Tomorrow I’m off to Houston to attend the Executive Supply Chain Summit being sponsored by the Supply Chain Council.  The theme of this year’s summit reflects a rather timely topic: Boom and Bust- The New Realities of Supply Chain Excellence. The two-day agenda includes many interesting topics as well as time for panel discussions addressing key topics.

Interesting topics in this year’s summit include supply chain management in the new global economy, managing through the recovery, a discussion on supply chain risk management and sustainability in supply chain.  Speakers will include executives from Cisco Systems, Coca-Cola, DuPont, Emerson Electric, Kraft Foods and Sunoco Products, among others. I’m also looking forward to hearing Dr. Steven Melnyk of Michigan State speak on outcome-driven supply chains.

Supply Chain Matters will be providing live blog coverage on Thursday and Friday so stay tuned for commentary related to what’s on the mind of supply chain executives.

The following posting can also be viewed and commented upon on the Kinaxis Supply Chain Expert Community web site.

Last week I had the opportunity to keynote a webcast regarding ongoing global manufacturing and supply chain challenges within the pharmaceutical and life sciences industry.

One of the key observations I made was that this industry is undergoing tremendous change, a change that places a fundamentally new perspective on global supply chain capabilities.  Industry players are quickly evaluating whether they will adopt either of two business models: research and drug development or high volume producers of drugs and medicines.  Rather frequent announcements of acquisition activity all seem to reflect on a market response to these strategic needs as companies acquire other companies to initiate these changed business models. Future top line sales growth also comes from the emerging economies where supply chain and distribution models are different.

Today brought yet another headline, Pfizer, Inc. announced that it would acquire pain drug producer King Pharmaceuticals Inc for $3.6 billion. Other recent announcements tend to reflect on other industry player acquisitions of high volume generic drugs or vaccine producers.

This activity brings a new awareness to global supply chain competitiveness, efficiency and adaptability. Reviewing key supply chain metrics for the industry, one can find strong evidence that increased acquisitions bring increased supply chain challenges when the acquirer attempts to consolidate what perhaps may have been inefficient inventory and working capital practices.  For instance, in the category of Days Inventory Outstanding (DIO), the 2010 Working Capital Scorecard published in CFO Magazine noted that the pharmaceutical industry average DIO in 2009 was 39 days, vs. and overall 1000 company average of multiple industries of 39.3 days.  However, a snapshot of some key industry players who were involved in large acquisitions paints a far different perspective.  Merck had a DIO of 109 days and Pfizer, 91 days.  In the category of Days Working Capital (DWC), the CFO analysis noted an average 73 days vs. the multi-industry average of just 39.3 days. A look at any other supply chain benchmarking data more than likely will point to other areas requiring attention.

In prior business models, pharma and life sciences companies measured and placed business emphasis on their ability to deliver innovative new drugs from clinical trials through market launch.  As this new era of the industry unfolds, the lens must also shift to global supply chain capabilities in end-to-end efficiencies, responsiveness, risk management and agility to rapidly changing business needs. This an industry that needs to bring more outside thinking and proven supply chain best practices to demand visibility, extended supply chain collaboration and visibility.

Bob Ferrari.

Supply Chain Matters has penned quite a few commentaries regarding Wal-Mart’s ongoing relentless quests to trim supply chain costs.  Past commentaries have noted that this global retailer’s increased thrusts to save even more supply chain costs are preludes to disintermediation, as Wal-Mart moves its buying influence further down its supply chain.  Earlier in the year came the announcement of global based direct purchasing procurement involving clothing, hard goods, fruits and vegetables.  In June, there was the announcement that the company would become its own freight forwarder, assuming transportation services of shipments from certain suppliers.

This mega-retailer has yet another program underway, its collaborative sourcing program, a program we predict will have even more far-reaching implications for this retailer’s key suppliers, along with its retail competitors.

A Bloomberg Businessweek story notes that Wal-Mart has been approaching its key suppliers, such as PepsiCo, to secure joint purchasing agreements for select commodities at a lower price than either company can get on its own.  In the specific PepsiCo case, the purchase opportunity is potatoes.  PepsiCo consumes large quantities of potatoes with its FritoLay snacks division.  Wal-Mart hopes to leverage this combined buying buyer to lower inbound supply costs for both its key supplier, as well as itself, in the purchase and distribution of goods at global stores.  According to Businessweek, only certain of this retailer’s private brand suppliers have signed-on.  Sugar and paper are noted examples.

Manufacturers of branded products have taken a pass thus far, and for very good reasons.  Like other global supply chain partners have learned, sharing of data and business practices implies trust among the participants, and that is an area that Wal-Mart’s reputation as a win-lose negotiator precedes itself.  Suppliers sharing annual purchase volumes of commodities open themselves to revealing product formula composition.  Suppliers who embark on joint purchasing agreements with a key customer the size of a Wal-Mart also risk the backlash of the market, as raw material suppliers or other retailers sense a stronger and far more influential buying presence in the market.  In the case of commodities, farmers and producers could risk the ability to negotiate higher prices for their goods, or in times of scarce supplies, preference could be given to those with the strongest buying influence.

Collaborative supplier programs are successfully accomplished with mutual trust and win-win goal fulfillment. With Wal-Mart’s current efforts to move down the retail supply chain, the question remains as to what is defined as win-win.

Bob Ferrari