The price of no action is now relatively high

The dialogue surrounding supply chain visibility in the pharma arena is surging. However, some companies are known to have previously postponed their visibility projects for other priorities. As a result, few are known to be reaping the full benefits from mastering supply chain visibility.

On this subject, Dr. Roland Klüber of Theron Management Advisors speaks to Pharma IQ about the biggest visibility pitfalls the industry, losses faced as well as the enhancements and cost efficiencies on the horizon for those who leverage their serialisation investments more effectively.  

What are the biggest pitfalls in the industry in regards to the supply chain visibility?

Roland:  “We have seen the inherent danger of focusing only on the regulatory aspect and omitting the opportunity to achieve a significant improvement in the area of supply chain visibility. A few years ago we were even confronted with the argument that these two topics are not linked at all, but from our experience and the approaches taken by other pharma companies we continue to emphasize the opposite: they should be linked. The simplification and sole focus on the regulatory side can only limit future benefits. Once you are obliged to work on a serial number level in production, that logic needs to transfer to the supply chain operations as well. Even if you only need to formally comply end-to-end as the current EU FMD regulations demand at the moment.

“To give you three practical examples, if a recall happens a manufacturer needs to trace each single unit consistently and have demonstrated complete supply chain integrity. If that information is not fully linked into the supply chain then this can only be demonstrated via manual work at a high cost and time pressure.

"Second example: if an isolated serialisation project is set up some inefficiencies might occur, only to be identified later in the operations. For example, your serialisation system requires a separate scanning solution with separate physical scanners. As a consequence, you may end up with two different scanners and double scanning in the logistics process if it’s not aligned.

“The third scenario: one may miss out the synergies. If you need to improve your master data in the serialisation project, the same team or structure can be empowered to improve the open incomplete logistics data and support the aggregation. Once the master data quality is in good shape, more advanced supply chain strategies and processes can be implemented.

"A common pitfall is to dedicate too little effort into exploring which prerequisite and measures will lead to the future quantifiable benefits. It requires a thorough analysis, from our experience, of the company’s current and future situation and including its ecosystem. If the argument for improved supply chain visibility is weak, management will most likely not reserve sufficient budget to realise achievable future net benefits.”

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What are the losses that can be expected by those in the market who don’t approach supply chain visibility correctly or to its full extent? 

Roland:  “Let me just define what supply chain visibility is to provide you with more clarity on the concept. We have defined supply chain visibility as actionable information made available to all relevant supply chain partners and regulators to achieve the specified business benefits.

“We have then devised the method to structure and specify the required level of supply chain visibility and the corresponding measures to achieve these benefits. We term our approach: requisite supply chain visibility. It facilitates the design of a suitable level of supply chain visibility that makes business sense for all relevant stakeholders and delivers the measurable benefits. The multidimensional measure encompasses many company-specific factors, such as product ingredients, risks, value, duration, in the supply chain trade lane characteristics, destination countries’ relevant regulations and current supply chain situation, including future orientation and objectives.

“Concerning the question, we can differentiate two kinds of sources of losses. One is the regulatory part and the second is supply chain-related. If a company misses the regulatory visibility obligations, that means it is not transmitting the correct serial numbers or not able to monitor the cold chain conditions. If this regulatory part is not met, then there are penalties; products without 100% cold chain compliance become unsellable and if the failure occurs multiple times then a loss of a licence in a country can lead to significant financial impact.

“The second side is then insufficient supply chain visibility that gives the marketing authorisation holder or the CMO little control over its supply chain to avoid waste in transportation or storage. For example, underutilisation of shipments, increased deficiency and reduced risk, the loss of efficiency, quality and high inventory and, in the end, money that could have been saved. The indirect impact on the brand value materialises if the reliability is significantly better but these are the main supply chain drivers; if you increase your visibility, you can have the chance of getting better in that respect.

“When and how frequent updates are conducted needs to be specified and agreed with the departments within the company as well as the supply chain partners. Improving the supply chain visibility can take many years and requires a sound stakeholder management and a high commitment not only from top management.”

SMEs and CMOs are known to be further behind with implementation.  When is the best time for them to consider supply chain visibility and what benefits will they gain from this?

Roland:  “Well, our recommendation is that it is never too early to start with the conceptualisation because in terms of the regulation dataset, it is an exertion of energy or money that will just have to occur later if you wait longer. The infrastructure needs to be set up, the capabilities need to be aligned and the resources need to be dedicated. Their advanced planning is of great help. The price of no action, we consider as relatively high.

“The resources are likely to be scarce and more expensive the closer you get to the dates.  If you want to avoid being forced to costly and timely changes because your initial requirements were too narrow, then the benefits are derived from a long list of potential improvement areas. Just to name a few,

(1)   you would be able to react earlier to supply chain disruptions and trigger more advanced exception management, especially in the cold chain area and therefore reduce the cost impacts with higher agility.

(2)   you avoid supply chain irritations, such as underutilisation, delays and partial shipments and

(3)   you can improve your contract compliance, SLAs and performance of your logistic service providers.

The quantification of benefits requires a company specific assessment covering several functional areas with a realistic assessment which improvement is achievable with which measure.

