Supply-chain visibility

Improved supply-chain visibility supports both integrated and collaborative planning. While organizations should not get hung up on establishing absolute real-time data, there is a need to have accurate and up-to-date information.

The challenges. Traditionally, a mix of enterprise resource planning (ERP) or material resource planning (MRP) and Excel spreadsheets are used to communicate demand and transactions, but these have deficiencies. ERP systems often don't interface well between organizations. They can be inflexible for supporting scenario and contingency base planning. These systems are compensated for by Excel files, which can themselves be manually adapted with out-of-date, incomplete, or inaccurate information. The challenge is to give key parties visibility on what is happening and what is likely to happen next in the simplest manner possible.

Specifically, demand sensing can be used to more accurately predict shortterm demand that is less well predicted through integrated planning, but still drives the majority of stock. This approach can improve an organization's chances of shaping demand to match planned supply, reduce stock uncertainty as short-term demand patterns are reduced and, through the use of tailored algorithms, allow for forecasts to remain accurate.

In addition, cloud technologies are increasingly being used to facilitate information sharing between organizations that are not plugged into the same global or regional IT system. These technologies tend to be based on Internet interfaces that multiple parties can access and use to communicate through, with access granted at various levels as required.

Improving supply-chain visibility on its own doesn't resolve visibility issues, but it does facilitate integrated and collaborative planning, and allows organizations and parts of organizations to be working from one data set.

Example. A leading healthcare manufacturer developed an end-to-end order visibility tool. It enabled the full order-to-delivery picture to be viewed both across the organization and by supply-chain partners. The tool highlighted exceptions orders using red flags so that priorities could be addressed, thus improving customer service whilst reducing inventory.

At the 2011 European Supply Chain and Logistics summit, several organizations, including P&G, explained the benefits of using techniques such as demand sensing. This approach was acknowledged to improve the accuracy of short-term forecasts, which, in turn, can help companies make a 20% improvement in stock levels. Innovative contracts

Enhanced contracts can align real benefits for both organizations. To consider when forming contracts are: flexibility, capacity, and delivery and stocking policy, with the goal of improving jointly agreed-upon measures.

The challenges. Given normal business focus and procurement targets, it is common to accept the best product cost based on standard service and management terms. Costplus model contracts are regularly signed without any clear understanding of what the supplier is providing for the increased management fee.

What can make a difference? For strategic relationships, it is beneficial to develop contracts that include targets and rewards for measures other than straight product costs. These should include realistic but challenging targets for the supplier, as well as what is strategically important for the pharmaceutical contractor in terms of overall landed cost, cash flow, and service.

Conclusion

Pharmaceutical manufacturers have a great opportunity to get more value from their contract manufacturing relationships. From the authors' experience, by focusing on key initiatives, companies can anticipate more than 20% improvement in inventory alone, as well as benefits in terms of improving supply-chain responsiveness and agility, and exploiting jointly identified initiatives to the benefit of all parties.

James Wright and Malcolm Horsley are supply chain and pharmaceutical experts, respectively, at PA Consulting Group.