Achieving High Performance in Pharmaceuticals Title of brochure through Supply Chain Analytics

Introduction
The global pharmaceutical industry is currently weathering a storm of unprecedented market conditions. Over the past five years, patent protection has expired on products accounting for more than $80 billion in annual sales, and in spite of steadily rising R&D costs, pipelines have failed to deliver replacements. Against this background of looming competition from generics, the industry is holding as much as $46 billion in excess inventory. In this environment, it is no surprise that companies throughout the industry are hungry for opportunities to improve the efficiency of their operations, better understand their customers demands, and devise more creative responses to the marketplaces challenges. Supply chain analytics provide a key means to make progress in each of these areas.

Accentures Global Pharma Industry Supply Chain & Tech Ops study provides a unique perspective on the industrys progress and challenges with respect to supply chain analytics. Involving 25 pharmaceutical and biotech companies from around the globe and across industry segments, the study covers a wide range of topics from supply chain strategy and organizational design to planning, fulfillment and compliance. It forms an excellent vantage point from which to observe the impact of analytical capabilities on participants supply chain performance. The studys findings provide several important observations on the pharmaceutical industrys analytical prowess, and offer several suggestions for improvement.

Analytics matter
While most study participants would agree with the statement that supply chain analytics are a crucial part of our strategic priorities, their efforts are largely focused on a single dimension: developing greater visibility into supply chain performance (see Figure 1). There is certainly room to improve in this area, but the true value of analytics goes far beyond simple performance management. "Analytics" is ultimately about making better decisions, faster. Past performance is certainly an important input, but analytics seeks to not only understand what happened, but also ask: What does it mean? The emphasis moves from measurement to understanding, incorporating statistical techniques, along with modeling and forecasting tools to develop insight into trends and then translate that insight into action.

Analytics are of critical importance for making and sustaining both operational and strategic improvements across the functional areas of the supply chain. Indeed, participants who indicated stronger analytical capabilities (e.g., closer integration with customers on demand forecasting) also consistently demonstrated higher margins (see Figure 2). Even beyond these quantitative benefits, analytics offer the keys to identifying and building on competitive strengths which will become increasingly important as pharmaceutical companies are forced to operate in a less blockbuster-driven model.

Who does analytics well (and who does not)?

Accentures study clearly identifies analytics as an area on which companies throughout the industry should be focusing. But for guidance on how analytics can be best deployed, its best to look outside the pharmaceutical world at examples of how analytics have driven improved performance in other industries:
A

Forward-thinking

leading big-box retailer in the United States has been able to leverage two decades of experience in collecting and reporting on product data to radically democratize decision making, pushing decisions on reorder points, product mix and discounting to a local level and allowing store employees to custom-fit sale items to conditions in the community.

Internet retailers in several categories have invested heavily in developing predictive models of user behavior which allow them to direct advertising and product recommendations based on users likely preferences and their own inventory and margin requirements. One of the worlds largest manufacturers of building materials uses a predictive model of traffic and weather conditions which allows them to guarantee a 20-minute arrival window for perishable mixed cement, a capability which has enabled them to charge premium prices for the most basic of commodities. A leading global beverage manufacturer also relies on statistical modeling with weather inputs to determine the appropriate product mix and stock points in advance of the critical Fourth of July holiday in the United States.

Figure 1. Improved visibility as a priority for study participants

Figure 2. Correlation of analytical performance with EBIT

Product launch and sustainable supply Improved visibility into supply chain performance Customer satisfaction Capacity/flexibility Efficiency/cost reduction Risk mitigation 0 10 20 30 40 50 60 70 80 90 100

EBIT (percent) 50 45 40 35 30 25 20 15 10 5 0 1 1.2 1.4 1.6 1.8 2 2.2 2.4 2.6 Analytics capability (1=poor, 4=excellent)

Percent of participants indicating this is a high priority

Several common themes emerge from these examples. One is a cultural focus on analytics; high performers have a quantitative mindset, constantly using data to challenge assumptions and separate what we know from what we think we know. Equally important is a focus on using analytics to drive differentiationanalytics are used to seek out prospective sources of competitive advantage, rather than just measuring past performance. Finally, these companies have moved beyond internal data to draw information from the outside world where necessary. All these capabilities come together to make analytically advanced companies more customer-centric than their competitors.

How can we get better?

Data availability is the most fundamental requirement for strong analytic capabilities. This is an area in which the pharma industry continues to struggle. Supply chain data are typically scattered throughout a fragmented landscape of manufacturing execution systems (MES), enterprise resource
planning (ERP) systems and laboratory information management systems (LIMS)

Pharma companies ability to pull information from outside the organization is not much better. Few have been able to develop tight links with customers (Figure 4), and even where these links are in place, the companies find themselves challenged by the fact that their customers data are often of less-than-sterling quality.

which do not exchange information (Figure 3). Frequently, multiple instances or platforms for each type of system are running within the same company, further complicating the data landscape.

