I’ve been thinking about Mexico lately, and, no, not as a spring break destination either. Instead, my thoughts have been driven by news a few weeks ago that the U.S. and Mexico are working to end the nearly 20-year dispute over cross-border trucking.

 

As reported by the Wall Street Journal, the deal seeks to end the long-standing ban on Mexican trucks crossing the U.S. border, a violation of the North American Free Trade Agreement that subjected $2.4 billion of U.S. goods annually to punitive tariffs by Mexico. Half of the tariffs will be suspended when the deal is signed by both nations, expected in about another 30 days. The remainder will be lifted when the first Mexican hauler complies with a series of U.S. certification requirements, including English-language, drug and safety tests.

 

The result of that dispute, says Aric Newhouse, senior vice president for Policy and Government Relations, NAM, in a statement released to the press, is that American manufacturers have lost market share to other nations, and billions of dollars of U.S. exports to Mexico. Tens of thousands of manufacturing jobs have been negatively impacted as well, Newhouse says.

 

Now, following on the heels of that news, DHL announced last week that it’s introducing its “Logistics Without Borders” solution, an end-to-end, integrated cross-border supply chain solution intended to eliminate the complexities and minimize risks inherent in U.S.-Mexico border crossings. According to DHL, the solution, which connects suppliers, carriers and end-users on both sides of the border, leverages DHL’s Global Forwarding and Supply Chain divisions’ capabilities to provide companies shipping across the U.S.-Mexico border with one-stop access to the tools, expertise and services necessary to simplify the process and ensure that shipments reach their destinations securely and on time.

 

What’s interesting, is what actually comprises Logistics Without Borders. The DHL solution includes a wide range of services in transportation, U.S. and Mexico customs and brokerage, bonded warehousing, transport management and cross-docking, and systems and document management. Furthermore, intra-country extended services, such as in-plant services, vendor managed inventory, and supply chain analysis and design may also be bundled into a seamless solution.

 

The solution also addresses the supply chain fragmentation that can occur at the border when handoffs are made to multiple providers without holistic oversight of the process, says Luis A. Coppel, regional vice president of the southern border and a licensed customs broker for DHL Global Forwarding. The Logistics Without Borders network of warehousing, information systems, transportation and customs brokerage services are backed by an integrated IT platform that offers a single chain of custody and delivers complete visibility of every item in the supply chain. The result is expected to be greater shipment reliability, which ensures product security, on-time delivery, smaller safety stock, lower inventory, and better support for just-in-time and lean manufacturing processes.

 

I’m interested in these developments on many levels. On the one hand, I’m curious how DHL’s service will be accepted. However, I’m also interested in how cross-border shipping will play out on a larger scale—whether it’s through use of an offering such as DHL’s or by companies’ own initiatives. More importantly, I’ll be following developments to see the impact on the supply chain in general.

It seems that I hear the expression, “They have their finger on the pulse of the market,”—or something to that effect—on a fairly regular basis. Meaning, that someone, or a company, makes use of market intelligence to, for example, identify new trends and opportunities, detect threats and trends to minimize investment risks, and identify untapped or under-served markets.

 

But I now wonder if that’s sufficient any longer, considering growing global competition and increasingly complex supply chains. In a recent article that ran on the SupplyChainBrain website, the author, Rahul Dhingra, senior consultant, Global Intelligence Alliance, gives an example of an automotive CEO being asked by reporters during a press conference for comments regarding news that the company’s competitor had just purchased a stake in a key supplier. Much to his chagrin, the CEO admitted that he wasn’t aware of the development.

 

As Dhingra points out, there are severe implications and, perhaps, ramifications to the news. For instance, the competitor may now control, or at least influence, the flow of goods and services to the company. The competitor can limit supplies or even cut them off entirely to prioritize its owns interests in the event of shortages. Furthermore, as a result of the purchase, the competitor now has access to vital information about the company, such as how much it was purchasing, purchasing frequency, cycle patterns and even pricing. Perhaps more troubling, the competitor may also now have access to the company’s designs, or at least access to as much of the design as is related to the supplier’s work.

