Creating Supply Chain Excellence Part 2
This article was published in the September/October 2016 edition of Pharmaceutical Engineering® Magazine. Missed part one of this three part series? Catch up now – Creating Supply Chain Excellence, Achieving Superior Performance
Pharmaceutical Engineering® Magazine (PE): What other supply chain key capabilities and best practices are important?
Lou Schmukler (LS): I believe there are a number of key capabilities and best practices that all supply chains should embrace to achieve superior performance. I like to think about these in three dimensions: people, process, and technology. I will just comment on several of the major ones here, two of which were highlighted earlier: a strong linkage to the business strategy and creation of a tailored supply chain using segmentation.
When it comes to supply chain key capabilities and best practices, an appropriate place to start is the company’s integrated business planning process. This process is the backbone of a company’s supply chain. Translating the company’s business plan into a good forecast and executable manufacturing plan is extremely important. An effective sales and operations planning process is a key component here as well as strong data management. We all know how difficult forecasting can be, especially for new products. But this is just one of the potential uncertainties the supply chain must be designed for and prepared to manage, which brings me to the need for a solid business continuity program.
Stated in simplest terms, a business continuity plan starts with a comprehensive risk assessment followed by a risk mitigation plan. There are multiple kinds of risks that must be considered in addition to forecast or demand variability. These include product failures, potential competition scenarios, major supply chain disruptions such as natural disasters, and variables around the regulatory process.
Each company needs to be deliberate in setting the risk appetite thresholds deemed appropriate for their business. There are several levers by which risks can be mitigated. A combination of approaches are often employed that can entail products that are dual sourced across facilities and suppliers, strategic inventory, and/or agile lead times to shorten time of recovery. An important point here is that risks can be significant and the associated mitigation plans expensive, so decisions should be made cross functionally with executive management understanding and endorsement. (Image: In Devens, Massachusetts, the company expanded its Biologics Manufacturing site by adding development capabilities.)
Next, there is the need for a well-thought-out supply network strategy. Most companies do not have the luxury of starting with a “clean sheet of paper” when it comes to their supply network strategy; they already have their legacy network, which often is not optimally designed to support current and/or future business requirements. Questions around site locations, scope, and technology platforms all need to be addressed. Multiple decision-making criteria go into designing the ideal supply network, and this can involve balancing competing priorities. For example, maximizing asset utilization to optimize cost may conflict with installing redundancy in order to mitigate risks to ensure business continuity.
GMS Product Robustness Approach
Requirements for local manufacturing can further complicate decision making. Another important strategic decision here is determining what operations and activities to perform internally vs. externally. Outsourcing can be driven by a number of factors. It might be desirable when there is a need for external proprietary technology, backup capacity, a necessary geographical presence, incremental scalable capacity, or cost leverage. Over the past decade, progressive supply chain organizations have focused on new external manufacturing paradigms to achieve a more integrated and seamless relationship with their contract manufacturing partners. The bottom line in all of this is that the ideal supply network should be fit for purpose.
Two attributes for the supply chain organization that have become more and more important are agility and flexibility. With the increasing number of disruptions, uncertainty, and volatility, these two attributes are both necessary core capabilities and a potential source of competitive advantage as well. An initial assessment of where these capabilities are most needed is a good place to start. This activity should be undertaken with an end-to-end view of the supply chain. Then the effort needs to turn to the building of these capabilities for the targeted functions and processes. Having the ability to “look around corners” to sense, detect, and respond to events in a timely manner is important. The focus should cut across the supply chain and include product development, purchasing, production and planning, and logistics. Some of the relevant programs that supply chain organizations have implemented with great success are lead time reduction initiatives, late-stage customization or postponement, flexible multi-product operations, scalable variabilized capacity, and supplier contingency planning. I would also add here that external focus, or looking outside the industry, is an invaluable exercise. Especially in this area of agility and flexibility where there is much to be learned and best practices to be replicated from automotive, high tech, consumer goods, and other industries.
Lastly, there are a few other areas that could be particularly relevant to a given business. One is the area of complexity. Complexity is increasing and a major challenge for the supply chain. Complexity management can greatly improve supply chain efficiency and effectiveness. Through a cross-enterprise pragmatic approach, the elements of complexity can be best managed. Main elements to evaluate can include the number of products and SKUs, geographies and different regulatory requirements. The second area is that of measurement. We are all familiar with the saying “you can’t manage what you don’t measure.” Having a complete and balanced scorecard, incorporating leading and lagging key performance indicators, that measures results as well as capabilities internally and externally is central. And the third area is collaboration from end to end. I emphasized alignment earlier. Supply chain management is a team sport. An integrated approach, shared objectives, transparency, and communications are all key success factors.
Vision and strategy without execution is just hallucination.
PE: You stated earlier that quality was a basic and foundational element. What is your view of the linkage between quality and supply chain excellence?
LS: Enemy number one of the supply chain is variability, so a primary goal needs to be the identification and minimization of all forms of variability. Reducing variability is synonymous with improving and attaining high quality. You cannot hope to have a reliable, agile, and cost-effective supply chain without high quality. So pursuing high-quality outcomes and getting it right first time should be viewed as an investment and not a cost.
For many years, the Juran Trilogy Model for quality management has been fundamental to my view of high quality. It consists of three important management tools that work together: quality planning, quality control, and quality improvement. In Six Sigma terms, the related process is called DMAIC.
Dr. Joseph Juran was a pioneer in emphasizing the important role of statistics in manufacturing, which I like to refer to as the language of variability and quality.
Originating from all his work was the concept of cost of poor quality, and it is in this concept that the business case for high quality and its linkage to supply chain excellence is made. This is all about understanding the cost of providing poor quality and service. By focusing on root cause and prevention, you maximize return on quality (ROQ) and drive down non-value-added failure and appraisal costs that can be significant.
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