February 15, 2008 (Vol. 28, No. 4)
Outsource Collaboration Systems Allow Effective Management of Third-Party Groups
Death and taxes are certainties in life yet, if your company successfully brings a therapeutic to market, it is also a certainty that you will outsource some or all of your supply chain. In fact, many firms base their entire business model on outsourcing. Yet, it is the ability to prudently manage the uncertainties inherent in turning over operational control to others that is critical to success.
There are many companies in the industry that have revolutionized how they track, measure, and act to maximize their contract service provider (CSP) relationships, and you should seek to emulate them. These leaders come in all shapes and sizes. What they have in common is that their supply chains are completely outsourced and managed with extreme effectiveness. How they accomplished this excellence is answered here.
Track, Measure, Action
Every business values well-considered, effective, and decisive actions that achieve superior results. Taking steps that create positive results, however, assumes significant data-collection tools, measurement systems, and various processes to take action. While measuring the CSP is critical, measuring and optimizing the supply chain in total is the end game.
An inherent problem with outsourcing to service providers is collecting data in their facilities. In reality, most commercial and many clinical operations have multiple CSPs. This increases the level of data-collection complexity. A typical supply chain includes purchasing the API, shipping it to a contract manufacturing organization (CMO), possibly shipping to a packaging operation, and finally transfer to a third-party logistics operation (3PL) before moving to a clinical site or to wholesalers.
Multiple therapeutics, multiple CMOs for load balancing and redundancy, and significant loss of efficiency when things go wrong add to that complexity. A shipment of material lost in transit, damaged by the errant forklift, or rejected for quality or expiration reasons can cause substantial upstream and downstream supply-chain effects if it is not managed with near real-time tracking, measurement, and decision making.
The various departments in your organization that communicate with the CMOs, and the data sources they may be using to establish contracts, schedule production, communicate material movements, perform quality reviews, and pay partners further complicate matters. In many companies, these data sources reside in phone conversations, handwritten notes, e-mails, spreadsheets, any of several databases, and the paper batch record.
The bottom line is simple—everyone has to operate from the same playbook, system of record, and measurement platform for actionable processes to continually improve performance. With all these partners and departments involved, it is unbelievable that any firm would subject itself to the risk of managing such complexity manually or in a multitude of data silos.
Numerous barriers exist to accurately measure a CMO’s performance. These include the inability to collect data in facilities the outsourcer does not control and limited partners for comparison to determine baseline performance expectations. Life science companies resist sharing data with others, and too few parallels exist to establish benchmark performance ratings. So, it is up to individual firms to make these assessments.
That said, there are some truly exceptional operations in the industry that can provide guidance on how to most effectively measure performance. Specifics of their operational tactics and common practices to achieve the holy grail of a CSP scorecard include efficiency, quality, yields, response times, and data accuracy.
It is no secret that enormous benefit can be derived from making supply-chain data available to improve material planning, scheduling, and inventory optimization. Few companies, though, have made the leap to detailed data collection and measurement.
Data collection is important. Where and how the data is stored, however, is just as critical. The outsourcing company needs to commit to a single system of record with a data model that supports the complexity of the business; i.e., an expert system. Using a simple database is fine for collection, but it will not enable the decision making, optimization, and critical measurements necessary to take corrective action when things go wrong.
While some specialized supply-chain planning and enterprise resource planning (ERP) systems are ideal for this task, they do often lack one critical component: The ability to collect data in a high transactional volume at third-party sites.
A system has to meet functional needs, addressing key biopharma requirements such as tracking, costing, and controlling for potency, controlled substances, expiry, and so forth. You need to either have the internal expertise to provide ongoing care and feeding of these systems or outsource this task to a responsible party.
When selecting the mode and means to store data in a meaningful way to track, control, and measure performance, an outsourcer must carefully consider the volume of data that needs to be collected and determine whether accurate, manual data entry is feasible. If the amount exceeds the company’s ability to staff for manual data-entry requirements, then an automated data-collection solution is necessary.
Even for companies that run electronic batch records (EBRs), not all products are produced using an EBR. The same applies here—it is assumed that the highest volume providers can provide data files to automatically validate and process transactions for inventory and manufacturing, while some low-volume providers may not. Similarly, it may not be economically feasible to set up an automated feed for five inventory transactions per month from a CMO.