 

While that type of scenario doesn’t need to be the case, it, unfortunately, often is. Most people understand the value of market intelligence as well as the impact it could have on improving strategic sourcing capabilities. On the other hand, it also is perceived as an added, and, unnecessary, cost. That’s particularly true for companies beset by budget cutbacks and low on available personnel. Even so, a growing number of companies view increasing their market intelligence as an unavoidable part of the cost of doing business today.

 

What I find intriguing, however, is the way market intelligence works had in hand with risk mitigation. So, in keeping with the automotive example, although that scenario could occur in any number of industries, risk mitigation dictates determining what steps the company would take if a competitor was to acquire a key supplier—or if something catastrophic were to happen to the supplier. That means, for instance, establishing secondary sources of supply.

 

Market intelligence then continuously monitors relationships among and actions by competitors, suppliers, commodities and industries to create a sort of early-warning system to alert managers of the possibility of an acquisition. Dhingra says that way, supposing the intelligence analysis identifies a key supplier as a potential M&A target, there are two actions a company should consider. First, if it does look like a key supplier will likely be acquired soon, the company should be prepared (following its risk mitigation strategy) for a shortage in supplies as well as the competitor becoming more formidable. The second option is to consider—if possible--acquiring that supplier before anyone else does to improve competitiveness and ensure a source of supply.

 

So, in other words, it’s about becoming proactive instead of simply reacting to industry events. It certainly seems, in many respects, that improving market intelligence has become part of the cost of doing business. Is that how you—or leaders at your company—see it?

Two recent articles have me thinking about research and development in the pharmaceutical industry. More specifically, the issue I’m thinking about is whether R&D efforts need to (or should be) revamped to increase competitiveness.

 

The first article, running in IndustryWeek, reported on biopharmaceutical research investments for 2009. It noted, according to analyses by the Pharmaceutical Research and Manufacturers of America (PhRMA) and Burrill & Co., that in 2010, America’s biopharmaceutical research companies invested $67.4 billion in the research and development of new medicines and vaccines. That’s an increase of $1.5 billion over 2009’s investments.

 

In discussing those investments, John J. Castellani, CEO at PhRMA, says that while America’s biopharmaceutical research companies encounter significant challenges throughout the research and development process, they do not falter in their commitment. However, he also notes that foreign governments work to lure America’s biopharmaceutical community away. Consequently, PhRMA urges lawmakers to implement a national medical innovation agenda that will establish reliable regulatory and reimbursement policies, promote intellectual property incentives and sustain the R&D infrastructure.

 

The other article, which, coincidentally, also appeared in IndustryWeek, predicts that over the next three to five years, the pharmaceutical industry’s current R&D model will transform dramatically. The author, Arjun Bedi, global managing director for Accenture’s Health & Life Sciences R&D practice, believes that to remain competitive, pharmaceutical organizations will need to evolve significantly—and, perhaps, even abandon traditional approaches in favor of new R&D models.

 

Indeed, faced with challenges such as patent expirations that effect the value proposition for future differentiated products and the need to balance requirements for larger trials with the need for personalized medicine, leading pharmaceutical R&D organizations will need to adopt a networked, virtual and flexible approach to reshaping R&D, Bedi writes. That approach will enable R&D organizations to adequately cope with ever-expanding volumes of relevant data crucial to the business.

 

The key to this type of initiative then becomes the ability to convert data into decision-making, product shaping, market/customer influencing insights—or changing data into insights (D2i), Bedi says. This capability will be increasingly valued because in pharmaceutical R&D, companies must be able to compete on the basis of analytic excellence. There is, after all, significant competitive advantage for companies able to use analytical capabilities to collaborate in new ways, such as generating new insights on disease progression to find novel therapies, or to connect disparate patient information to refine existing studies through adaptive trial design. In enabling this kind of insight, D2i approaches provide pharmaceutical R&D functional groups with the ability to manage and leverage growing levels of information from discovery, product development, clinical trial design, safety, product launch and sales and marketing.

 

Currently, few of the industry’s players are aggressively exploring D2i capabilities—in part, because the business case for making the investment, as well as the value to be gained, are not yet well understood, Bedi says. But, by using new data sources and sophisticated analytics tools, pharmaceutical companies will gain an ability to optimize their pipelines, while focusing on the improvement of patient outcomes.

 

What I’m curious about, is your insight. If you are in the pharmaceutical industry, do you agree with this assessment? Do you see this type of R&D evolution on the horizon?

