Curriculum
Path
Manufacturing Strategy and Supply Chain
Capabilities Framework
Current objective: Improve the capabilities of 300 people in 18 months
9/18/2003
Ken Thomas
Copyright © 2000 Eli Lilly and Company
23
Competency Model: Demand Management Coordinator
DEMAND MANAGEMENT
COORDINATOR PERFORMANCE
COMPETENCIES
GOVERNANCE
Supply Chain
Metrics
(Forecasting)
DESIGN AND OPTIMIZE
Collect data and create forecast
accuracy reports
Conduct quarterly affiliate reviews
Monitor data quality metrics for
forecasting system (INET)
Publish and archive metrics
Create MSSC and MSOC Customer
Service review
SKU Portfolio
Management
PLAN, SCHEDULE, AND OPERATE
Support routine analysis of portfolio
Maintain accurate SKUs in Manugistics
Maintain accurate supply networks in
Manugistics
Ensure timely creation of item codes
and forecast data in Manugistics
Allocation
Monitor forecasts and assure affiliates
are adhering to allocation plan
FORECAST AND PASS DEMAND SIGNAL
Independent
Demand
BUSINESS CONTINUITY
Dependent
Demand
SUPPLY CHAIN DISCIPLINE AND BUSINESS SKILLS
Supply Chain Skills
Forecasting/Planning
Capacity Management
Inventory Management
Risk Management
Flow Techniques
Supply Chain Design
Sourcing
APICS
Product/Process
Knowledge
Therapeutic classes
Global markets
Competitive intelligence
Lilly products and branding
Lilly product Archetypes
Manufacturing toolkits
Distribution
Product forms
Supply Chain maps
Launch and registration
timelines
9/18/2003
Negotiate forecasts with sales affiliates
and 3rd parties and generate 30
months of forecasts for all SKUs for
each market
Conduct quarterly forecast reviews
with market affiliates
Ensure robust forecasting processes
are in place at each market affiliate
Support and drive affiliate OSSCE
processes
Work with launch teams to ensure
forecasts are generated 24 months
prior to launch
Ensure replenishment plans are being
created by affiliates
Work with affiliates to establish safety
stocks as identified in Supply Chain
inventory target process
Provide one source of forecast data
for manufacturing and provide the
one forecast to manufacturing
Support plant site demand processes
Establish and execute long range
forecasting processes with LMR
Maintain DDS data
Publish DDS metrics to plant sites and
hold them accountable for the quality
of the dependent demand statement
TRANSFERABLE INTERPERSONAL AND LILLY-SPECIFIC BUSINESS SKILLS
Business Skills
Corporate Financial
Manufacturing Financial
Corporate Strategy
Pharmaceutical industry
C4I (SPC, root cause)
Market analysis
Business/Regulator
y Knowledge
Local regulatory
guidelines
Local tax, trade, and
reimbursement guidelines
Language
Transferable and
Interpersonal Skills
As in the Leadership CM (Harbin)
Scenario planning
Dealing with/quantifying ambiguity
Systems thinking (5th Discipline)
Lilly Business
Processes
OSSCE – site
Business Plan and LRP
Alliance Management
Launch Management
Network S&OP (detail)
OSSCE – Supply Chain
Process control and
capability cycle (“Radiator
Diagram”)
Ken Thomas
Copyright © 2000 Eli Lilly and Company
Organizations
Sites/Affiliates
TPOs
Networks
MSOC
SMEC
Brand Teams
Procurement
Financial/Treasury
Product Teams
Development
CM&C
MSSC (all groups)
Systems/ Tools/
Resources
APO (SNP, Demand)
Business Warehouse
Manugistics
Networks Collaborate
Allocation Matrix
SAP (R3)
Supply Chain Web/Well
Spotfire
Forecast and Production plans
SAP reports
MGS
Supply Agreements
The “Damn Book”
24
9/18/2003
Ken Thomas
Copyright © 2000 Eli Lilly and Company
25
Supply Chain Management Skill Qualification
Global Sales and Operations Planning for Supply Chain Analyst
Overview
Directions for
completing the
coaching guide
Skill qualification is delivered in a structured-coaching format. Using this format, the managing process owner will hold a coaching session
with the supply chain analyst to assess the analyst’s capability to appropriately participate in the supply chain process for Global Sales and
Operations Planning.
The intent of the skill qualification is twofold:
1. Verify that the supply chain analyst has a basic competence in the key supply chain processes and can deliver quality outputs
to customers.
2. Allow the managing process owner the opportunity to offer suggestions to further enhance the supply chain analyst’s ability to
perform these processes at a level beyond basic competence.
In preparation for this qualification session, the supply chain analyst should be ready to share with the process owner the following information
for one network under his/her responsibility:
 The most recent GS&OP data pack
9/18/2003
Ken Thomas
Copyright © 2000 Eli Lilly and Company
26
Conclusion
 It’s about reducing customer risk and maximizing shareholder return
design and operate supply chains to enhance customer service, not cut costs.
 Focus on risk management and mitigation
design and operate reliable supply chains, impervious to the predictable and unpredictable
 Partner with Development to deliver:
Flexible process and technology platform and robust process control strategy
Partner with Sales & Marketing to deliver:
Good short-term forecast (local country management owns S&OP)
 Good long-term forecast (review by senior Sales & Marketing staff)
 In an increasingly complex environment, collaborate
Manufacturing functional collaboration – Process Engineering, Science & Technology, Quality
Corporate functional collaboration – Sales & Marketing, Research & Development
 Business partner collaboration – Research & Development, Sales & Manufacturing Third Parties
Supply Chain Management is successfully completed by people
Define competency
 Establish selection and curriculum elements
Train and develop
 Qualify and reward
9/18/2003
Ken Thomas
Copyright © 2000 Eli Lilly and Company
27