1、Balancing Capacity,Expense And Inventory To Maximize Customer Service And Increase Profitability Ken ThomasManager,MSSC CapabilitiesPharmaceutical Supply Chain Management:Optimizing Customer Service and Corporate ResultsCharacteristics of the IndustryMake Pharma SCM UnusualProducts keep people alive
2、 and healthy Low probability of success during product development SC managed for“100%CSL”Make large capital investments at high risk Regulation ties market access to process validation SC design completed years before launch Registration ties sourcing decision to market access Limited,slow and expe
3、nsive 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,inv
4、entory control secondary9/18/20032Ken ThomasSupply Chain DesignSupply Chain OperationMust ensure 99%customer service in all scenariosMust effectively utilize fixed assets and working capitalMust adapt to the marketplace in spite of regulatory influences“Pulling the right levers”will improve the bala
5、nce of customer service level,cost,flexibility and risk management to fit the marketplace needs of each productMust happen during development to support regulatory requirementsMust balance risk of clinical failure with speed to market of successful productsMust enable a robust and responsive supply
6、after launchLAUNCH020406080100HypothesesGenerationCandidateDevelopmentProductionSubmitCommercialization%of cost fixedOptimizing pharmaceutical supply chains happens before and after launch.We will focus on Supply Chain Design first and then Supply Chain Operations.9/18/20033Ken ThomasLAUNCH020406080
7、100HypothesesGenerationCandidateDevelopmentProductionSupply Chain DesignSupply Chain OperationsCommercializationSupply chain design begins four years prior to launch:1.How much capacity?2.Located where in the world?3.Lilly owned?SubmitPharmaceutical supply chain design:Managing the inherent risk whi
8、le designing robust chainsCapacity addition and sourcing decisions are made at time when the probability of success is 20%-40%Capacity&Sourcing Capital FundingProcess design&constructionSupply Chain Design9/18/20034Ken Thomas1.Capacity Strategy:Global capacity with contingency Probability-based simu
9、lation models:probability ofsuccess is 20%-40%Sales Volumes&Inventory TargetsSales DOTs,Dose/DOTForm/Fill Units/DOTLaunch Probability,Launch TimingClinical TrialMaterial timing,sourcingand registrationCost of Excess Capacity&Cost of Lost SalesProductivity“Learning”RatesFor any single molecule;the in
10、puts have tremendous uncertainty too much capacity is too expensive too little capacity means missing high margin salesThe solution:Standard technology platforms for common molecule typesallows the uncertainty to be managed using a“portfolio”approach.The agreement between development and manufacturi
11、ng to usestandard“kits”allows accurate modeling of total product family capacity requirements.The common technology groups function as“manufacturing networks”.Capacity Target ForecastsUncertain9/18/20035Ken ThomasSourcingOptimizationModels2.Sourcing Optimization:A Lilly-focused quantitative analysis
12、Income benefitsSales Volumes&Inventory TargetsAvailable CapacityLicensing AgreementsProductivity“Learning”RatesSiteProduct Mix&RequirementsTiming forSourceChangesValue of AdditionalCapacityGoal:Maximize the value of manufacturing by selecting the best product mix for Lilly networksFree SalesCertific
13、ate9/18/20036Ken Thomasaugmented with qualitative considerations Marketing Strategy Location of major markets Launch timing/sequence Manufacturing technology Processing requirements Complexity Learning curve Tech support requirements Health and safety Containment level Special hazards Experience Env
14、ironmental Permitting Impact Treatment technology Regulatory Validation timing Compliance Financial/income benefit Manufacturing cost Duties and tariff barriers Net income Capital costs Contingency plans Manufacturing site Fit with site mission Available capacity Human resource requirements Lilly vs
15、.non-Lilly siteQualitative factors cant be included in simulations:Judgment about Lilly networks influences the design to be the best internal supply chain.9/18/20037Ken Thomas3.Final decision:Can revenue be increased by using third party manufacturing?LillyNetworksNew Products from pipelineBrand sa
16、le or deletionFor most products,the Lilly Manufacturing strategy isTPOsLate lifecycle productsContinuous Lilly capacity management(capital avoidance)via late life sourcing changesThird Party9/18/20038Ken ThomasBrand sale or deletionTPOsNew Products from pipeline Special technology Regulatory/registr
17、ation 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 networks2.New products are sourced to robust and flexible sites3.Reliable TPOs are utilized for
18、 late lifecycle productsExceptions ExistThird Party3.Final decision:Can revenue be increased by using third party manufacturing?9/18/20039Ken ThomasSupply Chain Design SummarySources of:Complexity Uncertainty VariabilityPipeline“volume”Candidate characteristicsProbability of successClinical resultsA