JimFulcher

Up, up and away? Maybe.

Posted by JimFulcher Mar 23, 2011

Radio frequency identification (RFID) technology is used in most industries for a number of tasks. And yet, there still remain challenges in some industries, such as aviation, that prevent the technology from being used throughout the supply chain for particular applications.

 

For example, RFID technology is used in some industries to identify inbound and outbound shipments of goods using RFID smart labels that enable unattended identification, verification and sorting at different points in the supply chain. RFID also can be used to track work-in-process and ensure not only that each step of an assembly process is completed, but also that work is completed as directed to meet quality specifications. Another example is in life sciences and pharmaceutical industries, where RFID is used to create pedigrees to support drug traceability and security—and comply with FDA regulations—as a means to provide material and drug authentication.

 

However, for aircraft use, as explained in a recent RFID Journal article, the passive RFID tags must adhere to SAE International’s AS5678 standard, which includes requirements for a tag’s ability to withstand specific variations in temperature, air pressure, vibration, shock and other environmental factors. The tag must use a data format compliant with Chapter 9 of Spec 2000, a set of specifications administered by the Air Transport Association of America (ATA), and must also avoid being a potential source of radio frequency interference and not be susceptible to RF interference from other sources. Meeting those requirements has been problematic.

 

But it appears there’s good news on that front. According to the article, a growing number of RFID vendors are releasing passive EPC Gen 2 RFID tags with 4 or 8 kilobytes of memory. These tags can be used by airplane manufacturers and their parts suppliers to store historic data regarding parts.

 

Additionally, Boeing and Airbus are collaborating on developing commercial aviation industry standard requirements for RFID by joining forces on the ATA’s Automated Identification and Data Capture Task Force, which developed the SAE AS5678 and SPEC 2000 standards. The task force includes representatives from airlines, suppliers and airframe manufacturers, and it works to establish and maintain an industry-wide format for RFID tags attached to parts.

 

Airbus and Boeing plan to permanently affix the new high-memory, ultrahigh-frequency tags to certain parts of the aircraft they manufacture to store each component’s history. Those records will include the part’s date of production, manufacturer and serial number. When components are inspected or maintained, the airline’s staff can then encode the specific repair or inspection results onto the tag. All maintenance history can be read and written to the tag via a handheld reader, using software compliant with Spec 2000’s Chapter 9-5, which is the section relating to the use of RFID technology on parts.

 

What does all this mean to the aerospace industry? Well, consider for example, that Airbus is working to complete its A350 XWB wide-body aircraft. As the article notes, the company requires that most flyable parts for that aircraft be tagged with high-memory EPC Gen 2 RFID tags for maintenance-tracking. Each A350 is expected to have 3,000 tagged parts—2,000 of which will be fitted with high-memory tags. Furthermore, the planes are expected to be put into service in 2013, so parts suppliers are searching for RFID tags that will enable them to meet those demands.

 

So while the development of the high-memory and tough tags is good for the aviation industry, it also bodes well for other industries with requirements for high memory in maintenance-based applications.

JimFulcher

The show must go on

Posted by JimFulcher Mar 18, 2011

I admire the actions of the “Faceless 50” workers at Japan’s Fukushima nuclear power plant, and am fascinated by the concept of “Yamato-damashii”—Japanese spirit—which is demonstrated as group responsibility as those workers continue to fight the fires and keep the reactors from melting down. As I watch the event unfold, I am also reminded of the words of an old mentor. He was fond of the old theatre/show business saying, “The show must go on,” meaning of course that regardless of what happens, the show (or business) must continue as planned.

 

So while our hearts and thoughts are with the people of Japan as they continue to struggle with the aftermath of the earthquake and tsunami, the business of conducting business, continues. That, for many companies, will be considerably easier said than done.

 

An article this morning in Businessweek points out that Japanese companies are not the leader in the consumer electronics industry or in the semiconductor industry either. But here’s the rub: Japanese factories still produce about one-fifth of the world’s semiconductors and 40 percent of electronic components. Secondly, together, Japan’s Mitsubishi Gas Chemical and Hitachi Chemical produce almost all of the world’s BT Resin--a raw material used in chip packaging. Furthermore, Hitachi Chemical has a 70 percent market share for a type of chemical slurry used by semiconductor producers to polish chips.