Deploying an automated data collection process can be compared to barcode data collection in an internally controlled facility, where the service provider sends a nightly data file detailing all transactions related to production of materials and inventory movement. Within your system, you configure virtual factories representing the service providers.
Automation is heavily dependent on the service providers’ internal systems, so ask the automation question first. Asking your service providers after the contract has been signed if they have an ERP or manufacturing execution system deployed and validated in materials, quality, and manufacturing is a mistake. If they don’t, you won’t get the data you need in a timely or meaningful way.
A best practice is to include in every CSP agreement a clause requiring them to provide a nightly data file with all inventory receipts, movements, planned production, actual production, and shipment information. The 3PL transferring orders, shipments, receipts, master data changes, destruction, invoices issued, and cash collected in a data file nightly are also critical to reducing manual processing. Enormous benefits can also be derived from a synchronized supply-chain record of customers and orders in the event you need to change service providers or adjudicate your own chargebacks and calculate government pricing.
How and What to Measure
Collection of all this data with detailed transactions listed below will be the basis for measurements. It will also ensure the added benefit of having the ability to utilize better planning, scheduling, and inventory optimization techniques. The natural questions after an outsourcer is successful in collecting and aggregating data in a meaningful database are “What are the common measurement techniques?” and “How can you best act on the data?”
We went to experts for these answers (i.e., companies that operate in a 100% outsourced environment). They track all transactions from receipt to process to shipment, and all the data is available. From a monitoring and measurement point of view, some of the metrics being tracked include meeting commitments as well efficiency and accuracy of material and production.
To assess whether commitments have been met, the following should be considered:
• scheduling jobs per production plan
• starting jobs per production schedule
• delivery performance to a request and commit date
• scheduled orders to customer request
• perfect order fulfillment (as a percent of total orders)
In determining material and production efficiency and accuracy, you should consider:
• manufacturing yields
• rejection ratios at incoming inspection
• issuing expired lots to a production run
• over-shipments: receipts against POs
• total order-fulfillment lead time
• release-to-ship time
• bulk and finished lots nearing
• inventory turns
• inventory days of supply
(raw, WIP, finished goods)
• inventory carrying cost
We asked the supply-chain operations manager of one company that deploys an outsource collaboration system, “Why make the effort versus manual operations of the past?” The answer, “Coming from a variety of disjointed systems, some automated, some manual, some paper, with no single source of data, there is no easy way to verify which set of data is accurate. Timeliness of acquiring data, missing data, and loss of visibility creates the need to increase the levels of safety stock at all levels to compensate due to lack of confidence in the supply chain. We simply cannot put ourselves in a stock-out situation. This was costing us millions more than necessary.
“If you don’t have the robust demand planning tools enabled, you are at the mercy of sales and marketing in developing the forecasts. A good automation tool allows you to set up the basis for sales and operations planning and therefore drive a better monthly plan, better service levels, and tighter supply chain.”
Over time, the investment becomes more important says the same manager. “This gives us better negotiating power when working out contracts for the next year. We can demand more because we can verify more.”
Then news is not all bad if your company does not have the budget, capacity, or capability to deploy collaboration solutions with CSPs. While larger organizations that outsource significant operations and operate in silos or in manual mode should have initiated a collaborative outsource supply-chain tracking and optimization system already, many smaller organizations don’t have the capital and/or people to implement or maintain them.
These systems are not without complexity; expert systems require significant expert input to operate your complex business. Your partner’s data accuracy can be measured and used to avert miscommunication. One CSP seeing the trend moved to push data and measurements out to their customer as a value-added service.
Software services are also available to provide outsource collaboration capabilities. “The technical aspects of managing the hardware, database, code management, and availability 24×7 is simply too much to manage for a small operation,” says Bob Congiusti, CEO of Vantage Systems. “By providing these outsource collaboration tools in a technically hands-off situation, companies that have the supply-chain expertise to leverage advanced systems and focus on their business can receive all the benefits without the cost of IT.”
“Buying a service versus building infrastructure of both IT and supply-chain expertise can make companies nimble almost immediately,” points out Keith Parent, CEO of Court Square Data Group. “IT is largely a hidden cost. Even large biopharmas spend far more on IT than companies in other industries, on average four to five percent of revenues.” Third-party supply-chain experts can thus also use these collaboration tools to help emerging companies’ lower costs.
Michael Webster is the director of life sciences at CDC Software, which provides custom outsource collaboration systems. Phone: (603) 763-8979. E-mail: [email protected].