The World Health Organization (WHO) has declared the ongoing outbreak of the deadly Ebola virus in West Africa to be a Public Health Emergency of International Concern (PHEIC) and humanitarian organizations such as Doctors Without Borders continue to work on the front lines to control the outbreak. The consequences of further international spread of the virus coupled with fears of wider-scale contagion have created a call for coordinated global public health actions to stop and reverse the outbreak.
Other concerns should be the short or longer impacts to industry and global supply chains if the current outbreak cannot be adequately controlled. Within close proximity to the current effected region within West Africa is the country of Cote d’Ivoire, which is a major supply source for cocoa. Countries within the West Africa coastal and interior regions also produce supplies of palm oil, iron ore and other commodity materials.
Beyond local sourcing are the broader implications to global transportation and logistics networks if the current outbreak spreads to other countries and spawns additional travel and cross-border restrictions. In short, industry supply chain and sales and operations planning teams definitely need to monitor the current Ebola outbreak and have some form of scenario and backup plans identified.
This posting serves to alert our Supply Chain Matters readers who subscribe to Accenture Academy training and webinars that this author will overview the current Ebola crisis from an industry and infrastructure supply chain perspective and provide expert perspective on the areas to watch along with considerations for building risk contingency scenarios. Accenture Academy is launching a new series termed Trend Talks, which are more compact and two-way interactive webinars that address and provide collective discussion on important, rapidly developing trends among industry supply chains.
I am pleased and looking forward to delivering this inaugural Trend Talk webinar addressing this timely and rather concerning global topic. The session is scheduled for Wednesday, December 10th at 10am Eastern time with participation available only to Accenture Academy members. Readers can utilize this Accenture Academy web link for login and registration.
UPS’s Latest Survey of Healthcare Supply Chains- Some Interesting Conflicts and Needs for Broader Perspectives
This week, UPS announced the results of its seventh annual “Pain in the (Supply) Chain” survey involving pharmaceutical and healthcare supply chains. According to the authors, the survey was conducted from phone interviews with 536 senior supply chain management decision-makers within the healthcare industry. Global coverage for this survey is noted as Asia, Canada, Latin America, the United States and Western Europe.
For the third consecutive year, the survey points to regulatory compliance as the top supply chain pain point, cited by 60 percent of the 2014 respondents, indicating that this trend alone is driving current business and supply chain changes. From our Supply Chain Matters lens, that finding is not a surprise since so many pharmaceutical and healthcare supply chain are indeed regulated, but more importantly, they are now globally extended for both supply and service demand needs.
The next largest concern was noted as product protection challenges, with 46 percent of respondents citing product security, and 40 percent citing product damage and spoilage as top concerns. Again no surprise, given the ongoing challenge of counterfeit drugs and global extensions of transportation and logistics networks.
However, what was surprising, at least for us, was that a mere 26 percent of these supply chain leaders cite contingency planning as a top supply chain concern. Perhaps this is an area that these supply chain leaders feel is being adequately addressed. Yet, 34 percent of those surveyed in Asia and 22 percent of those residing in Latin America indicated their firm’s supply chain was impacted by an unplanned event in the past 3-5 years. Cited reasons that were noted were:
- Events being too unlikely or infrequent
- Back-up infrastructure too expensive to deploy
- Little or no prioritization being given to this area vs. other challenges
For an industry that is required to spend so much on product development, brand value and patient trust, it is surprising to once again note such viewpoints. The industry need only look to the previous supply chain disruptions that occurred at Johnson & Johnson to ascertain how about contingency planning has become.
Deeper in the UPS news release perhaps finds a rather important assumption related to the above concerns in compliance, product protection and contingency planning. Many healthcare supply chains are not viewing production, distribution, logistics and transportation as a core capability and have thus outsourced these activities. According to this latest UPS survey, 62 percent of decision makers cited increased reliance on third-party logistics providers as a strategy into the foreseeable future. (3-5 years) Therefore business partners have become an important enabler in helping to overcome stated supply chain challenges.