 

Furthermore, big chipmakers generally keep between four weeks and six weeks of supply on-hand, so a temporary plant shutdown in Japan doesn’t resent much of an obstacle. However, Japanese companies haven’t been--or aren’t--able to estimate when plants might re-open or production may resume. Photos show considerable damage to buildings and infrastructure such as roads, so it may well be anybody’s guess as to when some of those companies can begin production again.

 

The Businessweek article describes the potential impact for Nokia, which is a major purchaser of Japanese components for its cellphones. The region in Japan hit by the earthquake, tsunami and nuclear accident is home to many manufacturers of those parts, and the disaster is likely to hit the handset industry the most, according to a March 14 report by Barclays Capital cited by Businessweek. For Nokia, finding other sources in the event of an extended disruption to the supply chain won’t be easy, Barclays analysts wrote, since the Finnish company’s “declining market share has reduced its once legendary ability to procure alternate supply.”

 

My old mentor also often said “One man’s loss is another’s gain,” meaning no matter how tragic somebody’s situation may be, it represents an opportunity for somebody else. I believe that’s what we’ll see here; that the recent events in Japan will spur short-term changes in many markets—most likely creating opportunity for other companies.

 

Consider, for instance, the automotive industry. Earlier this week, Toyota announced that nearly 70 percent of its vehicles sold in the U.S. are produced in North America. However, its Prius hybrids, which may become more sought after if gas prices continue to rise, are built in Japan and availability may be impacted by the production halt. For now anyway, Toyota said that inventory levels of the Prius at U.S. dealerships are generally still adequate.

 

But in an IndustryWeek article yesterday, Craig Giffi, vice chairman and U.S. automotive practice leader for Deloitte LLP, explained that we may see what he termed a, “blip,” in the availability of high-mileage vehicles produced by Japanese automakers. If Toyota’s ability to export vehicles to the U.S. is hampered, it could be just enough to trigger “a door opening for U.S. manufacturers,” Giffi says. So, if Prius production suffers a long delay, and if gasoline prices continue to rise, American consumers who favor Toyota and other Japanese brands for fuel-efficient vehicles might turn to domestic brands such as the Ford Focus and Chevy Cruze, Giffi says.

 

What, if any, impact has your company or supply chain seen so far? Do you expect your business to be effected by the events in Japan?

Whether you’re actively following the disaster in Japan or not, it’s difficult to miss the unfolding story and—at times, disturbing—photos and video of the aftermath of the earthquake and subsequent tsunami. Making the terrible situation worse, is growing concern about the future of Japan’s nuclear power plants.

 

As The New York Times reported today, 2,722 people are confirmed to have died in the earthquake and tsunami, and thousands remain missing. Making the tragedy even worse, is that as the Times reported, the threat of radiation exposure continues because the reactor blast today (the third in four days) at the Fukushima Daiichi Nuclear Station drove up radiation levels in the air over Tokyo.

 

While the aftershocks and smaller earthquakes continue, there now are power cutbacks to contend with as well. Since it has lost the power generated by the nuclear plants, Tokyo Electric has announced plans for rolling blackouts to conserve electricity.

 

The foremost concern, of course, is aid and relief efforts. The next concern is that the combination of events has had a catastrophic impact for Japanese companies, and that there are far-reaching implications for many industries and even countries. As reported yesterday by Reuters, companies in neighboring South Korea that depend on Japanese suppliers for LCD glass, chip equipment, silicon wafers and other products used to produce semiconductors have already felt an impact.

 

South Korea is also home to the world’s top three shipbuilders--Hyundai Heavy Industries, Daewoo Shipbuilding and Marine and Samsung Heavy Industries. These shipbuilders, and other companies that rely on Japanese steel also expected to face supply constraints or higher prices due to supply disruptions.

 

That’s notable because as Kim Hyun-tae, an analyst at Hyundai Securities in Seoul, explains in the article, Japan is one of the major steel producers, and exports roughly 40 percent of its output. The earthquake has reportedly effected around 20 percent of the Japanese steel production capacity.

 

The electronics supply chain may be the hardest hit because although Japan is a major global supplier of chips, flat-panel displays and other components used in devices like computers, tablets, digital cameras, Blu-ray players and televisions, it also is a major exporter of consumer electronics.

