building competitive advantages in the global life sciences …€¦ · building competitive...

Building Competitive Advantages in the Global Life Sciences Supply Chain - Prevention is Better Than Cure!

WHITE PAPER

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Global competition, mergers & acquisitions, regulatory compliance, pressure on healthcare prices, patient-centric products and patent cliffs are forcing companies in the life sciences industry to reinvent their businesses. Technologies are revolutionizing the way medicines, medical devices and equipment are developed, tested, personalized, produced, administered to the patient, and then monitored.

In this highly-regulated industry with potentially decade-long product lifecycles, steep investments and competition limited by patents, the speed and cost performance of supply chains has been somewhat masked. But now, market forces are combining with an influx of product and business model innovations to create a new dawn for global supply chain leaders.

CXOs are depending on these executives to support three critical business objectives:

� COST: Reducing product and supply chain costs to counter market and political pricing pressures across healthcare supply markets, without sacrificing flawless execution of global supply chains that are mission-critical for patient care.

� ADAPTABILITY: Accommodating a wider variation of batch sizes and proliferation of product variants resulting from the addition of precision, closed loop, and personalized medicines and devices.

� SPEED: Driving a time-to-market focus within the supply chain to maximize revenues and margins ahead of competitors, patent cliffs, generics, biosimilars, and new market entrants.

Achieving these goals is difficult even in static business conditions, but you are facing conditions that are anything but static. With global expansion, manufacturing network optimization, disrupting competitors, and increasing regulatory complexity — new challenges are appearing from all sides.

This paper describes how life sciences global supply chain executives can strengthen their operational capabilities to support strategic cost, adaptability, and speed goals.

EXECUTIVE SUMMARY

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Building Competitive Advantages in the Global Life Sciences Supply Chain – Prevention is Better Than Cure!

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Prevention Is Better Than Cure! . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Building Cost Advantage – While Maintaining Flawless Supply Chain Execution . . . . . 6

Building Adaptability Advantage – For Personalized Devices and Medicine . . . . . . . . . 8

Building Speed Advantage – Ahead of Patent Expirations, Clinical Trials, and Competitors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

A Better Strategy for Building Cost Reduction, Adaptability and Speed Advantages in the Life Sciences Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Moving Ahead – Three Key Stages in a Pragmatic Framework . . . . . . . . . . . . . . . . . . . 13

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

About the Author. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

TABLE OF CONTENTS

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Few industries have more complex value chains with as many transactional intermediaries as life sciences: suppliers, manufacturing partners, logistics providers, distributors, prescribing doctors, health care facilities, insurers, and more. Each has a role to play and price to pay before products get to patients.

New market entrants and politicians are applying pressure on manufacturers’ costs by promising to deliver lower healthcare prices and improved quality to patients. At the same time, personalized medicines and devices are challenging supply chains with an explosion of product variants in ever-decreasing batch sizes.

Meanwhile, patent expirations for major margin-generating products continue to creep nearer and competitors threaten lifetime financial projections with new innovative treatments and products. Speed in supply chain execution has become more important than ever to meet shareholders’ — and Wall Street’s — financial expectations.

In this real-world scenario, the relationship between CEOs’ strategies and goals, supply chain challenges, and business risks are summarized in Figure 1.

Figure 1 – Life Sciences CEO goals, supply chain challenges, business risks

CEO GOALS AND SUPPLY CHAIN CHALLENGES

These CEO business goals...

Are met with these global supply chain challenges...

Causing these risks to business performance...

Reducing costs while maintaining flawless execution and growth

• Optimizing production and logistics networks

• Maintaining accuracy of cost estimation models

• Ensuring global trade compliance

• Sub-optimal margins

• Operational costs rise linearly with volumes

• Risk of regulatory non-compliance

Adapting the business to more personalized medicines and devices

• Smaller batch sizes

• Proliferation of product variants

• Scaling new materials, factories and techniques

• Increasing inventories

• Higher cost of supply chain execution

• Data errors, delays and expedited shipments

Faster execution ahead of patent expirations, new entrants and trials

• Achieving speed within long time-to-market culture

• Sub-optimal visibility across supply chain

• Data integration and ecosystems collaboration

• Longer time-to-market

• Revenue loss

• Lower market share

PREVENTION IS BETTER THAN CURE!