In a previous Supply Chain Matters commentary, we called for a broader technology vision among supply chain execution partners, specifically 3PL’s. As more and more industry supply chains opt to outsource logistics, transportation and customer fulfillment to logistics and transportation partners, leveraging the potential benefits of newer technologies in item-level tracking, Internet of Things (IoT) and supply chain control towers become a de-facto capability requirement to overcome business challenges and deliver required business outcomes. Too often today, the outsourced 3PL decision has been driven solely by cost control vs. broader requirements for supply chain resiliency and responsiveness. While UPS and FedEx have embraced advanced technology, other 3PL’s have relied on customers to fund such investments, and there remains the conundrum. For us, these latest UPS survey findings concerning healthcare focused supply chains have special meaning to the new reliance on supply chain execution partners for joint goal enablement. Beyond logistics, globally dispersed contract manufacturers have an important enabling and support role as well.
The report’s executive survey indicates that healthcare supply chain leaders are themselves eyeing technology investments in two specific areas of the supply chain, namely front-end order fulfillment and overall product protection in the form of serialization and item-tracking. Supply Chain Matters advises these leaders to also consider the all-important supporting element for connecting the front and back-end of the extended healthcare supply chain. That would be a cohesive supply chain business network that synchronizes planning, execution and early-warning intelligence to unplanned events.
This week, Gartner unveiled its annual regional listing of what the analyst firm considers to be fifteen of the best supply chains in the European region. Gartner conducts this ranking as a supplement to its Top 25 Global Supply Chain rankings that are traditionally announced in the fall. According to Gartner, the top three European supply chains, Unilever,Inditex and H&M, remain unchanged and continue to lead in supply chain excellence while Seagate Technology made its debut in the number four ranking. Three new company supply chains also made a presence in the Gartner Europe ranking.
The published ranking for Europe Top 15 supply chains were noted as:
- Unilever (ranked 4th in 2014 Top 25 global ranking)
- Inditex (ranked 11th in 2014 Top 25 global ranking)
- H&M (ranked 13th in 2014 Top 25 global ranking)
- Seagate Technology (ranked 20th in 2014 Top 25 ranking)
- Nestle (ranked 25th in 2014 Top 25 ranking)
- Delphi Automotive
- Reckitt Benckiser
Similar to our view of this week’s Gartner’s Asia-Pacific rankings, Supply Chain Matters believes that this ranking reflects how we would have voted if we were part of the external or peer voting panel. Unilever is indeed a great supply chain competing in a very challenging CPG industry group. As we noted in our commentary associated with Gartner’s Top 25 ranking, Unilever has made steady progress over the past three years and deserves special recognition. Inditex has long been an icon when describing a top retail focused supply chain that is extraordinary in sensing and responding to fashion and customer demand. Seagate Technology as well, has bounced back from the near disaster of disruption and supply shortages caused by the 2011 floods in Thailand. L’Oreal has made great strides in integrating supply chain planning and execution across its supply chain business network. Nestle deserves its recognition especially in leading with industry-leading supply chain sustainability initiatives.
Three of the Gartner European Top 15 reside in the automotive industry sector which has been an industry segment not previously noted for consistent supply chain excellence. Both BMW and Volkswagen have been deploying a global based product platform strategy and have weathered the European economic crisis through a focus on international markets.
Also noteworthy is the appearance of two pharmaceutical supply chains, Glaxo and Reckitt in Gartner’s Europe ranking.
We believe that a ranking of the top Europe supply chains has even more significance given the ongoing challenges related to the severe economic conditions that have impacted Europe. These are supply chains that had to demonstrate various aspects of resiliency to insure required business and product outcomes.
Supply Chain Matters again extends its congratulations and recognition to each of the named supply chain organizations for achieving such recognition. There is obviously hard work that goes into achieving such recognition and citation and it should be acknowledged.
Supply Chain Matters has been following recent developments in the area of smart labeling, specifically a series of announcements from Norwegian based printed electronics technology provider Thin Film Electronics ASA. This technology provider’s latest announcement is the most significant to-date, with profound long-term potential benefits for certain industry supply chains.
In an October of 2013 Supply Chain Matters posting, we called reader attention to the announcement that Thinfilm had successfully demonstrated a fully functional, stand-alone, integrated printed electronic temperature tracking Smart Sensor Label. The label was described as being built from printed and organic electronics with low power requirements with potential application to track and monitor temperature and environment for pharmaceutical products or to monitor the shelf-life and food safety of perishable products. In early April of this year, we updated readers on two other strategic partnership announcements involving Thinfilm’s smart label product development plans. One included a partnership with Temptime, for potential cold-chain tracking applications for pharmaceutical products, and another with PakSense Inc., in the development of intelligent sensing specifically designed to monitor perishable goods.