 

While the earthquake and tsunami disrupted Japan’s power and transportation infrastructure, they also significantly damaged factories. The subsequent factory closings are already creating problems in the tech industry. According to a second Times article today, Toshiba, which produces roughly a third of the world’s chips used in cameras, smartphones and tablet computers, has announced it closed some factories and that its production would be reduced.

 

 

Companies that use high-tech electronics employ a complex network of suppliers to keep inventories of parts low, and most likely, there are enough parts in the pipeline to allow production to continue for some time. There may still be a significant impact. Consider, for example, the rapidly growing tablet market. Apple experienced difficulty last year sourcing components for its iPad, and with growing demand for tablets as well as increasing competition, demand for components may well outpace supply.

 

Finally, the auto industry will also suffer setbacks to some degree. Japanese automakers hoped to restart production at most of their domestic plants this week, but they are still evaluating how much the disaster damaged their factories as well as nearby roads, railroads and ports. At the same time, nearly all automakers, even those with no plants in Japan, may ultimately be forced to halt production of some vehicles. That’s because Japanese suppliers produce many of the electronics and other components used in today’s vehicles. If they can’t produce and ship those components, it will cause a ripple effect throughout the industry.

 

Have your contingency plans covered a disaster of this magnitude?

How is the workload at your company? If your company is like many others, operations and supply chain management may be somewhat short-staffed—for a variety of reasons. Recent news, however, indicates that for many companies, staffing levels are about to grow.

 

Supply & Demand Chain Executive recently ran a news item about the results of a new APICS report concerning hiring. The report, released by APICS and the Cameron School of Business at the University of North Carolina-Wilmington, explains that 64 percent of survey respondents with hiring responsibility anticipate hiring new employees within the next 12 months. In contrast, in a 2009 survey, only 48 percent of the survey respondents anticipated hiring.

 

There have been incremental improvements in expected hiring in the operations and supply chain management professions throughout 2010, says APICS CEO Abe Eshkenazi, CSCP, CPA, CAE. This increase in expected hiring and decrease in expected layoffs in the fourth quarter of 2010, which have manifested themselves in the most recent U.S. Labor Department jobs report, are cause for optimism that 2011 may see increased job creation at the highest level since the global recession began, he says.

 

Furthermore, 49 percent of the survey respondents with hiring responsibility plan to hire within one or more of these operational areas: execution and control of operations, purchasing/customer relationship management, quality, resources planning and supply chain management.

 

Often, supply chain and operations management are a bellwether for the global economy as a whole, says Drew Rosen, professor of operations management at the University of North Carolina-Wilmington and a member of the research team. Increased expected hiring at this level across job functions has positive implications for a variety of sectors, including manufacturing. As a result, he says this quarter’s results are very promising for supply chain professionals seeking employment.

 

Data in the report show demand for employees with so-called “soft skills” in addition to technical skills. That means supply chain and operations management professionals who possess well-developed oral and written communication and customer service skills, in addition to operations knowledge, should do well in the hiring process, according to the fourth quarter report.

 

I see that as good news, for both corporations expecting business growth and supply chain professionals. But the results of the APICS survey also remind me of an interesting column written by Kevin O’Marah, GVP at research and consulting firm Gartner, last fall, in which he discussed both the demand for and supply of supply chain professionals.

 

At the time, O’Marah wrote that Gartner sees a trend for executives without supply chain backgrounds to take the lead of supply chain groups as businesses focus on growth. There’s a good reason for that too: Broad business process expertise as well as organizational savvy comes from integrating knowledge of disciplines such as finance and marketing into an overall supply chain strategy. Unfortunately, this type of career path seems all too rare these days, O’Marah wrote.

 

So it is refreshing to see that hiring within the supply chain is expected to increase—and that demand is rising for professionals able to combine good people skills with operations knowledge. That’s good news indeed. But I’m also interested in how demand grows, if it’s really growing much, for executives able to bring broad-based expertise to bear on the supply chain.

 

Anyway, what do you see? Will your company be hiring supply chain professionals again soon? If so, how do you think it will effect business?

I’ve seen a significant amount of discussion lately about social media and the supply chain. You may have seen articles and discussion as well, and like me, may be wondering about how exactly it will effect supply chain management and when that adoption may begin to occur in earnest.

