This month my focus is on Supply Chain in Life Sciences. As we head towards the end of the year budgets are being planned and IT projects are being prioritized for next year. Many companies are reviewing their current IT investments in light of mergers and acquisitions and projects that will add to the company’s business ability. My discussions have been around how best to improve your operations at a minimal cost. No one seems to want to buy new IT systems and they want to extract ‘value’ from their current IT systems.
Time to ‘Tune-up’ your Supply Chain
Ask yourself if you are getting the most from your current Supply Chain? Do you feel you’re gotten significant return from your SAP or Oracle investment? It seems everyone had one of these IT solutions. I believe the reason most companies should be looking at their Supply Chain is as follows:
- Most firms have invested in IT solutions to help react quickly and expect demand. We now are moving to ‘collaborative’ business processes as a means for extracting added value from your partners.
- Companies need to give supply chain ‘visibility’ so that the organization can make faster and better decisions.
- Business process improvements need re-training for your people.
I get this now how do I get there?
The answer is to create a ‘road-map’ for your supply chain that includes opportunities (projects) specific to your business systems. The key is how to develop this road-map. You need to have the following:
- Supply Chain experts that can analyze your data and processes.
- IT ability to look at how your SAP or Oracle solutions have been installed.
- Our company has developed a unique set of tools that can analyze your Demand, Supply and Inventory.
We’ve created a project approach to this kind of analysis. Over the next few months I plan to promote this approach for Life Sciences and yet this approach is not just for this industry. I know this can be applied for any industry that is looking to get more value out of their IT investment in supply chain. As we gain traction in the market I hope to offer some proof points to this approach.
I would be interested in your comments and suggestions on this topic.
I recently attended an Oracle product training session for ‘serialization.’ The Life Sciences industries, and especially pharmaceutical and medical device companies, are gearing up for the need to offer product traceability. This blog post will be the basis for a possible industry presentation later this year.
There are several solutions that address pedigree and serialization. A recent article by Carla Reed provides a great background to this topic. (Reed, Carla. “Beyond the mandates: Finding business value in mass serialization and supply chain visibility.” Pharmaceutical Manufacturing June 2011: 34-36.) I can recall as early as 2006 when radio frequency identification (RFID) tags were introduced as the solution for the industry. We know that for various reasons this never panned out due to price for the tags and adoption within the industry. Today a good example of this technology is the use of RFID with the devices that help automate toll collection on the various US highways.
Alternative technologies to RFID tags include 2D barcodes. Printers can create these unique tags at a fraction of the cost of RFID tags. The Oracle solution allows you the ability to attach these tags and their associated numbering at any level within your product hierarchy. This data can then be organized into a ‘pedigree’ document for your product. This would be analogous to ‘shipping’ papers that you would normally prepare once you prepare to send your product off to a distribution center or local warehouse.
Implications for supply chain
Now doubt that technology alternatives exist to help solve the problem of product traceability and authentication. Companies today are being forced by local and global regulations for the need to provide traceability solutions. The questions for many companies is just how to go about solving this problem. Let’s first decide what you want to ‘track’ within your product and your business process. I often describe the application of technology with the use of a ‘babushka’ doll (or Russian nesting doll). Where do you want to apply a tracking solution within your product? How do you want your supply chain to track your product?
Why IT services?
An interesting comment came out of the training session when one of the attendees asked “when would I use an IT services company?” Some manufacturers have looked to their packaging and labeling suppliers to provide the ability to ‘serialize’ and track their products. This would be a great idea were it not for the fact that these suppliers lack the resources and ability to discuss the need for traceability within a ‘business process.’ This became very clear when the discussion turned to when do you apply serialized information? You see no two products are manufactured in the same way.
Some manufacturers use production order with routing to make their products and some use process orders and recipes for their products. That was a tough conversation and when I raised the fact that production and process orders can often be mixed – well let’s say that the value of IT services providers that can navigate a client’s business process answered this question.
Some next steps
In my opinion IT service providers need to offer:
- The ability to understand a client’s business process and offer cost-effective solutions to the application of serialization and product traceability.
- Provide the ability to organize a series of steps within a project to deliver a solution. You need good project management – deliverables that includes documentation (yes it is a validated environment) – with skilled resources. Ask your IT service providers if they have any ‘accelerators’ for this type of work?
- Have the technical ability to apply Oracle and SAP solutions. This is a mixed technology environment and there is no one solution to solve this problem.
I will let you know if this turns into an industry presentation later this year.