19、pproval timing and scopeManufacturing technologyLaunch forecast accuracyExisting portfolio performanceResponses to:Complexity Uncertainty VariabilityOutsourcing:CapitalStandard“kits”:CapitalLearning curve:ExpenseCapacity utilization policy:CapitalLaunch guidelines/timelines:InventorySourcing:Revenue
20、 Design for 100%CSL and maximum efficiencyProbability-based,stochastic simulation IT toolsPeople with experience,skill,knowledge,insight and judgment9/18/200310Ken ThomasSupply Chain Operations:Maintaining 100%Customer Service Level and Maximizing Efficiency0ProductionLAUNCH20406080100HypothesesGene
21、rationCandidateDevelopmentSupply Chain DesignSupply Chain OperationsCommercializationKey global processes1.Demand Management2.Inventory,Risk&Customer Service Level3.SC Planning4.SC OptimizationSupply Chain Operations9/18/200311Ken Thomas 1.Supply chain operations are anchored by a sales and marketin
22、g commitment to forecast accuracyForecast completeness and monthly accuracy reviewed by the senior marketing executive committee monthlyEuropean Performance June 2003%Complete90100971 month completenessDemand Management9/18/200312Ken Thomas2.Inventory Management:Patient Needs and Financial Realities
23、 Demand a Service-based Approach to API and Finished Stock Inventories.Inventory targets developed from a supply chain perspective establish the foundation for an operations plan that ensures 99%CSL in predictable and unpredictable circumstances.Demand/Supply VariabilityLaunch guidelines and global
24、timeline to ensure robust launches in spite of forecast uncertaintyJoint probability analysis of demand and supply uncertainties ensure 99%customer serviceRisk ManagementRisk management analyses protect sales from“special cause”upsets in supply or demandTime99+%Customer ServiceInventoryPackaging ord
25、er size and campaign planning to balance cost of inventory and utilization of capacityLot/Campaign sizeInventory Management9/18/200313Ken Thomas3.Global Supply Chain Planning(GS&OP)S&OPSite operational plans are built for many products in a few marketsF/F/FSiteF/F/FSiteUS marketEU marketJapan market
26、F/F/FSiteAPISiteAPISiteInventory TargetingSC plans are built for one product in all marketsHow to reconcile?9/18/200314Ken ThomasA Global S&OP for 11 Products,7 Sites,4 TPOs and 4000 SKUs 9/18/200315Ken Thomas4.Global capacity balancing and profitability optimization:Making the doable version 1 plan
27、 betterV1 Global Network S&OPBalance Capacity:“Best”utilization plan?0%10%20%30%40%50%60%70%TheoreticalWorking Capital:“Best”investment plan?Strategic InventoryCarrying cost of inventory exceeds gross margin of sales 00369121518212427303336394245485154576063666972757881848790939699102105108111114117
28、Days Sales/Days forward coverage$MillionsCost of inventoryLoss of gross marginReview the portfolio:“Best”SKU plan?Analysis of Portfolio ChangeSales$vs.EVACAN$6,031 BRA$4,790 ARG$1,998 TUR$3,256 AUS$2,717 MX$2,579 POL$2,041 VZ$1,744 HUN$2,027 NZ$424$-$200$400$600$800$1,000$2,000$4,000$6,000$8,000$-$2
29、,000$4,000$6,000EVA$(000s,3-YR NPV)Sales$(000s,3 years)Version 2:A global supply plan that is 9/18/200316Ken ThomasSC Operations SummaryOperate for 100%CSL and maximum efficiencySources of:Complexity Uncertainty VariabilityRegulationsCompetition(generic or therapeutic)Forecast accuracySupply reliabi
30、litySpecial cause events(Hurricane)Sourcing changesTechnology transferSRM issuesResponses to:Complexity Uncertainty VariabilityScheduling:ExpenseInventory:InventoryCapacity:CapitalSourcing:RevenueSKU adjustment:ExpenseEOQ adjustment:InventoryRisk Mitigation:Capital/InventoryPeople with experience,sk
31、ill,knowledge,insight and judgmentIntegrated ERP:Information,simulation and execution9/18/200317Ken ThomasThe opportunities for impact are increased when the scope of thinking extends beyond manufacturing to all functions in the Value Chain.ResearchAnd DevelopmentManufacturingSales andMarketingThe v
32、alue chain is as strong as its weakest link.Care must be taken to ensure manufacturing is an integral part of the firms business model.9/18/200318Ken ThomasStronger integration is criticalIntegration will increase business opportunity,increase speed to market and reduce cost“Accountable for forecast
33、”“Engaged in capacity decisions”“Line extension reviews”“Robust control strategies”“Standard technology platform”“High yields at launch”“Make what we need:Never run out”“Throw the processover the wall”R&D IntegrationS&M Integration-+9/18/200319Ken ThomasR&D IntegrationS&M Integration-+Lillys own jou
34、rney towards a better integration.“Accountable for forecast”“Engaged in capacity decisions”“Line extension reviews”“Robust control strategies”“Standard technology platform”“High yields at launch”“Make what we need:Never run out”“Throw the processover the wall”90s2010MRPII Class A sales affiliates100
