6 minute read 1 Feb 2019
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How life sciences supply chains – from supplier to patients – are transforming

By

EY Global

Multidisciplinary professional services organization

6 minute read 1 Feb 2019

Evolving regulatory environments, customer demands, pricing conundrums and blurred boundaries are changing the life sciences industry. 

As noted in our report, Life Sciences 4.0: Securing value through data-driven platforms, life sciences companies must adopt agile, data-centric business models to create value now and in the future. They must build ― or participate in ― interoperable information systems that collect, combine and share streams of data. In this new era, where value creation is no longer just about the products, life sciences supply chains must transform to enable organizations to create and deliver shared value focused on personalized outcomes and fueled by unlocking the power of data.

To quickly attain this state, life sciences supply chains must first address the lack of planning, visibility and integration that result in high costs and skyrocketing inventory as well as shortages in other areas. End-to-end (E2E) supply chain transformation must now be undertaken to enable life sciences organizations to deliver on the new business models. However, this is not an easy or fast journey. It includes everything from suppliers to outsourcing providers to end customers ― the actual patients. It is a multiyear journey that requires considerable leadership support, cross-functional collaboration and a strong change management program to be successful.

The transformation journey

E2E supply chain transformation is a journey that integrates, synchronizes and builds trust among the supply chain and its partner functions, such as product groups, finance, commercial and marketing to deliver on the corporate supply chain strategy and to achieve business objectives. Deep-rooted functional silos in the industry have resulted in a fragmented model, where different functions own different processes of the supply chain. Often, a lack of coordination among the different functions and processes result in supply chain issues such as excess inventory, stockouts for in-demand inventory and obsolescence. Life sciences companies’ increased reliance on a global network of suppliers, logistics providers and contract development and manufacturing organizations (CDMOs) adds complexity. Therefore, it becomes crucial to first understand the current state of the end-to-end supply chain ― from the supplier to the patient.

A comprehensive, data-driven diagnostic exercise, such as one from EY SmartMaps, must then be undertaken to understand the root causes of supply chain issues. The diagnostic should be performed not only in functions related to the supply chain but also for functions peripheral to the supply chain, such as commercial, marketing, sales, finance and R&D. Such a comprehensive diagnostic can uncover underlying causes of supply chain issues. Using this methodology, many of the leading life sciences players can identify that a function-oriented approach and/or independent planning processes are potential causes of their supply chain problems.

Based on the assessment of the diagnostic, companies can then build an effective transformation road map, which should start with having a robust supply chain strategy and vision in place. Amid the need to fulfill their customers’ orders, quite often life sciences companies struggle to identify the right supply chain strategy for their business: one that is aligned with their overall corporate strategy and the business model. Many transformation efforts fail because companies try to improve multiple aspects simultaneously ― speed, reliability, flexibility, cost and return on assets ― or often choose the wrong attributes. Optimal value will come when companies segment and design their supply chains to match the demands of the different business models. The Life Sciences 4.0 report describes four broad business models for the industry: breakthrough innovator, disease manager, efficient producer and lifestyle manager (refer to the report for details). To successfully address changing customer needs, life sciences companies must design their supply chains to make the appropriate trade-offs among the five attributes, in alignment with the organization’s chosen business model.

In this new era, where value creation is no longer just about the products, life sciences supply chains must transform to enable organizations to create and deliver shared value focused on personalized outcomes and fueled by unlocking the power of data. 

One of the common challenges life sciences companies face in executing the supply chain strategy is the lack of proper planning. The industry’s longer lead times, capacity constraints, tender management issues, demand variability and higher reliance on outsourcing providers have added to the complexity of the planning process. Life sciences companies, therefore, need an extension of traditional sales and operations planning to maximize the benefits of a transformation program. A well-defined integrated planning approach, led by senior leadership and a digital network or a platform must be at the core of the transformation program. Connecting all supply chain partners, including suppliers, CMOs and logistics providers through the platform enables data-sharing and helps in achieving much-needed real-time visibility and coordination.

An integrated planning approach covers product, demand and supply. By linking sales and operations efforts to the financial and strategic objectives of the organization and by balancing critical resources, including people, capacity and working capital, a strategic planning approach could unlock significant value. Furthermore, a bottom-up, data-driven planning approach increases visibility, allows clear accountability and enables better resource allocation to produce the right product at the right time. Framing a business process management model that includes detailed demand planning and supply planning sub-processes and activities, including weekly/daily planning and synchronization, serves as the foundation for executing the overall planning transformation.

Managing change and making it sustainable

Moving from individual siloed functioning to a collaborative planning environment requires appropriate change management. And, as with any business transformation program, understanding employees’ concerns and addressing them in a timely manner, coaching employees, and keeping them at the center of the entire transformation bodes well for driving behavioral change. A change management road map, therefore, is a core element of the transformation program and should include the following seven steps:

  • A case for change and leadership alignment: Align and engage leadership teams to articulate a strong and compelling case for change.
  • Stakeholder management: Identify and engage key stakeholders to build awareness and commitment.
  • A change impact analysis: Assess the impact of the transformation on people, processes and technology.
  • Communications: Provide consistent, timely and accurate information to build understanding and promote commitment to the E2E global transformation.
  • Champion networks: Identify the right people to build awareness, drive change and promote two-way communication.
  • Education and training: Equip people with the knowledge and skills to perform their jobs following new concepts, processes and systems.
  • Business readiness and adoption: Assess stakeholders’ readiness for change before go-live and their adoption after go-live.

A robust organizational structure and a governance framework that incorporates an effective measurement system are also important for the sustainability of the transformation program and performance assessment. Many times, companies fail to effectively assess performance because they focus on the wrong metrics, they have too many or too few metrics, or their metrics are conflicting. To ensure sustainability, metrics should be aligned with the corporate supply chain strategy and standardized and measured consistently across the organization and geographies.

Which path will you take?

Building visibility and trust in the supply chain is extremely critical as life sciences companies navigate the changing environment and venture into data-driven, platform-based business models. With an end-to-end transformation program, they could unlock the true value of their supply chain as a source of differentiation and stay ahead of the curve. Organizations that commence the supply chain transformation journey sooner will gain a competitive edge, while those who focus on driving incremental improvements risk losing competitive advantage in the future. Which path will you take?

E2E supply chain transformation is a journey that integrates, synchronizes and builds trust among the supply chain and its partner functions, such as product groups, finance, commercial and marketing to deliver on the corporate supply chain strategy and achieve business objectives.

Summary

The entire life sciences supply chain is evolving, due to shifts in regulatory environments, customer demands, industry boundaries and pricing conundrums.

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By

EY Global

Multidisciplinary professional services organization