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Studying patient well-being has taught us that prevention is better than cure. The same is true for the well-being of global supply chains. A mindset of reactively curing challenges once they occur is much less effective than daily exercises to develop robust, sustainable advantages in cost, adaptability and speed.

Companies adopting this approach find that small daily doses of prevention contribute far more to achieving corporate business goals than pounds of cure therapies. In addition, this approach builds a valuable level of immunity to other threats and clears the way for additional related supply chain health benefits, such as:

� Lower global logistics costs

� Improved control and visibility across supply chain and production

� Reduced risks, errors, and delays to improve time-to-market

� Reduced risk of regulatory non-compliance

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Removing operational inefficiencies, improving end-to-end processes, and driving down product costs have always been imperatives for supply chain executives. As market forces evolve and new market challenges adjust the value chain balance, these imperatives continue and become more essential than ever.

Patent expirations and competition from biosimilars continue to threaten revenue growth for pharmaceutical companies. In 2019, expiration of patents could put an estimated US 19 billion in prescription sales at risk, with approximately half resulting in lost sales.1

In addition, healthcare is attracting cost and price pressure from across the value chain. In the US, retailers and pharmacies such as Walmart, Amazon, and CVS are teaming with insurers and providers to lower retail prices with the goal of winning more consumer market share. Politicians want to lower costs and improve the quality of healthcare for constituents.

Cost pressures in healthcare affect drug and device manufacturers alike. For Stryker, the medical technology products and services company, supply chain optimization is one of eight key initiatives in its strategic Cost Transformation for Growth initiative.2

Cost reductions must be achieved without compromising flawless operational execution of mission critical supply chains upon which lives depend. Building a cost advantage requires a laser-focus on achieving supply chain precision in cost, visibility, and compliance:

BUILDING COST ADVANTAGE – While Maintaining Flawless Supply Chain Execution

Two-way (import and export)

supply chains with countries such as

China are mission-critical operations

enabling the physical health

of patients AND financial health of the corporations

serving these growth markets.

1. PRECISION IN ALL COMPONENTS OF COSTI. Initial review and continuous monitoring of strategic sourcing and

manufacturing decisions to ensure sustainability of lower costs from product release and throughout product life. This requires accurate and current costs for all product components – ingredients for drugs and bill of materials for devices and equipment.

II. Costs of manufacturing, packaging, freight, duties, location-based inventories, and logistics services are required for all geographical and commercial supply permutations to ensure strategic sourcing decisions are optimal.

III. Indirect costs and financial benefits must also be reckoned, such as access to markets, risks, and preferential trade agreements.

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PRECISION IN VISIBILITYI. Centralized visibility of production status, shipment transactions, and

logistics milestones to support daily operations and prevent the cost of eleventh-hour surprises, helping to reduce working capital and lower operational costs.

II. Freight rates for all origin/destination pairs and the carrier contracts from which the rates originate need to be visible and managed to reduce logistics costs.

III. For sensitive shipments, real-time monitoring using Internet of Things (IoT) devices to record location coordinates, container integrity, temperature, humidity, and shock. For other shipments, IoT used on a sample basis can help to optimize logistics network performance.

PRECISION IN REGULATORY COMPLIANCEMergers, acquisitions, and outsourcing to contract manufacturing organizations (CMOs) increases supply network complexity and the burden of regulatory compliance. Considerations include:

I. Ensuring compliance avoids heavy government penalties and long-term damage to the brand. Non-compliance can cause lengthy delays and inventory growth.

