Pharmaceutical Supply Chain Management

Pharmaceutical Marketing and Entrepreneurship

• Lecture 3 relates to Supply Chain Management and Distribution Strategies for PHTX 680.

Intended Learning Outcomes

• Define supply chain management.
• Identify supply chain decisions.
• Describe supply chain strategies.
• Describe supply chain costs.
• Explain strategic fit.
• Describe supply chain drivers.

Manufacturing vs. Service

• Manufacturing involves tangible goods, whereas service involves intangible goods.
• Customer contact is low in manufacturing but high in service.
• Labor content of jobs is low in manufacturing but high in service.
• Input and output uniformity is high in manufacturing but low in service.
• Productivity measurement is easy in manufacturing but difficult in service.
• Production and delivery occur at different times in manufacturing but simultaneously in service.
• Problem correction opportunity is high in manufacturing but low in service.
• Quality assurance is easy in manufacturing but difficult in service.
• Inventory amount is large in manufacturing but small in service.
• Work evaluation is easy in manufacturing but difficult in service.
• Wages have a narrow range in manufacturing, but a wide range in service.
• The ability to patent design is usually present in manufacturing but not usually in service.

The Role of the Operations Manager

• The Operations Function consists of all activities directly related to producing goods or providing services.
• A primary function is to guide the system by decision-making.
• This involves system design decisions and system operation decisions.

System Design Decisions

• System Design includes capacity, facility location/layout, product and service planning, and acquisition/placement of equipment.
• These are strategic decisions that require long-term resource commitment and determine system operation parameters.

System Operation Decisions

• System Operation decisions are generally tactical and operational.
• This involves the management of personnel, inventory, scheduling, project management, and quality assurance.
• Operations managers spend more time on system operation decisions than any other decision area, but still have a vital stake in system design.

Environmental Concerns

• Sustainability is achieved by using resources in a way that does not harm ecological systems that support human existence.
• Sustainability measurements often go beyond traditional environmental and economic measures to include social criteria in decision making.
• Sustainability affects all areas of business, including product/service design, consumer relations, disaster response, supply chain waste, and outsourcing decisions.

Supply Chain Management

• Supply Chain Management includes supply concepts, procurement, production/assembling, retailer/distribution and consumer.
• Supply Chain Management incorporates logistics audit, lean logistics, spare-parts logistics, layout planning, material flow optimization, network planning, material staging design, warehouse logistics, resource and performance planning, transport optimization and distribution logistics.

Important Definitions

• Logistics is the component of the Supply Chain process involving the planning, implementation, and control of the efficient, effective flow and storage of goods, services, and related information from origin to consumption to meet customer needs according to CLM.
• Goods encompass raw materials to final products.
• Supply Chain Management refers to the integration of business entities working together to acquire raw material, convert it into final products, and deliver these products to retailers from 1998.
• Supply Chain Management is the integration of activities through improved supply chain relationships to achieve a sustainable competitive advantage from 1999.
• Supply Chain Management is a systemic, strategic coordination of traditional business functions and tactics across businesses within the supply chain to enhance long-term performance from 2001.

Supply Chain Surplus

• Supply Chain (SC) Surplus equals Customer Value minus SC Cost.
• SC Cost is the total expenses incurred by supply chain members.
• Customer Value refers to the product's value delivered to the customer, not the selling price.
• The difference between the Customer Value and Selling Price relates to the Customer Surplus instead.
• SC Surplus is not the same as SC profitability.

Supply Chain Examples

• The U.S. has 52 retail outlets.
• These retail outlets are served by 5 warehouses in SEA, LA, CHI, ATL, NY.
• The parts, materials, products are provided by 2 plants and move in both directions.
• This is supported by 9 suppliers and 3 sub-assembly plants.

Decision Phases of a Supply Chain

• Supply chain decisions occur in three phases: supply chain strategy or design, supply chain planning, and supply chain operation.

Inventory Models

• In the Traditional P.O.-Based Inventory Model, products are ordered based on forecasted demand.
• If not carefully managed, issues may result like inventory surpluses leading to higher carrying costs and inventory deficits which results in potential out-of-stocks and lost sales.
• In the ENERCON Demand-Driven Inventory (DDI) Model, products are built only upon consumption.
• Inventory is maintained within predetermined minimum and maximum safety stock levels, which adjust with the forecast.
• Maximum Safety Stock limits excess inventory burdens while minimum Safety Stock provides ample lead time.