 

Part of the reason I have the topic on my mind is because I recently ran across a Gartner press release explaining that social CRM for customer service offers the potential to improve customer service, and, consequently, could create opportunities for both new and existing providers in the customer service and contact center infrastructure markets.

 

Drew Kraus, research vice president at Gartner, said there is strong corporate awareness, including at corporate executive levels, of social networks and their potential impact on corporate brand management and customer service perception. Gartner researchers expect the high-profile nature of social networks and social CRM for customer service to rapidly advance adoption from that of early adopters to mainstream deployments despite the volatile and rapid evolution of social networks.

 

Currently, according to Gartner research, most social CRM deployments take place in corporate marketing departments, and are pretty much simply an exercise in brand management such as maintaining a presence on Facebook or Twitter. Even so, savvy executives are learning that the employees who manage interactions across these channels can also provide customer service functions—sometimes with noticeably faster responsiveness than is possible using formal contact center channels.

 

While only five percent of organizations took advantage of social/collaborative customer action to improve service processes in 2010, it has become a top issue for customer service managers due to growing demand and heightened business awareness. I was surprised to see, however, that Kraus believes in the next five years, community peer-to-peer support projects will supplement or even replace Tier 1 contact center support in more than 40 percent of the top 1,000 companies with a contact center.

 

The second article I ran across recently was in Bloomberg Businessweek, and concerned sentiment analysis, which enables companies to mine comments on the Web so they can gain better insight into consumer opinions. In the past, if a company wanted to determine what people think of a particular business, executive, product, stock or even advertising campaign, it had to rely on surveys and focus groups. As everyone knows, those methodologies are expensive, time-consuming and difficult to measure in real time. Using sentiment analysis enables users to measure customer sentiment quickly and more thoroughly, so the company can respond sooner.

 

The article references automotive manufacturer Kia, Best Buy, Viacom’s Paramount Pictures, Cisco Systems and Intuit, all of which are using sentiment analysis to gauge customers’, employees’ and even investors’ current opinion of the company. While I understand the benefit to determining how the ad campaign for a new movie or automobile is going, I have to wonder about the benefit for the business-to-business market.

 

So admittedly, I have more questions than answers about social media and the supply chain. If you are like me, you may find this interesting: Kinaxis is sponsoring a webinar tomorrow (Thursday, March 10, from 10:00 a.m. to 11:00 a.m. EST), titled, “Thought Leader Power Hour: The potential of the social supply chain.” Featured speakers will be Lora Cecere, Bob Ferrari and Trevor Miles.

 

I’m looking forward to hearing them discuss the relevance of social technology in supply chain management as well as just how it can be applied to B2B markets. Click here to sign up for the event.

Amid reports of soldiers using live ammunition and tear gas to scatter protestors in Tripoli, and GOP senators in Wisconsin finding their Democratic colleagues in contempt and ordering them to return to the senate or face arrest, it seems we live in tumultuous times. Politics aside, there is a great of uncertainty about the future, and that uncertainty carries over to supply chain operations.

 

While U.S. stocks have been effected by rising oil prices, I actually have three other developing stories in mind. First, in late February, a Supply Chain Management Review article noted that in indication of the economic recovery displaying more positive signals, the Department of Commerce reported that new orders for manufactured durable goods in January went up $5.3 billion—or 2.7 percent—to $200.5 billion. Durable goods inventories, which have been up for 13 straight months, were up $2.2 billion—or 0.7 percent—to $324.8 billion.

 

Secondly, as reported in the Los Angeles Times on Tuesday, the Institute for Supply Management said its index of manufacturing activity rose to 61.4 in February, up from 60.8 the previous month. That is the highest reading since it reached the same level in May 2004. The index bottomed out at 33.3 in December 2008, its lowest point in nearly 30 years.

 

While those signs are encouraging, they are perhaps somewhat tempered by other news. That is, as has been widely reported, commodity prices are on the rise. The result, according to a Supply Chain Digest article, is that in the consumer packaged goods industry, almost every company has taken time during their Q4 earnings calls to warn of the impact of rising costs on 2011 profits, and to declare their intent to raise prices.