This week, yet another rather noteworthy announcement has been made, namely that Thinfilm has successfully demonstrated an integrated system product that combines printed electronics technology, real-time sensing and near-field communication (NFC) functionality. The significance of this announcement concerns technology that enables high‐performance transistors to support the high frequency RF circuitry required for NFC communications in Thin film’s labels with the potential to support a potentially wider range of sensing needs. A video depicting the proof-of-concept is included in the announcement on Thinfilm’s web site.
Last week, this author had the opportunity to speak with Thinfilm’s Executive Vice President and head of North America practice, Jennifer Ernst. in anticipation of this week’s announcement. Jennifer explained that the addition of NFC opened opportunities for the sensing label to be paired with a mobile device such as a smartphone, where GPS focused or other mobile and RF related functionality can be incorporated into item-level sensing. As an example, the receipt of a truckload shipment of perishable products can be monitored and tracked along its journey. The notion of item-level tracking from farm to fork becomes closer with such capabilities. The fact that an infrastructure of mobile broadband and cellular networks already exists in many geographic regions, potentially removes the infrastructure cost burden that hampered previous efforts of RFID enabled item-level tracking. The smart labels will further support protocols to communicate with hand-held readers. We specifically asked the very obvious question: What about the individual cost of a label? The response we received was that Thinfilm’s goal is to target a cost that is significantly below that of current RF-based temperature monitors. Of course, the industry will have to await the real result, but we did get a sense that Thinfilm is driving toward a compelling cost-benefit proposition.
According to this latest announcement, Thinfilm anticipates delivering commercial samples of smart labels to key partners in 2015.
We continue to bring reader attention to specific smart label enabled developments because they represent, from our view, the dawning of a new era of item-level tracking, one that can harness the potential of the “Internet of Things”, namely a sensing label, with predictive analytics capabilities. Consider the possibilities that near real-time information concerning the environmental or shelf-life condition of the physical product can be integrated with supply planning, inventory management and customer fulfillment needs. Consider the possibilities in anti-counterfeiting, drug and food safety as well as avoidance of waste, spoilage and obsolescence.
This is exciting stuff. It provides evidence as to how convergence of technologies are now leading to the achievement of the goal for integrating physical and digital supply chain information and more predictive decision-making capabilities.
© 2014 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog. All rights reserved.
Last week, we featured a Supply Chain Matters commentary, Major Supply Chain Disruption On-Tap for Pharmaceutical and Drug Focused Supply Chains. The commentary outlined our concern that the current new wave of large-scale merger and acquisition activity involving billions of dollars that is currently surrounding the pharmaceutical and drug sector provides added risks to derail and add incredible distraction and disruption to ongoing supply chain improvement efforts.
Today, there is yet another development that adds to the potential for disruption. German based Bayer AG has announced its intention to acquire the consumer care business of U.S. pharmaceutical firm Merck & Co. for an approximate purchase price of $14.2 billion. This transaction is subject to approval from various antitrust agencies with a closing expected in the second-half of 2014.
The acquisition is characterized by Bayer as the path for providing global leadership in over-the-counter (OTC) and non-prescription medicines. The announcement comes after Merck conducted an auction-like process seeking a high bidder for its OTC business.
According to the announcement, the acquisition will place Bayer in the number two market position in OTC products. Merck’s OTC categories include cold, allergy, sinus, dermatology, foot health and gastrointestinal medicines. Principle Merck brands included are Claritin©, Coppertone©, Dr. Scholl’s© and MiraLAX© which each have a strong presence in North America markets. Merck’s consumer care business is reported as generating 70 percent of revenues in the U.S. market.
Bayer indicates in its announcement that it expects” “… the integration of the businesses to generate significant cost synergies, for example in marketing spend and cost of goods, in the region of USD 200 million by 2017. “ Paying upwards of a premium of 6.5 times 2013 revenues and 21 times earnings, Bayer has no choice but to drive cost synergies.
From our supply chain and B2B lens, implies the potential for disruption over the next few years since this types of estimates turn out to be overly aggressive. Bayer inherits more diverse North America distribution and retail channels where cost and healthcare delivery are under intense scrutiny. Both Bayer and Merck manage their businesses with an SAP focused enterprise information backbone.