II. Compliance is complicated by changing trade policies, such as with US/China trade negotiations, regional and multi-lateral trade agreements, and geo-political turbulence.

III. Import / export regulations are complex and differ by country. The cost burden of maintaining compliance can be reduced with global trade enablement tools.

IV. Preferential trade agreements may offer cost reduction opportunities and should be considered in strategic sourcing decisions.

2.

3.

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Pharmaceutical companies are developing innovative ways to formulate drugs and apply technology to precisely deliver personalized medicines to patients, record and monitor the effects in real-time, then adjust and optimize the treatment profiles for best outcomes. Extreme examples include genetically modified treatments that are produced using a patient’s own cells during the manufacturing process.

Similarly, medical device and equipment companies are personalizing products to better fit or adapt to an individual patient. Prosthetics and heart valves, for example, can be made to measure in advance from 3D images, or even 3D printed at the point of care. Even today, the number of medical device product variants managed in supply chains is measured in tens of thousands. Boston Scientific, for example, has 13,000 products in its core business areas.3

Increases in personalized treatments and high volumes of products challenge supply chains accustomed to shipping higher volume, less frequent batches of drugs, devices, and equipment. The increased complexity of adding more frequent low-volume shipments to the mix is compounded by expanding global networks of suppliers and CMOs.

Building adaptability into the supply chain requires collaboration throughout the product lifecycle. Before approval, supply chain teams focus on design for manufacture and the planning, cost, and timing of products and manufacturing models. Risk assessments and costing of optimal and contingent geographic supply options need regular review and comparison.

Following approvals when manufacturing ramps up, visibility of production and shipment status is essential to ensuring perfect execution of global supply chain operations, with all patients receiving care when needed. The global manufacturing and logistics network must be designed to flex and respond to shifts in demand, market forces, economics, trade policies or whatever is thrown its way.

In this dynamic world of rapid innovation and smaller, more frequent production batches, supply chains must have easy access to accurate global trade enablement data to optimize supply networks and effectively manage supply chain execution. Adapting rapidly to planned and unplanned changes provides a key competitive advantage.

ADAPTABILITY ADVANTAGE – For Personalized Devices and Medicines

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Building Competitive Advantages in the Global Life Sciences Supply Chain – Prevention is Better Than Cure!SPEED ADVANTAGE – Ahead of Patent Expirations, Clinical Trials and Competitors

Innovation and digitalization are transforming healthcare and the life sciences industry at light speed compared to the time it has taken to get medical products of all types through regulatory approval for target global markets. As an example, more than 50 percent of Abbott’s sales today are from products and businesses that are new to the company in just the last six years.4

From closed-loop systems for administration of personalized medicines, to additive manufacturing at healthcare providers’ locations, and from apps connected with IoT devices to smart operating rooms, and more – everybody wants, expects, and relies on speed. The culture and expectations of patients, doctors, and other partners in healthcare provision are changing in pace with the experiences we enjoy in the rest of our digital lives.

Supply chains are also extending to reach patients. Contiguous data-enabled value chains will deliver care to the patient, rather than products to a location. Today’s regulatory compliance, quality control, inventory management, demand planning, and supplier collaboration will remain essential, but speed will become the imperative.

During clinical trials, speed is of concern when ensuring delivery of small, early production batches to the trial administrator as planned. Deliveries must be on time from trial initiation through completion. There is no margin for error, and mitigation strategies for the unexpected must be planned to immediately resolve any supply hiccups. Delays at this stage can jeopardize the integrity of the entire trial phase, seriously impacting time-to-market.

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Pharmaceutical, biotech, and medical device manufacturers seeking to build cost, adaptability, and speed advantages in their global supply chains are each starting from different points when it comes to their supply chain technology stacks.