 

Furthermore, apparel companies are under pressure as well, given that the costs of both cotton and fuel are rising quickly. And of course, rising oil prices will also eventually effect the cost for plastics and other materials that have a petroleum base.

 

As reported earlier this week in The New York Times, Federal Reserve Chairman Ben Bernanke spoke to Congress and tried to ease concerns about increases in the price of oil and other basic commodities. He explained that a sustained rise in oil prices could be a threat to the economy, but that the probable outcome of the higher prices was a temporary and modest increase in consumer inflation.

 

Nevertheless, it is difficult to not speculate about the impact of those rising commodity prices on the price of finished goods. And with gasoline at over $4 per gallon in Chicago and other metro areas, it would seem to be only a matter of time before consumers feel the pinch. So the question then becomes, just what are companies doing to cope with these factors, and others?

 

Research firm The Hackett Group has been conducting a quick poll of supply chain and procurement executives and others to assess just how companies are responding to input cost inflations and the best practices they are adopting to manage it. Maybe you have already participated. The inflation quick poll is open through today. To participate, click here.

 

The poll looks beyond current activities to ask questions such as: How much input cost inflation is being absorbed vs. passed on to customers?; What is being done to mitigate input cost inflation?; and, What are the longer-term plans for identifying ways to reduce the impact of future inflation on input costs?

 

Those are interesting questions, and I’m interested in learning about the results. Let me know if you took part in the poll, or if you are willing to share your company’s strategy.

JimFulcher

Prescription for change

Posted by JimFulcher Mar 2, 2011

A recent article caught my eye because it referenced a report detailing how pharmaceutical supply chains will need to evolve over the next few years. The Supply & Demand Chain article, SDCExec.com, notes that the Pricewaterhouse Cooper report—titled “Supplying the Future: Which Path Will You Take?”—says pharmaceutical supply chains are due for a radical overhaul, but so far, pharma companies have not invested much to update their manufacturing and distribution operations.

 

The PwC report, available for download (registration required) here, explains that many pharmaceutical companies have focused on working to discover, develop and market medicines more efficiently, yet their manufacturing and distribution operations often are inefficient, under-utilized and ill-equipped to cope with new medicines, cost pressures and health reform expectations.

 

The supply chain, which represents a significant amount of the cost base of most bio-pharmaceutical companies, is the link between the laboratory and the marketplace and includes everything from sourcing raw materials to manufacturing and packaging, as well as inventory warehousing, transportation and distribution. What’s important to note, according to PwC, is that as demand grows for more customized products and services—and as the nature of those products and services becomes more complex—next-generation supply chains will become an increasingly important source of differentiation for makers of medicines, and will play a prominent role in the strategic thinking of industry leaders.

 

I found the report interesting, and the section that is perhaps most thought provoking is one that outlines different avenues pharmaceutical companies might explore as a means to restructure their supply chains as they apply lessons learned by companies in other industries. For example, one approach for companies that concentrate on specialist therapies is to stop manufacturing themselves, and, instead, become a virtual manufacturer that outsources supply chain activities. That is, everything from production of the earliest clinical batches to full-scale manufacturing, packaging and distribution through a network of integrated supply partners. Alternatively, the company may position itself as a service innovator, and build supply chains capable of manufacturing and distributing complex treatments as well as managing multiple suppliers of integrated, valued-added health management services.

 

On the other hand, mass-market manufacturers, such as those producing generic drugs, may need to position themselves as high-volume, low-cost providers. In this case, they would implement lessons learned from companies in the consumer products industry regarding lean manufacturing, strategic pricing and inventory management. Alternatively, they may turn their supply chains into profit centers that combine economic manufacturing and distribution with satellite services such as direct-to-patient delivery, secondary packaging or distribution to hospitals and pharmacies.

 

In all likelihood, however, depending on their product and channel portfolio, most pharmaceutical companies will need to manage more than one strategy simultaneously. In the end though, the most successful pharma companies will be those that recognize the underlying value in their supply chain and leverage it as a value and brand differentiator rather than just a cost, says Steve Arlington, global advisory pharmaceutical and life sciences leader with PwC. The companies that will stand out as leaders by 2020, are those that recognize information is the currency of the future, he says.

 

If you work for a pharmaceutical company facing these challenges, do you agree with PwC’s assessment? What are your thoughts on overhauling the supply chain? 

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