Admittedly this is not a new concept. When enterprise resource planning (ERP) was first introduced the focus was on integrating finance/accounting, manufacturing, sales and service. ERP provided the means for ‘integrating; the business processes within an organization. So why raise the topic of “ERP for R&D?” Pharmaceuticals and Medical Devices develop new products in an environment that is driven more by science than a ‘business process.’ Scientists will suggest that forcing a business process into R&D limits their creativity. Today we are well aware of the problems facing R&D: lack of new products, reduced productivity, significant capital cost with diminishing results in terms of new products.
In my last blog post “Improving the Business of RandD” the focus was on the impact that cloud computing could have on R&D. Platform as a service (PaaS) and Infrastructure as a Service (IaaS) are alternatives that can help IT supplement their existing business process. Today contract / clinical research organizations (CRO) are being used to supplement R&D in the area of clinical development. Basic research and clinical manufacturing (in some organizations) are also being ‘outsourced.’ Given this quilt of organizations and separate business processes I’ve concluded the need for “ERP for R&D.”
Ultimately change will occur. I read an interesting article “Pharmaceutical Innovation Hits the Wall: How Open Innovation Can Help” by Henry Chesbrough. He writes about the need for changes to the industry’s innovation process. You may already know about the industry’s focus on ‘blockbuster’ drugs where the business is using science to find that next billion dollar product. Which comes at the price of research in seeking medications for smaller patient populations, so I contend that the business processes with R&D need to be ‘integrated’ with visibility to the data across the organization. I do agree with the point that Henry makes in his blog post that ‘there needs to a change in the innovation process.’
I have begun this journey to offer ERP for R&D as several of my customers have asked our company to give end-to-end services. I would like to see the industry focus more on new treatment and medication innovation and leave the IT to systems integrators (SI). Unlike software development companies SIs is pretty much agnostic to the software solution and more about how to drive out cost and improve IT performance.
Most of us are excited about the changes occurring in healthcare around mobile applications, electronic health records and the advent of social media just to name a few examples. Yet there is a mounting concern with the rise of drug shortages now reported at “178 a 3x rise since 2005!” A look at the FDA web site for drug shortages shows a list of both generics and branded products with the reasons for the shortages (including manufacturing delays, increase in demand, etc.). We’ll look at the background of the industry, the traditional view of supply chain, current factors facing the industry, and what companies can do to ‘improve’ their operations. Recognizing the need to convert your improve your existing operations will be good business and the consequences will directly impact you and I.
Key facts about the industry
According to IMS Health pharmaceuticals sales in 2011 is expected to reach 880 to 890Billion USD, which is a growth of 5 to 7%, and is 1% higher than the 2010 expectations. The current view of the supply chain includes:
- In the US market the top 10 pharmaceutical companies give some 60% of the total US sales.
- As products come off patent Generics control the prices of these products.
- The wholesalers may also negotiate prices between the manufacturers and the Pharmacies.
The traditional view of the supply chain
The driver for any supply chain is to offer:
- Product at a ‘reduced’ cost
- Faster to market
- Delivered at a high quality
Apply this to the previous diagram and you can see the challenges that face healthcare. As the view of the patient and pricing for these products are disconnected. This diagram gives you the full view of the Healthcare supply chain:
Current factors influencing the industry and the Healthcare supply chain
The following factors have influenced the market:
- Mergers and Acquisitions – have reduced the number of manufacturers as companies have consolidated to make up for the loss in patent expiry and look to increase market share (Merck and Shering Plough, Pfizer and Wyeth, and Teva and Barr Labs are just a few examples)
- Regulatory issues – it is harder for manufacturing sites to recover from an FDA violation. This delay can lead to drug delivery delays.
- Government control over pricing – as the cost of healthcare rises many governments are dictating the price of drugs (Spain, Canada, Turkey and Greece). This puts the supplier at a disadvantage to be able to deliver products at these ‘reduced’ prices given the cost for raw materials.
- Globalization – in response to some of these factors many companies have already moved their operations to off-shore locations. India for API manufacturing.
- Risk Management – having the ability to ‘view’ any of these problems can lead to drug shortages. Supply chain operations must therefore give this visibility so the right changes can be made.
Taking these factors into account and with a view of the ‘future’ of the healthcare supply chain from Gartner:
How can I ‘improve’ my operations?
I now work with a variety of companies that look for solutions to ‘improve’ their processes. We began his discussion trying to understand why there are so many drug shortages, and I would suggest the following as a means of enhancing your supply chain operations:
- Refocus business growth and performance across the entire healthcare supply chain. This includes both the patient as providers of healthcare with a C level sponsor that understands that the aspects of healthcare lie outside of your companies boundaries.