Existing technology stacks and supply chain practices are not designed to focus on the cost reduction and strategic sourcing decision support that market forces compel. Nor are they ready for the high-volume/small batch

A BETTER STRATEGY FOR BUILDING COST REDUCTION, ADAPTABILITY AND SPEED ADVANTAGES

IN THE LIFE SCIENCES INDUSTRY

Building supply chain speed advantage to deliver today’s products prepares manufacturers for the new, digital, homogenous, patient-centric value chain. Speed is becoming essential to survival and strengthening the supply chain by building a speed advantage requires a multi-faceted approach. Here are three speed capability improvement areas to consider:

1. Organizational and operational culture must change to emphasize the need for speed, driving out delays from every supply chain process and sub-process while maintaining quality and compliance levels. Senior executive support and change management are essential to getting — and keeping — the global supply chain team focused on speed.

2. Develop a single, enterprise-wide visibility of production, quality, compliance, and shipping status across the global supply and manufacturing network. Without near real-time visibility, there can be no meaningful alerts to issues or remediation of problems. This type of visibility is essential for digitizing and automating tasks and processes to speed supply chain execution.

3. Share, integrate, and centralize global trade enablement data for the increasing volume of product variants across the ever-extending value chain and ecosystem. Eliminate redundant data entry, storage and reporting. Enable and promote greater global trade collaboration for faster supply chain execution.

There are major disconnects between global supply chain execution and the detailed complexities of global trade enablement.

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Quality & ComplianceManagement

Facility Audits,Product Testing,

QAQC, Inspections

Tactical & StrategicDecision Support

for Global SourcingCollaboration, Landed

Cost, Workflow

Import & ExportManagement

Classification, CustomsCompliance

ProductionManagementMaterials, Orders,Tracking, Shipments

TransportationManagementRate Management,Bookings, Invoices

DutyManagementFTA/FTZ, GCC,China Trade, Claims

Supply Chain VisibilityIntegrated Service Provider Network

Data Quality ManagementOrder and Shipment Tracking

Global Trade EnablementDocumentation Determination

Duties, Taxes and FeesElectronic Filing

Export RegulationsGlobal Trade Content APIs

Import RegulationsRestricted Party Lists

Trade Agreement Rules

Figure 2 - Integrated capabilities for Global Supply Chain Execution

cross-border shipments or extended supply chain reach that patient-centric strategies demand. As we look forward, there are major disconnects between global supply chain execution and the detailed complexities of global trade enablement.

A better strategy involves tight integration of people, processes, data, tools, timing, and capabilities for both global supply chain execution and comprehensive global trade enablement. This empowers all team members across the global supply chain ecosystem with the import/export knowledge, collaboration tools, and supply chain visibility they need to quickly make tactical and strategic decisions. These capabilities are shown in Figure 2 below.

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Gaining the cost, adaptability, and speed advantages enabled by an integrated supply chain execution and global trade enablement platform takes cross-functional leadership and CEO commitment to three key stages for success:

I. Know your supply chain. Most supply chain executives believe

they have this one covered, but time takes its toll and practices

change. Acquisitions close, new product lifecycles evolve, roles and

responsibilities change, partners come on board, and trade policies

change. Re-mapping supply chain execution and global trade

enablement processes exposes capability gaps and risks that prevent

cost, adaptability, and speed advantages.

II. Develop capabilities and technology. A time-phased roadmap shows

how, and in what sequence, the capability gaps found in stage 1 get

closed. Business functional expertise combines with global trade and

supply chain expertise to organize roadmap priorities. Internal and

external technology partners can help to find technology solutions.

III. Execute, monitor, adjust, and continually improve. Building new

integrated supply chain execution and global trade enablement

capabilities to deliver cost, adaptability, and speed advantages is

not a one-off project. A governance structure is needed to monitor

key operational performance indicators and maintain focus on new

competitive advantages. This will provide CEOs and CFOs with the

measures they need to run the business and give confidence to investors

that the company is pro-actively building for future growth.

MOVING AHEAD – Three Key Stages in a Pragmatic Framework

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The business strategies and goals of CEOs in life sciences present a unique set of challenges for supply chain executives.