But having the data, while necessary, is far from sufficient to develop strong analytics. Learning where the organization can produce reliable data (or perhaps more importantly, where it cannot) is a problem that can only be solved through experience and experimentation. Companies that have advanced analytical capabilities typically developed them by focusing first on using the best data they had, and working to increase the quantity and quality of data only after building an ability to make meaningful data-based decisions. In fact, organizational factors which break the link between data and decisions are often the biggest obstacles to overcome. Too often, supply chain organizations in the pharmaceutical industry operate in disconnected functional silos which encourage

decision making based on tradition, rather than data. Perhaps the most critical first step toward better analytics is to develop a focus on facts and a willingness to challenge assumptions. Traditional thinking, for example, might dictate a decision like the following: We manufacture life-saving drugs. Stock-outs are intolerable, and we will work to maximize our delivery to customers requested dates and quantities, building inventory if necessary to ensure that all orders are fulfilled.

Analytical thinking might suggest a very different approach: Pharmacies and distributors both retain some stock level of our products. Given their inventory levels and patient demand, what level of order performance must we achieve to ensure patients have the drug when they need it? As organizational capabilities mature and data quality improves, focus will shift from using analytics to enhance the effectiveness of traditional processes to building new ways of operating. In the consumer goods industry, for instance, manufacturers are increasingly turning to point-of-sale

Figure 3. MES-ERP and ERP-LIMS integration

Percentage of LIMS -ERP Integration Percentage of MES -ERP Integration

Figure 4. Integration with customers

100 90 80 70

30 50 20

27 46 27

60 50 40 30 20 10 0 Avg. 19 Avg. 31

Full automation Partial automation No automation

Percent of customers with a formal collaborative relationship

Percent of sales volume represented by collaborative planning

data from their retail customers to design algorithms which allow product manufacturing and replenishment strategies to be tailored to the stages of the product lifecycle in real time (compare the traditional approach to forecasting and replenishment, typical of the pharma industry, in Figure 5 with the analytically driven approach in Figure 6).

This analytically driven nimbleness has allowed leading consumer goods manufacturers to increase their speed-to-market while improving their management of working capital critical capabilities in a world where product lifespans are shrinking year after year. The utility of such an approach for pharma companies facing tougher generic competition and lengthening R&D timeframes is obvious.

Whats more, the industrys current focus on improving product traceability and supply chain security will tend to build exactly the kind of links with customers and distribution partners that can provide the data to drive more analytically oriented forecasting and replenishment.

Conclusion
If the challenges facing the pharmaceutical industry are large, so are the opportunities. The recent wave of merger and acquisition activity offers especially tantalizing opportunities for the consolidated companies. Improved analytics in the areas of business simulation, network optimization and risk modeling offer the potential for greatly enhanced synergies, and

a quantum jump in supply chain capability. The path blazed by pioneers in other industries offers pharma companies the prospect of comparatively rapid advance toward strong analytical capabilities and the benefits that go with them. For companies wondering how to begin building analytics capabilities, taking a closer look at working capital can be an excellent place to start. A short, two- to four-week investigation of working capital using a strong

analytics approach can provide both short-term opportunities for financial benefit and insights into which areas should be prioritized to develop analytics capabilities in the long run. For companies looking to accelerate the development of their analytics capabilities, Accenture Analytics can be a crucial partner in developing the insight to make better decisions, faster.

Figure 5. Traditional forecasting and replenishment

Aggregate Forecast Based on Historical Trend Historical Sales Data Safety Stock and Re-Order Point Replenish Based on Historical trend and Static Targets

Figure 6. Analytically driven forecasting and replenishment

Continuous Products

Forecast Using Recommended Algorithms Seasonal Forecasting Optimal Stock Allocation

Replenish Using Optimal Stocking and Ordering Policies

Historical Data

Algorithm Recommendation Optimal Algorithm Parameters

Seasonal Products

Replenish Using Optimal Stocking and Ordering Policies

Slow Moving Products

Forecastability Analysis

Aggregate Forecast Safety Stock and Re-Order Point

Replenish Using Optimal Stocking and Ordering Policies

End of Life Cycle or Obsolete

SKU Rationalization

Adjust Assortment Strategy

Markdown Optimization

Disposition

About Accenture Analytics

Accenture Analytics delivers the insights that organizations need to make better business decisions, faster. Our extensive capabilities range from accessing and reporting on data to predictive modeling, forecasting and sophisticated statistical analysis. We have more than 20,000 analytics-skilled people with deep functional, industry, business process and technology experience. At the intersection of business and technology, Accenture Analytics enables organizations to achieve the business outcomes that drive high performance. For more information about Accenture Analytics, visit www.accenture.com/analytics.

About Accenture
Accenture is a global management consulting, technology services and outsourcing company, with more than 190,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the worlds most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US $21.58 billion for the fiscal year ended August 31, 2009. Its home page is www.accenture.com.

For more information on Accentures analytics offerings and supply chain research, please contact: Eugene Jones Senior Executive eugene.m.jones@accenture.com +1 973 768 3826 Frode Huse Gjendem Senior Executive frode.huse.gjendem@accenture.com +34 647 307 622 Prashant Yadav Senior Manager prashant.yadav@accenture.com +91 98 1855 5472

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