- Collaboration. Look to improve demand from both your suppliers as well as your customers. Provide visibility and metrics that you can mutually share.
- Leverage IT as an enabler to meet the first two points. Make investments that promote organizational visibility. Specifically analytics solutions that provides management with a view the business as a result of this investment.
- Governance. This process does not happen overnight. Change management is an ongoing process and you will need leadership and support to sustain these processes as they evolve over time.
- Invest in skills and talent within your organization. I’m in the IT services business and you would think this takes away from my opportunities. There is a tendency to think that these processes can be solved through off-shore support capability. While this is true I am taking about the need to enhance your folk’s ability to understand the entire healthcare supply chain.
I am convinced healthcare can improve yet the threat of drug shortages can impact any course of treatment if the right products are not available. What I hope to do with this blog post is a summary of the problem and possible solution. I welcome your suggestions or comments to improving this blog post.
Learning effective ways to bring in innovation within your IT budget
I wanted to learn more about ‘cloud computing’ where the idea came from, etc. I was also curious how this could apply to Life Sciences IT where ‘regulatory compliance’ is always the issue, and from a budget perspective (capital versus operating). Cloud computing seems to be a way to bring in new innovation at minimal impact to IT budgets. So in this blog I will summarize these areas for you.
Cloud computing can be an area of concern and confusion in most organizations. Like most of us we leverage Google Mail and other web applications from a personal perspective. Even when creating this blog I rely on several applications that only exist in the ‘cloud.’ Yet there are a few examples where I’ve been told that these applications ‘violate’ IT security policies. I tend to believe that excuses like this are just because we are unaware of the benefit of this technology. Where the technology resides should not make a difference. We will get to the Life Sciences part in a moment. Let’s start with ‘what is cloud computing.’ In a recent blog from In(tegrate) the cloud, 29Jan2010: The Impact of the Gartner Magic Quadrant referenced a YouTube video by Simon Wardley Cloud Computing Why IT Matters. You will find this to be an entertaining presentation on ‘what is Cloud Computing’ and how technological changes are inevitable. I came away with the fact that cloud computing is not limited to a single vendor or application. I personally like the way Simon presents this topic both: visual and auditory – nice job. So with this you have a better sense for ‘cloud computing.’
The next ‘disruptive’ force in IT so is this something we need to consider?
Yes – for some of us we can remember the move to client-server. Companies like SAP that came to the US and revolutionized how businesses were run. Now we the next big change will be in the use of ‘cloud computing.’ In the 18Jan2010 Information Week article by Bob Evans: Top 10 CIO Issues for 2010. I would agree with his number one issue that he titles: ‘The Cloud imperative,’ followed by ‘The 80/20 spending trap.’ This describes that not enough dollars are spent on making IT support the business in driving revenue and customer ‘intimacy.’ I had recently met with an IT executive in India, and he told me he is set with his IT solutions – what he is looking for are ways to leverage ideas that drive revenue for his company. So the signs are out there to embrace change – cloud computing can be a solution.
Who in Life Sciences IT is doing this and what to consider when getting into this area?
This brings us to Life Sciences IT where traditional business solutions must be compliant to the FDA regulations. Taking the lead in the use of cloud computing is Eli Lilly. The article entitled “Lilly’s Head Is in the Clouds” by Paul Thomas, Pharmaceutical Manufacturing summarizes how Lilly has approached the use of cloud computing for advanced analytics for their R&D and business operations. The article points out the various vendors in this space and their use of a ‘private’ cloud for internal use. I agree with the Lilly representative, David Powers, that manufacturing applications would not be run as a cloud application. I was impressed with Lilly’s use of technology and how it provides innovation and value for their business.
What are some steps that you can take to begin to do this for your company?
- Seek out applications that address revenue or customer projects that would help your business.
- Speak to your IT service providers to see if they have ‘test’ sites or ‘labs’ to help you envision what your cloud application would operate.
- Determine if this application will need to be ‘integrated’ with your back-end business system.
- Examine if there are ‘regulatory’ compliance issues. If you can define your business process – you can take the steps to ensure your business process can be ‘validated.’ You can do this internally with you own resources – or ask for help from 3rd party vendors.
When you talk about costs the traditional ERP vendors charge you license and maintenance fees which fall under ‘capital’ costs. Cloud computing applications are ‘rented’ so the cost savings is in the fact that this typically falls under ‘operating’ costs. There are additional savings in that there is no server, or software to load. Depending on the application many vendors will provide a guarantee ‘up time’ for their applications.
I hope your find this posting useful…..Thanks, Jim