How capacity expansion, flow optimization, and scenario modelling can make your pharmaceutical supply chain future-fit
5-minute read, By Dina Smirnov
The pharmaceutical industry plays a crucial role in healthcare, providing essential medications and treatments to patients globally. However, the pressure on pharmaceutical companies continues to mount as supply chains become more global and decentralized, the global population grows and ages, and chronic diseases become more prevalent. Supply chain future-proofing is therefore imperative for pharmaceutical companies.
Normally, part of supply chain future-proofing includes redesigning the asset footprint. In the pharmaceutical industry, however, the tremendous costs and stringent regulatory aspects involved in altering the asset footprint itself make such a move rather impractical. This does not mean that a pharmaceutical supply chain need not undergo future-proof design: rather, it means that they require a customized approach by carefully selecting approaches and strategies appropriate for this booming and incredibly complex industry.
In this blog post, we will explore three key strategies to future-proofing a pharmaceutical supply chain: scenario modelling, allocation optimization, and capacity expansion. For each strategy, we provide an illustrative example, based on recent projects we have done for our Life Science customers.
Scenario Modelling
Scenario modelling is a powerful tool for future-proofing any supply chain, and the pharmaceutical industry is no different. It enables companies to proactively identify vulnerabilities in their supply chain, assess the effectiveness of different mitigation strategies, and make informed decisions to increase resilience and agility. Using advanced modelling techniques, companies can evaluate multiple factors and provide a trade-off. By working together with our customers, we created insights to analyze changes in market demand, alternative asset footprints, supply chain disruptions, regulatory changes, and geopolitical risks. Mitigation strategies may involve diversifying suppliers, establishing redundant production lines, securing alternative transportation routes, and maintaining safety stock levels for critical products with highly volatile demand. We wrote about risk and mitigation in more detail in our earlier blog post “How supply chain stress testing helps in mitigating disruptions”.
While suitable for any industry, scenario modelling is rather a necessity for pharma due to its unbelievably involved dynamics, a multitude of exceptions, and stringent regulations, which limit the usability of solutions obtained by optimization in the mathematical sense. The key role pharmaceutical companies play in healthcare, and the rapid response required from them to public health emergencies like pandemics or other force majeure, pose additional pressure and require incorporating flexibility into their supply chain operations.
In a project we conducted for a global leader in pain management, the main challenge was a high amount of uncertainty surrounding the introduction of a new product. At the time of the project, many key business decisions had not been made yet. We tackled this challenge by analyzing different scenarios related to demand, preferred suppliers, production schedules, and more. The rather short shelf life of the end product posed additional risk. Tweaking five planning parameters resulted in as many as 60 different scenarios. EyeOn experts have built a digital twin mimicking the customer’s end-to-end supply chain, calibrated it to a reference case reflecting the most probable situation, and used it to evaluate the different scenarios based on predefined KPIs. The analysis provided clarity on the possibilities of positioning production and a clear understanding of the impact of lead times, production frequency, and demand forecasts.
Allocation Optimization
We at EyeOn carry out scenario modelling in any supply chain future-proofing assignment. Yet, some of the studies have additional focus points. While altering the asset footprint is usually not a viable solution in pharma, we often see in projects that the allocation of product flows and storage locations can be adjusted to introduce cost savings and align the supply chain capabilities to fit the business strategy.
In allocation optimization, we treat the supply chain and its asset footprint as given. By applying optimization techniques and developing algorithms and sets of rules, we determine the best possible allocation of products and materials to customer or storage locations, against a metric of choice such as cost or demand fulfillment.
In a different assessment we carried out for a Life Sciences customer, we focused on two packaging sites in Europe. Anticipated double-digit (organic and inorganic) growth, combined with limited storage space in own assets, had resulted in a steadily increasing need to resort to 3PL storage services. The company stocks a variety of materials: from raw materials and APIs, bulk substances, packaging materials, and operating supplies, to finished and trading goods. Which material types are better to be stored in-house and which ones are better to be outsourced to a 3PL storage, in the face of evolving demand, was unclear. Other unclarities concerned strategic decisions such as expanding own warehouses, outsourcing export and domestic market operations, freight flows, and building export capabilities in a country where no goods are currently exported from.
Together with the customer, we have defined meaningful scenarios and developed allocation rules of material type to storage location (either own or 3PL) based on inventory projections per country per scenario. We have also optimized the freight flows under the limitation of each scenario. The most cost-effective elements from the scenarios were combined into a solid business recommendation.
Capacity Expansion
Next to scenario modelling and allocation optimization, a cornerstone strategy for future-proofing a pharmaceutical supply chain is capacity ramp-ups. Whether the implication is adding production lines to a facility, expanding own storage assets or contracting more certified and conditioned storage space with a 3PL partner, it is always a strategic decision with far-reaching consequences in terms of both CAPEX and OPEX, and long lead times before the new capacity becomes available for use. Typical questions revolve around the amount of the investment as well as its initial timing. The complexity, demand volatility, and long lead times make these questions challenging to answer.
One of the most burning topics for biopharmaceutical companies nowadays is the worldwide shortage of specialized freezers to store the ingredients and substances in -70oC conditions until they become drug products. Excess capacity should be avoided due to high investment and energy consumption considerations.
An EyeOn’s customer has faced the key decision of freezer acquisition and placement. We determined that given future growth plans of 10% per year, it would be most cost-effective to increase the storage capacity at the bulk drug substance (BDS) facility by two freezers and add one freezer to the inbound inventory storage at the drug product (DP) facility, which would operate at an average utilization rate of around 70% for the next three years. As supplier lead times were relatively short (2 weeks), placing freezers at suppliers was also considered as an option, although it was not selected. The study provided clarity on the capacity expansion possibilities and preferred setup.
In an increasingly complex and unpredictable business environment, future-proofing a pharmaceutical supply chain is essential to ensure the availability and affordability of essential medications and treatments. By adopting a data-driven approach and applying the strategies detailed out in this blog post, pharmaceutical companies can better equip their supply chains to adapt to change, mitigate risks and continuously deliver value.
Your pharmaceutical supply chain needs future-proofing? We are here to help!
We at EyeOn have helped our Life Science customers identify fragilities, define future scenarios and evaluate their impact, create business cases and move from ‘gut-feeling’ to data-driven, informed strategic decision making. Our team has extensive expertise and experience in supply chain modelling and data science, but no less importantly – we understand your business and our hands-on change management philosophy enables us to take the stakeholders along the journey from the start.
Our team is here to help you make steps in future-proofing your pharmaceutical supply chain. Learn more about our relevant experience in our blog about supply chain risk management, our blog about supply chain network design, and in our blog on supply chain stress testing. Reach out to Dina Smirnov for more information or get in touch with us.