DCAT Week '16: Transformational Sourcing

With a mandate from Amgen’s senior team to develop the best supply chain system in the world, Rodney MacLea (Amgen) began by explaining that his teams approach was very much based around learning from industries with larger, more complex but mature supply chains. For example, Amgen’s most complex products involve a few hundred components whereas the aerospace industry routinely builds aircraft with nearly 40,000 individual items. Amgen requires total supply chain knowledge, from end-to-end; tracking partnerships, source visibility, risk and risk mitigation; performance (of materials) and leverages advanced monitoring technologies to achieve this view. Much of this knowledge has been gained through supplier mapping, where a suppliers sources are mapped, and potentially the supplier’s supplier in cases where products or components are particularly critical.

This mapping exercise is especially important as it quickly reveals overlapping suppliers and sourcing from regions of the world exposed to particular risks such as natural disasters. The operation of these supply chains is monitored by Amgen in real time and on a global basis using sophisticated event monitoring and dashboard technology. The 2011 tsunami that hit Japan was a particular prompt for the use of this kind of technology. At that time, assessing the impact of the event on Amgen products took weeks. Mr MacLea contrasted this with the response to the hurricane that affected Mexico recently, where impacts and corrective actions were understood, communicated among supply chain teams and alternatives brought into operation in a matter of minutes. Much of the focus in improving these supply chain monitoring activities is currently in capturing and using real-time in-process data from suppliers. However, this requires a strong level of trust between the parties.

The pharmaceutical industry has seen much consolidation over the years. To this point Isaac Young (BioMarin Pharmaceutical) examined the various factors to be taken into account to maintain the performance of sourcing systems and supply chains in the face of increased industry consolidation

• TCO (Total Cost of Ownership) including sales, freight, transportation, prototyping. All of these must account for the associated risks

• Category Management such as moves from or to 3, 5 or 8 step processes, loss of sources, etc

• Supplier Teams: global procurement models vs. “direct to user” access

• Supplier Categorization: spend, direct vs. indirect, risk, criticality, strategic vs. tactical, tier systems, back-ups and alternatives, etc

• Strategic/Cultural Alignment: planning horizons, values, ethics, regulatory positioning and attitudes

• Supplier Management: strategic vs. tactical, long vs. short term arrangements, category management organization, engagement at executive levels, level of “touch” for example exchange of in-process control data, and process and technical development

• Risk: geographic location, corruption, natural disaster, operational risk, etc

• Talent: impact on category managers, supplier owners, etc

The use of scorecards to both analyze and manage these factors has been a great help in highlighting many issues that would otherwise by missed or could be hidden by M&A activity.

JoeAgresta (Johnson and Johnson, or J&J) began by remarking that, according to industry analysts Gartner, 93% of companies are unprepared for supply chain disruptions. J&J’s system is based around a capability maturity model for the management of suppler risk, which progresses as follows: React, Anticipate, Integrate and Collaborate. Each supplier relationship is managed differently according to this model. Much of the presentation provided examples of J&J’s global supply chain and risk event monitoring tools. These real-time tools are available to more than 1,000 J&J staff and take information from more than 4,000 suppliers worldwide.

Panel Discussion: Managing Emerging Supplier Risk

During the panel discussion, the speakers were joined by Thomas Niemeyer (Pfizer Inc) and Kelly Hinds (Genentech, Inc)

Mr Niemeyer discussed the different factors that are used to assess suppliers depending on whether they are involved in the manufacture of clinical supplies for products in development or are involved in commercial API supply. Among the considerations in use by his team along the four key dimensions of Quality, Operations, Technology and Value are:

• Quality assessment: usually based on the materials provided and the material being “right first time”

• EHS assessment: meeting Pfizer and international standards

• On-time delivery performance

• Quantity accuracy: many suppliers had a history of over or under delivery of materials

• Technical capability

• Overall value contribution to Pfizer’s supply chain operations

• Risk factors: quality, regulatory, legal, EHS, economic, political, social

• Commercial factors: delivery, lead-time, backup or alternative suppliers and the manufacturing capacity of supplier

The higher the criticality of the materials supplied to Pfizer, the more control and detail is applied in the risk mitigation plan. Much of this approach is based on the recommendations of PSCI, the Pharmaceutical Supply Chain Initiative, of which Pfizer is a member.

Ms Hinds discussed many of the factors that contribute to sustainability at Roche including economic, environmental, and social. The Roche supplier code of conduct includes a sustainability clause and also builds on the PSCI recommendations.

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