Reducing disruptions’ probability, impact and duration
Originally Featured in Life Science Leader
“Resilience” is the word most often heard in life sciences supply chain discussions since early 2020. The economic, social, and political turmoil created logistical challenges and shortages in drug components and medical supplies. And all indications are that frequent and impactful disruptions are likely to be the norm for life sciences supply chains going for the foreseeable future. Previously, we discussed the broader challenges facing life sciences supply chains. Here we dive deeper into how to create resiliency.
The Shock Model
Shocks are disruptions that occur outside of normal supply chain operations that pose a potential threat to performance quality and sustainability. Shocks to the supply chain can take many forms, such as a weather event (e.g., hurricane), economic (e.g., trade barrier or recession), labor impact (e.g., strike, unexpected departure of a key person, or epidemic), or geo-political (e.g., conflict or military action). The foundational framework to create a resiliency plan to overcome disruptions should include:
Probability “How prepared in advance are you?”
Impact “How ready is your supply chain now?”
Duration “How adaptable are you?”
Should a disruption occur, preparation reduces the probability that the disruption will meaningfully decrease business performance. These are proactive investments to make before a shock arises. Ultimately, good preparation extends the time frame between the disruption and any impact on the organization supply. Preparation techniques life sciences may use include some combination of:
Threats come in many forms (e.g., cyber, natural disaster, environmental, political, manufacturing, suppliers, customer, organizational change) and each one will have unique supply chain impact.
Advanced digital twin modeling, control tower, and pre- identified scoring criteria can help you anticipate the effects of a disruption.
Diversify suppliers and vendors
When disruption impacts an individual or a segment of partners, support capacity can be redistributed to unaffected partners.
Clear succession planning
Prevents the absence or loss of leaders or subject matter experts from disrupting decision-making.
Well-defined standard operating procedures (SOPs) close the knowledge gaps in the event of key talent loss.
Prevent the absence or loss of key operators from interrupting operations by employee cross-training and/or training local resources on critical operations that, if impacted, would cause a pervasive disruption.
Create a business continuity playbook
Proactively prescribe checklists and series of activities to be executed during specified disruptions including defined metrics and data that will enable and guide decisions.
We are seeing significant challenges with life sciences companies regarding key person dependencies and succession planning, especially when it comes to both high demand locations (e.g., research centers like Cambridge, MA, or the Bay Area, CA) and in low supply areas for skilled labor (e.g., manufacturing facilities placed in traditionally lower labor cost locations). While the reasons for locating these centers in these geographies may be sound, that does not mean that there’s not a critical need for analysis of and preparation for the loss of key personnel, either due to promotion or departure.
Readiness minimizes the volume or amount of impact. Think of readiness as the reactive levers you can control while you are experiencing a crisis to mitigate damage to your operations.
Readiness techniques include:
Stockpiling and spare management
Susceptible and/or critical inventories should be considered for stockpiling.
Create supplier inventory agreements for key items
Again, contract negotiations with if/then clauses can protect certain item shortage particular for items that are historically difficult to source.
Integrated business planning
Use of inventory management formulas and techniques allow for a rapid and more accurate inventory management response to a disruption.
Capitalize on those preparation investments
Utilize your Business Continuity playbook and workforce redundancy plans as needed.
Life sciences companies thriving throughout the last 24 months look ahead more than behind. While traditional economic order quantity (EOQ) and safety stock measures are good measures during normal supply-and-demand times, organizations who do best are the ones that are vigilant in examining where they have soft spots or vulnerabilities in their supply chains.
Finally, adaptability is the ability to reduce the duration it takes to resume operational performance to pre-disruption levels. This often requires a quantitative and qualitative approach to understand when to revert specific actions taken during the shock. Certain actions may not be sustainable or optimal over a long period of time and, if left in place for too long, could begin to decrease operational performance. Adaptability techniques that life sciences organizations may use include some combination of:
Exceptions-based metrics management based on organization’s tolerance of stock risk
While it may seem obvious, complex or multi-siloed organizations are susceptible to losing sight of how disruptions impact the entire organization. Step back and reprioritize based on the timing of your logistics and firm-wide strategic objectives.
Capitalize on investment in Preparation phase
Supplier capabilities and flexibly skilled workforces
Act on the relationships with partners and third-party logistics (3PL)
These were previously established and collaborate on solutions.
Available reactive options diminish once a disruption begins. The investments made for preparation reap continued benefits within the readiness and adaptability strategies. Most of the tactics in the adaptability approach rely on tactics planned in the preparation phase. Adaptive life sciences companies take precautions early and re-evaluate often.
The Pandemic Is Not the Only reason to Invest in Resiliency
If your company is on the cutting edge of pharmaceutical or therapeutic technology, you will likely need a resiliency plan outside of any global crises. Rare and emerging therapies utilize supply chains that have yet to scale to meet the emerging need.
Even before the pandemic, some cell & gene therapy companies, with emerging technologies and challenging supply chains, started to use resilience techniques to prevent interruptions. Cell therapy companies started sourcing multiple viral vector sources for both research and therapeutic production.
Biologics companies started stockpiling pipettes, recognizing that inadequate supplies of low-cost items could impair production of high margin drug products.
Medical device & diagnostics companies developed supplier relationships that encouraged multiple suppliers to flexibly produce product components that were not part of their normal product mix for their customers. All of these strategies helped these life sciences companies weather business-as-usual and global supply shocks with less disruption to their operations.
Balancing a Sustainable Resiliency Plan
Developing a resilience strategy requires making tradeoffs. Too often, supply chain leaders consider resilience planning as a nice to-have - until disaster strikes. It’s imperative to be deliberate about resiliency, which means creating capabilities in priority areas and understanding which areas to invest. It can be helpful to think of each resilience capability alone and as a combined effort, with some options reinforcing two or three resilience capabilities. Resilience options with overlapping benefits are where supply chain leaders should prioritize investments to maximize return.
Fundamentally, building a resilience strategy requires selecting the desired balance between those options that promote efficiency vs. those that will promote conservatism. Tactics that support resilience, such as stockpiling supplies and developing secondary supplier relationships, can incur greater expense and capacity, but provide some insurance against supply chokepoints. Just-in-time planning, e.g., traditional Lean activities of cross-training a smaller pool of employees and rationalizing SKU variation, can expose the organization to more single points of failure, but generate greater flexibility and speed. The answer is to find the right mix of tactics that protect your organization, supply chain and overall firm strategy.
Life sciences supply chain leaders face unprecedented pressure to execute resilience strategies that reduce the probability that a disruption will affect the organization, minimize the impact to performance should one occur, and restore supply chain operations to pre-disruption levels as soon as possible. A thoughtful supply chain resilience strategy that prioritizes and balances proactive preparation, reactive readiness and adaptability can make the difference between a life sciences company succumbing to the chaos of the next disruption or thriving.