35、%ToolkitDevelopmentManufacturabilityReviewsDevelopmentManufacturingStaffShared accountability for investment decisionsGlobal Value Chain Optimization75%forecast accuracy9/18/200320Ken ThomasVirtual FirmsR&D IntegrationS&M Integration-+90s2010Collaborative IT TransactionsLilly engaged in supplyChain
36、design and sourcingManufacturing on In-licensing teamCollaborative ForecastingCollaborative Value ChainsCollaborative SCM ProcessesIntegration with Sales PartnersIntegration with External Research Partners“Make what we need:Never run out”“Throw the processover the wall”“Accountable for forecast”“Eng
37、aged in capacity decisions”“Line extension reviews”“Robust control strategies”“Standard technology platform”“High yields at launch”9/18/200321Ken ThomasFor each product,at each point in the life cycle,an optimum balance for the supply chain existsProduct XYZInventoryExpenseCapitalCustomerService+=+A
38、t launch+=+At peak+=+At deletion9/18/200322Ken ThomasThe IT Tools We Know Can Simulate Our Supply Chainsbut optimization remains a human activity.BusinessProcessIT ToolRole-specificCompetenciesSelectionCriteriaCurriculumPathTrainingEventsManufacturing Strategy and Supply Chain Capabilities Framework
39、Current objective:Improve the capabilities of 300 people in 18 monthsIndividualTrainingPlanSkillQualification9/18/200323Ken ThomasCompetency Model:Demand Management CoordinatorDEMAND MANAGEMENT COORDINATOR PERFORMANCE COMPETENCIESDESIGN AND OPTIMIZEPLAN,SCHEDULE,AND OPERATEBUSINESS CONTINUITYGOVERNA
40、NCEFORECAST AND PASS DEMAND SIGNALNegotiate forecasts with sales affiliates and 3rd parties and generate 30 months of forecasts for all SKUs for each marketConduct quarterly forecast reviews with market affiliatesEnsure robust forecasting processes are in place at each market affiliateSupport and dr
41、ive affiliate OSSCE processesWork with launch teams to ensure forecasts are generated 24 months prior to launchEnsure replenishment plans are being created by affiliatesWork with affiliates to establish safety stocks as identified in Supply Chain inventory target processProvide one source of forecas
42、t data for manufacturing and provide the one forecast to manufacturingSupport plant site demand processesEstablish and execute long range forecasting processes with LMRMaintain DDS dataPublish DDS metrics to plant sites and hold them accountable for the quality of the dependent demand statementSUPPL
43、Y CHAIN DISCIPLINE AND BUSINESS SKILLSTRANSFERABLE INTERPERSONAL AND LILLY-SPECIFIC BUSINESS SKILLSSupply Chain SkillsBusiness SkillsProduct/Process KnowledgeBusiness/Regulatory KnowledgeTransferable and Interpersonal SkillsOrganizationsLilly Business ProcessesSystems/Tools/ResourcesCorporate Financ
44、ialManufacturing FinancialCorporate StrategyPharmaceutical industryC4I(SPC,root cause)Market analysisLocal regulatory guidelinesLocal tax,trade,and reimbursement guidelinesLanguageTherapeutic classesGlobal marketsCompetitive intelligenceLilly products and brandingLilly product ArchetypesManufacturin
45、g toolkitsDistributionProduct formsSupply Chain mapsLaunch and registration timelinesForecasting/PlanningCapacity ManagementInventory ManagementRisk ManagementFlow TechniquesSupply Chain DesignSourcingAPICSAs in the Leadership CM(Harbin)Scenario planningDealing with/quantifying ambiguitySystems thin
46、king(5th Discipline)Sites/AffiliatesTPOsNetworksMSOCSMECBrand TeamsProcurementFinancial/TreasuryProduct TeamsAPO(SNP,Demand)Business WarehouseManugisticsNetworks CollaborateAllocation MatrixSAP(R3)Supply Chain Web/WellSpotfireForecast and Production plansOSSCE siteBusiness Plan and LRPAlliance Manag
47、ementLaunch ManagementNetwork S&OP(detail)OSSCE Supply ChainProcess control and capability cycle(“Radiator Diagram”)SAP reportsMGSSupply AgreementsThe“Damn Book”DevelopmentCM&CMSSC(all groups)Collect data and create forecast accuracy reportsConduct quarterly affiliate reviewsMonitor data quality met
48、rics for forecasting system(INET)Publish and archive metricsCreate MSSC and MSOC Customer Service reviewSupport routine analysis of portfolioMaintain accurate SKUs in ManugisticsMaintain accurate supply networks in ManugisticsEnsure timely creation of item codes and forecast data in ManugisticsMonit
49、or forecasts and assure affiliates are adhering to allocation plan9/18/200324Ken Thomas9/18/200325Ken ThomasSupply Chain Management Skill QualificationGlobal Sales and Operations Planning for Supply Chain AnalystOverviewDirections for completing the coaching guideSkill qualification is delivered in
50、a structured-coaching format.Using this format,the managing process owner will hold a coaching session with the supply chain analyst to assess the analysts capability to appropriately participate in the supply chain process for Global Sales and Operations Planning.The intent of the skill qualificati
