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Assessing Supply Chain Risk through
Enterprise Risk Management
Stanford University
Enterprise Risk Management
November 14, 2006
Laura Langone, Director Risk Management
Roger Estrella, Director Supply Chain Business Continuity
© 2006, Genentech
Presentation Objective
Slide 2
7/17/2015
• To provide a framework for identifying and analyzing operational and
supply chain risks to support optimal risk-based decision making.
• At the conclusion of this discussion, the audience will:
– Have a framework for mapping raw material risks
– Have a process for simulating events & understanding the effects
– Understand how to evaluate mitigation benefits via Monte Carlo simulation
© 2006 Genentech
Why is ERM Important at Genentech?
Slide 3
7/17/2015
• Optimal risk-based decisions support minimizing the Company’s overall total cost
of risk. The less the cost of risk, the more capital available for R&D to support our
mission. We use an ERM Framework to support this.
“No patient will go without.”
© 2006 Genentech
Company Product History
Slide 4
7/17/2015
Genentech
Founded
’76
’85
’87
’93
’96
’97
’98
’99
’00
’01
’02
’03
‘04
‘06
© 2006 Genentech
Holistic Approach to Managing Risk
Slide 5
7/17/2015
Enterprise Risk Management Framework
Reporting & Monitoring
Risk Assessment – Sample Categories
Operational Risks
• Bulk Manufacturing
• Supply Chain Disruption
• Unsafe Work Environment
• GxP Compliance
• Lack of Integrated
Systems
Financial
• FX (Royalty)
• A/R Concentration
• Share Repurchase
• Loss of Earnings
Insure
• Is coverage available?
• Benefit > Cost
• Favorable Terms & Conditions
Legal, IP and
Regulatory
• Product Liability
• Regulatory Action
• Intellectual
Property
Strategic
• Pipeline
• Competition
• People
• Pricing/
Reimbursement
Risk Transfer
Risk Map
Not Insure
• Insurance or risk financing not
available or cost prohibitive
• What is the potential impact of
loss to our Balance Sheet?
Risk Mitigation
Coverages
• Casualty
• Property
• D&O
• Other
Yes
• Risk mitigation
• Business Continuity
process
No
• What is the impact
• Do we have the
liquidity
© 2006 Genentech
ERM and Genentech’s Supply Chain
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• How can we be confident that we will deliver on our commitment that no patient
goes without for our commercial products and products in development? Through
ERM we …
– Map our manufacturing process for each of our products.
– Assess our capacity & diversification in sourcing, manufacturing and distribution.
– Establish credible loss probabilities and other modeling assumptions with our
business partners.
– Calculate the potential loss from events of various magnitudes on an absolute and
probability-adjusted basis
 Monte Carlo simulation, and Expected value modeling
Supply Chain
Raw
Materials
Bulk
Fill
Package
Customers
Through risk-based modeling, we estimate the financial
impact resulting from an impairment to our supply chain.
© 2006 Genentech
Root Cause Analysis: Raw Material Supply
Operational Risk
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Supplier Supply Chain
Involuntary (bankruptcy)
Sole/Single Source
Business Exit
Voluntary (exit market)
Supplier Business Continuity
Environmental Control
Security
Warehousing
Natural Disaster
Building Contamination (e.g., mold)
Raw
Material
Supply
Inventory Handling & Managment
Poor RM Quality
RM Out of Spec
GxP compliance
Contamination
Inadequate Documentation
Systems
Procurement
Process
© 2006 Genentech
Simulation Model Output
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• The simulation model will provide:
– As-Is loss estimate. For the specific event and on a probability adjusted basis.
– Mitigated loss estimate.
– Amount of risk reduction.
– Project Net Present Value (NPV).
© 2006 Genentech
G Code (by product) Portfolio
Slide 9
7/17/2015
Genentech Products
Vendor “A”
Genentech
G Code
G10001 (A,B & C)
Raw Material
•Nutropin
•Herceptin
•Rituxan
•Avastin
•Pulmazyme
•TNKase
•Activase
•Raptiva
•Xolair
(G10001A)
(G10001B)
(G10001C)
•Cash flow at risk per raw material supporting a single Genentech product
•Used to prioritize risk mitigation options
© 2006 Genentech
Vendor Portfolio
Slide 10
7/17/2015
Genentech Products
G10001(A,B&C)
Vendor “A”
Genentech
G10002(A&B)
•Nutropin
•Herceptin
•Rituxan
•Avastin
•Pulmazyme
•TNKase
•Activase
•Raptiva
•Xolair
(G10001A)
(G10001B)
(G10001C)
(G10002A)
(G10002B)
Modified G Code
Raw Materials
•If a vendor cannot supply Genentech, what is the aggregate cash flow impact?
© 2006 Genentech
Genentech Product Portfolio
Slide 11
7/17/2015
G10001A
Vendor “A”
Genentech Products
G10002A
Genentech
Vendor “B”
G10002B
G10003A
Vendor “C”
•Nutropin
•Herceptin
•Rituxan
•Avastin
•Pulmazyme
•TNKase
•Activase
•Raptiva
•Xolair
What is the aggregate
supply chain risk for
each of the marketed
products?
Modified G Code
Raw Materials
© 2006 Genentech
Base Case Loss Estimate Per Supplier
Slide 12
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© 2006 Genentech
Base Case Loss Estimate per Location
Slide 13
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© 2006 Genentech
G30028A, BioRad Laboratories, Nutropin, 481 Days Ris Mitigation Inventory
Slide 14
7/17/2015
$175,000,000.00
$129,235,258.15
$128,544,889.69
$125,000,000.00
$75,000,000.00
=
$25,000,000.00
($23,587,601.07)
Base Loss
Mitigated Loss
($690,368.47)
Mitigation Cost
Effective + Cash Flow
NPV
($25,000,000.00)
NPV = Effective Positive Cash Flow
- Mitigation Cost
($75,000,000.00)
($125,000,000.00)
($152,822,859.23)
($175,000,000.00)
© 2006 Genentech
Raw Materials Risk Mitigation
Slide 15
7/17/2015
• Inventory build where ROI is beneficial and where required to retain
during alternate qualification timeframe
• Develop plan for alternate dual sourcing (US and Ex-Us)
• Supplier Business Continuity Planning
• Process & Procedures for Strategic Supplier
© 2006 Genentech
Questions?
Slide 16
7/17/2015
© 2006 Genentech