Reducing product and operational costs in global supply networks that are growing in complexity, while managing greater numbers of smaller batches of personalized treatments is hard enough. Add flawless execution of a mission-critical supply chain and the need for greater speed while remaining compliant with complex government regulations, and we have a cauldron of challenges.

But there is good news! The challenges that have CEOs’ attention are also opportunities for executives to build a stronger competitive advantage in the global supply chain. The capability gaps that need to be closed in order to address cost, adaptability, and speed will have some commonality.

A new approach of tight integration between supply chain execution and deep global trade enablement capabilities will make supply chains stronger, quicker, and more efficient. This, in turn, can help to reduce product costs, improve readiness to adapt to new products, and deliver with speed — all in parallel from the same program of work.

It will take firm commitment from the CEO and executive leadership teams to support formal governance structures that will empower these improvements and maintain focus for the future. In return, CEOs will get the measures they need to run the business, build confidence with investors, and proactively discover future opportunities where global supply chains can help differentiate and drive growth.

The current challenges and opportunities, however, are also dire threats for those choosing procrastination over action. An ounce of prevention is worth a pound of cure!

CONCLUSION

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Colin Taylor Founder & Principal, Cleaca Consulting LLC

Colin Taylor formed Cleaca Consulting to help clients improve the value and business performance of their global supply chains and achieve new levels of business agility, digitalization and performance. He has in-depth knowledge of global trade, global sourcing, import logistics, ocean transportation and product lifecycle management.

Prior to Cleaca Consulting, Colin built and led the global sourcing and import logistics consulting practice at IBM. Before that, he was senior vice president for sales and marketing at Maersk Data where he also led product management for an industry-first ocean transportation management system.

Initially relocating from the UK to the US with Schlumberger to help lead and grow a startup IT services joint venture, Colin has a broad international perspective gained from business initiatives spanning the Americas, Europe, Asia and Australia.

With authentic industry knowledge of retail, consumer products, apparel, life sciences, high-technology, energy, transportation and logistics, Colin is a global supply chain business consultant, strategist, thought-leader, influencer and marketer. He is also a Chartered Engineer, Member of the Institute of Engineering & Technology and has represented IBM on the board of directors of VICS and the Industry Support Group of GS1 US, the supply chain standards body.

Connect with Colin: [email protected] +1 973-885-2518

ABOUT THE AUTHOR

1. Deloitte “2019 Global life sciences outlook” (incorporating World Preview 2018, Outlook to 2022, EvaluatePharma, 2018) – ©2019 https://www2.deloitte.com/us/en/pages/life-sciences-and-health-care/articles/us-and-global-life-sciences-industry-trends-outlook.html

2. “Stryker 2018 Analyst Meeting” presentation – November 8, 2018. https://s22.q4cdn.com/857738142/files/doc_presentations/Analyst-Day-2018-Presentation-Final_v3-WEB-VERSION.pdf

3. Supply Chain World Magazine “Boston Scientific” – June 5, 2018 http://www.scw-mag.com/sections/healthcare/1044-boston-scientific-2

4. Abbott 2018 Annual Report - http://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_ABT_2018.pdf

ABOUT AMBER ROAD Amber Road’s (NYSE: AMBR) mission is to dramatically transform the way companies conduct global trade. As a leading provider of cloud-based global trade management (GTM) software, trade content and training, we help companies all over the world create value through their global supply chain by improving margins, achieving greater agility and lowering risk. We do this by creating a digital model of the global supply chain that enables collaboration between buyers, sellers and logistics companies. We replace manual and outdated processes with comprehensive automation for global trade activities, including sourcing, supplier management, production tracking, transportation management, supply chain visibility, import and export compliance, and duty management. We provide rich data analytics to uncover areas for optimization and deliver a platform that is responsive and flexible to adapt to the ever-changing nature of global trade.

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