Process View of a Supply Chain

• A supply chain is a sequence of processes and flows that take place within and between different stages and combine to fulfill a customer need for a product.
• There are two ways to view the processes, cycle view and push/pull view.
• The Cycle view involves processes are divided into a series of cycles with each performed at the interfaces between two successive supply chain stages.
• These cycles are Customer Order Cycle which involves the customer and retailer.
• The Replenishment Cycle includes the retailer and distributor.
• The Manufacturing Cycle involves the distributor and manufacturer.
• The Procurement Cycle involves the manufacturer and supplier.
• The Push/Pull View involves processes being divided into two categories depending on whether they are executed in response to a customer order (pull) or in anticipation of a customer order (push).

Push/Pull View

• The push/pull view is useful in considering strategic decisions related to supply chain design and its processes.
• The push/pull view can be combined with cycle views.
• The relative proportion of push and pull processes impacts supply chain performance.

Strategic Fit

• Strategic Fit means the competitive and supply chain strategies both have the same goal.
• Strategic Fit refers to consistency between customer priorities that the competitive strategy is designed to satisfy and the supply chain capabilities that the supply chain strategy aims to build.

How is Strategic Fit Achieved

• Strategic Fit is achieved in three steps: Understanding the customer, understanding the Supply Chain and achieving the Strategic Fit.
• Understanding the customer involves understanding the quantity of the product needed in each lot, response time, variety of products needed, the service level, price sensitivity and innovation rate.
• Understanding the Supply chain involves supply chain responsiveness which includes understanding its ability to respond to wide ranges of quantities demanded, meeting short lead time, handling a large variety of products, and meet a very high service level.

Supply Chain Strategies.

• Efficient SC means supply demand at the lowest cost.
• Responsive SC means responding to customer needs.
• Efficient SC indicates a low margin pricing strategy.
• Responsive SC indicates a high margin pricing strategy.
• Efficient SC requires high utilization and low customization manufacturing strategies.
• Responsive SC indicated flexible capacity and low utilization manufacturing strategy.
• Efficient SC involved low inventory which minimizes cost.
• Responsive SC requires buffer inventory to meet unexpected demand.
• Efficient SC does not apply lead time strategy at the expense of cost.
• Responsive SC requires an aggressively reduce it lead time strategies.
• Efficient SC requires a supplier strategy based on cost and quality.
• Responsive SC requires a supplier strategy based on speed, flexibility and quality.
• Efficient SC utilizes low cost modes.
• Responsive SC utilizes faster modes.

Drivers of Supply Chain Performance

• Main factors that drive performance include facilities, inventory, transportation, information, sourcing, and pricing.
• Facilities are sites for inventory storage, assembly, or fabrication, include production and storage sites.
• Inventory includes raw materials, WIP, and finished goods within a supply chain, inventory policies, and helps to satisfy demand.
• Transportation refers to moving inventory from a point to point in a supply chain via various modes and routes.
• Information refers to related data and its analysis regarding inventory, transportation, facilities throughout the supply chain, and is the biggest performance driver.
• Sourcing refers to functions a firm performs and those that are outsourced.
• Pricing refers to the goods and services price provided by a firm within the supply chain.

Role of Inventory

• The role of inventory involves to mismatch between supply and demand.
• It aims to satisfy demand.
• Inventory exploits economies of scale.
• Inventory impacts assets, costs, responsiveness, and material flow time.
• Material flow time: The time from when material enters the supply chain to its exit.
• Throughput is the rate at which sales occur
• Little's law indicates the relationship between inventory, throughput, and flow time: I = DT.

Components of Inventory Decisions

• Cycle inventory refers to the average inventory amount used to satisfy demand between shipment based on lot size.
• Safety inventory is inventory held in case demand exceeds expectations and accounts.
• Seasonal inventory is inventory built up to counter predictable demand variability.
• Inventory-related metrics include cash-to-cash cycle time, average inventory, inventory turns, products with a specified number of inventory days, average replenishment batch size, safety, and seasonal inventory, fill rate, and obsolete inventory.
• The overall trade-off is responsiveness versus efficiency.
• Increasing inventory makes the supply chain more responsive.
• A higher inventory level facilitates production cost reductions through improved scaling, but increases inventory holding costs.