A published report by Reuters points out that OTC drugs units carry far lower margins than prescription drugs businesses but some drug makers regard them as attractive due to the stable stream of cash that these products can generate. Further, they often require less spending on research and development and can be less exposed to the loss of patent protection where consumers remain loyal to a brand. The combined OTC revenues among the combination of Bayer and Merck are expected to exceed $7 billion in annual revenues.
Thus, the wheels of business change and the potential for multi-year distraction becomes prevalent for two different global corporations with different cultures and business process practices.
Who knows what other major industry announcements are in-store for the remainder of May, as well as 2014.
In the pharmaceutical and drug sector, business headlines continue to reverberate a slew of current or planned merger and acquisition activity as the major industry players are apparently jockeying for strategic advantage in product pipelines and cost structuring.
We previously noted on Supply Chain Matters the acquisition of India based generics drug producer Ranbaxy Laboratories by Sun Pharmaceuticals Industries in a $3.2 billion deal that attempts to address a very troubled generics drug maker. That pales with industry announcements made just in the past three weeks. Guest contributor and book author Rich Sherman addressed pending shifts and re-focus required across healthcare delivery supply chains.
Eli Lily announced a $5.4 billion deal to acquire the animal health business of Novartis with the goal of making its existing unit the second largest animal health company behind Zoetis. Lily had previously acquired similar business units from Johnson & Johnson and Pfizer. Novartis and GlaxoSmithKline announced a series of transactions valued at $20 billion that reportedly will re-shape each of these drug makers in key strategic areas. Novartis aims to concentrate on pharmaceuticals, eye care and generic drugs, Glaxo in vaccines and consumer healthcare. Valeant Pharmaceutical is attempting to broaden its eye and skin care drug lines by offering $46 billion to acquire its rival, Allergan. And then there are continuing reports that Pfizer is pursuing a massive $100 billion deal to acquire its rival AstraZeneca.
Obviously, the picture unfolding is one of massive consolidation and movement involving upwards in $200 billion in deal activity at this point.
As we and other analysts have often noted, pharmaceutical and drug supply chains are already struggling with many supply chain and B2B focused initiatives directed at improving dysfunctional efforts for consistent quality and market responsiveness while improving end-to-end supply chain visibility, planning and coordinated execution. There is also the ongoing effort for remediation of constant incidents of counterfeit or bogus drugs appearing in various global healthcare supply chains.
We have to conclude that this current wave of wide-ranging industry M&A activity provides added risks to derail and add incredible distraction and disruption to these ongoing improvement efforts. Regarding the potential for huge industry disruption, AstraZeneca’s CEO recently told the Wall Street Journal: “I think we’re better off focusing ourselves on what we do well and partnering where it makes sense.” It seems as though at least one industry executive understands what disruption can bring not only internally but to various specific supply chains as well. The industry should share ample supplies of Mylanta if all of these deals come to fruition.
Deals of this magnitude generally lead to disruptions and required changes in business processes and supporting information systems, especially when external manufacturing and services partners are involved. Supply contracts need to be re-visited or re-negotiated as supplier contracts shift while information linkages among product development, the supply chain and directly to production processes are subject to changes and/or modifications. Many of these deals imply the potential for added overhead and direct labor cutbacks which are not going to help as well.
On the broader scale, potentially caught in the middle of these massive changes are the drug distributors and healthcare service delivery entities that continue to undergo a fundamental transformation from delivering patient treatments to delivering patient outcomes which alone was another source of required attention. Healthcare delivery supply chains may now have to deal with pharmaceutical and drug providers that are literally changing chairs for the menu of preferred suppliers. It would seem that if any of the industry brand owners were to allocate just $1 billion, a cost to pay all of the lawyers, to just item-level tracking and counterfeit drug remediation it would add more to long-term revenue, profitability and overall industry supply chain responsiveness to patient needs than what’s on-tap currently.
We do not want to appear in any way as alarmists, but it seems from our vantage point that industry executives need to perhaps consider the effect of these massive changes on their current and proposed supply chain delivery capabilities and needed improvement initiatives. Rather than a primary focus on past performance metrics, the implications for managing through distraction and change are already occurring, and industry supply chain leaders will be hard pressed in change management vs. positive transformation change.
We certainly encourage readers residing in healthcare industry supply chains to weigh-in on the Comments section attached to this posting regarding what the heck is going on and how these wide-scale industry changes will impact industry supply chains.
© 2014, The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog. All rights reserved.