“A fully developed operational supply chain visibility system can encompass the following information elements in real time building on a high digitalisation of:

- Transport visibility,

- In-stock visibility,

- Cold chain temperature and condition visibility, 

- Supply chain risk visibility,

- Custom status visibility, 

For all of the above information elements processes for exception management, the digital documentation of activities and corresponding documents plus reporting capabilities are to be included.

“This is not all relevant and affordable for the SMEs or CMOs, but if they apply Software-as-a-Service solutions, they can save money and increase efficiencies. The optimum number of IT vendors is a challenge and that needs some thorough analysis. One might be a little bit risky and more than three is probably risky as well.

“Once the to-be situation is clear, a phased approach can be defined. Starting with first the serialisation work and then the supply chain visibility elements. If there is still time and budget available you can start establishing supply chain optimisation functionalities. Key focus for SMEs ore CMOs is to benefit from the flexibility of the solutions to adapt to changes and also the capability to cope with the multi-client complexity must be provided.

“The last vital point is how to roll out. We have experience from large-scale rollouts with more than 140 countries. Even in smaller scale scenarios for CMOs and SMEs. It is still very relevant to make a clear plan with good project management for the local and global teams for and simultaneously allow for agility and knowledge exchange.”

Some experts have noted that the pressurised nature of serialisation implementation has caused opportunistic providers to arise, who may not have the intentions to exist in the market in the long term.

Why is it important for manufacturers to be aware of this and how can they best navigate around this issue, as they look to be as future-proof as they can be?

Roland:  “Yes, that is a common danger because as we have seen before in times where a perceived gold rush is located, there are always individuals who go for the quick money.

“A key for manufacturers or CMOs is to actively manage the risk and minimise the chance that they select a vendor who is not in fact interested in accompanying them throughout the whole trajectory. Change requests can become very expensive. The migration can also be extremely expensive. We had a project where it costed several hundreds of millions to switch solutions after elaborating the full-blown system was not performing and it was uncovered only late in the roll-out.

“What can you do to avoid this? Firstly, have a solid and detailed tender process with an in-depth product audit and due diligence. Then challenge the provider ensure it is in their commitment to follow the development path for the next few years to come. Also, examine the provider’s history and experience, its customer base and an in-depth live demonstration of company specific cases where systems are tested by the real users of the company. This usually helps identify the providers that are robust and trustworthy.”

We talked about the losses for those who fall into the simplification trap and fail to use supply chain visibility correctly, but what are the potential savings from using supply chain visibility correctly?

Roland:  “If you consider the upstream processing, APIs and packaging materials, etc, there is the potential for cost reductions, optimised shipments and better operation efficiency, including return of cold chain equipment. When we look at the manufacturer’s or CMO’s own supply chain, then improvements are seen in logistics service provider steering, claim handling, document and invoice processing, which can lead to a five to ten per cent cost saving in a total supply chain outgoings.

“Regarding the downstream side, claims to customers can be reduced and the high information provisioning can enhance the supply chain performance level to lead to less claims. With better planning information from customers, you can reduce negative impacts on the supply chain and the savings further, which is quite an advanced system.

“Finally, the one that is difficult-to-quantify is how much potential counterfeit will be prevented. That is always a very political topic because once serialisation has been installed advancements in this area are hard to quantify. Ideally, the business case is positive before taking this category into account because it can lead to very lengthy valuation arguments.”

What sort of operational efficiencies can manufactures capitalise on via supply chain visibility?

Roland:  “With better supply chain visibility better control can be had gained over with cold chain operations to prevent temperature excursions as well as managing the equipment returns. Also improvements can be made with recall efficiency through complete system aggregation due to improved product identification.  

“The more you have a real-time overview of activities in your supply chain, the easier this process will become and you can also have a better overview on inventories, which can lead to additional optimisation potential. For example, this additional transparency can also be helpful because you can exchange more data with CMOs and have more transparency in what occurs. These sorts of techniques should lead to further cost reductions which of course need to be off-balanced with the costs of setting up the infrastructure and managing the process with all the stakeholders that need to be actively participating. Currently, the only foreseeable supply chain improvements can be the basis for the manufacturers to start direct interactions with patients that might lead to higher marketing and brand value.”

Is there anything in the supply chain initiatives that can foster the effects of supply chain visibility even further?

Roland:  “If you look at what the potential is in the planning area then there is also quite a big potential for the manufacturers and CMOs if they achieve a better feedback from their direct sales partners. That obviously requires a lot of trust in the supply chain and also a system to manage that properly.

“We are not advocating huge investments in a total supply chain planning and optimisation but there are selected improvements possible. Prerequisite for this is that the capabilities and the commitment of all stakeholders to share the information is there. For instance, other industries like automotive have made quite big advancements in optimising the steering of their logistics movements and cost savings from this area. The key considerations are: who is making the decisions and on which basis? Is it the manufacturer who managed the logistics in detail or is it the 4PL or LLP who will then reap the consolidation benefits?”

Interested in hearing more from Roland? You can interact with him onsite at the 2016 Serialisation and Traceability Summit this November. Details for his workshop at The 2016 Pharmaceutical Serialisation and Traceability Conference can be found here.