life sciences index presents andrew cox from iiaps at pharma integrates 2013

IIAPS

© IIAPS Services, 2013. All Rights Reserved.© IIAPS Services, 2013. All Rights Reserved.

Critical Asset Management

–

How to Avoid Sub‐Optimal Sourcing

Professor

Andrew Cox

Vice‐President

International Institute for Advanced Purchasing & Supply

[email protected]

IIAPS


• Key Issues In Sub-Optimal Make-Buy Decision-Making & Outsourcing

• 4 Pillars of Operational Excellence to Drive Improved VFM from Sourcing

Critical Asset Management Agenda

IIAPS


• General Poor Competence in Analysis & Management of Make/Buy (Insourcing/Outsourcing)

• Trend towards increased Outsourcing & Importing recently due to:

– Desire for More Flexible Use of Assets

– Lower Perceived Costs of External (Developing Country) Supply

– Short‐term Headcount Cost Reduction Targets

– Latest Fad

Critical Asset Management Key Issues – Loss of Critical Assets & Post-Contractual Moral Hazard

IIAPS


• Incompetence in Make‐Buy & Outsourcing caused by 3 major factors:

– Unforeseen Loss of Critical Assets

= Inadvertent outsourcing of assets that

provide the basis for differentiation/competitive advantage

– Unforeseen Post‐Contractual Moral Hazard

=

creation of post‐contractual

dependency due to shifts in the power & leverage position of the

buyer and supplier

over time

– Inability to Drive VFM Improvement in the Supply & Value Chain

= failure

to understand how to proactively control and drive quality, costs and delivery (QCD)

improvements in the end‐to‐end value stream


IIAPS


• Evidence of Poor Practices in Pharmaceuticals:

– Unforeseen Loss of Critical Assets• Loss of IP & technical design, manufacturing and quality control

competencies• Loss of brand differentiation• Counterfeiting & creation of unanticipated competitors

– Unforeseen Post‐Contractual Moral Hazard• Increased regulatory & supply chain complexity, with threats to

reputation/litigation

• Unanticipated dependency on supply chain partners (Distributors/Manufacturers)• Unforeseen switching costs and high exit barriers from key suppliers

– Inability to Drive VFM Improvement in the Supply & Value Chain • Poor quality control and adulteration of raw materials/products/services• Poor schedule compliance and on‐time delivery• Rising prices and TCO• Lack of Cross‐Functional Supply Chain Value & Process Optimisation

Competence


IIAPS


Top = 83.0%Mean = 39.6%Lowest = 4.2%

Top = 80.6%Mean = 57.2%

Lowest = 15.8%

Top = 79.2%Mean = 40.2%Lowest = 4.0%

Top = 85.3%Mean = 58.6%

Lowest = 26.7%

Top = 77.5%Mean = 39.7%Lowest = 3.9%

Top = 78.3%Mean = 46.8%Lowest = 6.8%

Top = 78.7%Mean = 35.8%Lowest = 2.6%

Top = 78.2%Mean = 38.4%Lowest = 4.1%

OVERALL 8-STEP CATEGORY MANAGEMENT & STRATEGIC SOURCING

BENCHMARK SCORESTop = 80.1%

Mean = 44.5%Lowest = 8.5%

PSCM Index Benchmarking Findings (n= 215)

Critical Asset Management Key Issues – Limited Sourcing Process Coverage & Competence

IIAPS


Middle Tier

Lower Tier

All

Sect

ors

Food

/Drin

ks

Top Class

Upper C

lassLow

er Class

Bottom

Class

Upper Tier

Middle Tier

Lower Tier

100%

75%

50%

25%

91%

83%

66%

58%

41%

33%

16%

8%

Upper Tier

Upper Tier

Middle Tier

Lower Tier

Upper Tier

Middle Tier

Lower Tier

WORLD CLASS

0%

80.2

67.6

79.3

63.4 64.4 65.5

76.4

65.3

69.8

64.1

69.1

64.6 62.3 61.1

70.0 68.5

59.4

51.256.8

54.7

80.2

62.458.7

Food

/Drin

ks

All

Sect

ors

Aer

ospa

ce/D

efen

ce

Aut

omot

ive

Ban

ks/F

inan

ce/In

sura

nce

Che

mic

als

Con

stru

ctio

n

Con

sum

er G

oods

/FM

CG

Dis

trib

utio

n/Lo

gist

ics

Food

/Drin

ks

Indu

stria

l Man

ufac

turin

g

IT/T

elec

oms

Leis

ure

Indu

strie

s

Met

als/

Min

ing

Oil

& G

as

Phar

mac

eutic

als

Publ

ic -

Inte

rnat

iona

l

Publ

ic -

Nat

iona

l

Publ

ic -

Qua

si

Publ

ic -

Reg

iona

l

Ret

ail

Tran

spor

t

Med

ia/P

ublis

hing

Util

ities

/Ene

rgy

63.9

49.8 50.856.7

48.051.7

47.9

55.250.2 52.3 54.1

48.0 50.2 50.1 52.0 50.254.1

48.2

35.2

43.840.0

48.6 46.6

Highest ScoreAverage ScoreLowest Score

• 215 participants benchmarked using The PSCM Index tool

Critical Asset Management Key Issues – Limited Sector Competencies

IIAPS


10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

% OF OUTSOURCED 3RD PARTY SPEND

A TRANSACTIONAL – Very Low strategic significance

C

CYCLICAL – Low/Medium strategic significanceBOPERATIONAL – Medium/High strategic significance D CRITICAL – Very High strategic significance

0%0%

10%

20%

30%

40%

50%

60%PR

OFI

T M

AR

GIN

S

XX

XPharmaceuticals

IT Networking Equipment

Retail Financial Services

XE&P Oil & Gas

A B

C D

X

X

X X

IT Processors

Household Products Tobacco Products

Telecoms

Contract Manufacturing

Chemical Refining XX

Professional ServicesX

X Software Services

Wholesale Financial ServicesX

X

X XX

X

Food / Retailing / FMCGAutomotive

Construction

Computer Manufacture

Critical Asset Management Key Issues – Some Organisations & Sectors More Competent than Others

X XX

IIAPS


IIAPS research shows that

world-class make/buy & outsourcing is based on 4 Pillars…

(1) A Mandated Functional

Supply Chain Management

Rolewith responsibility

for value for money in both internal & external supply

(3) On-Line IT

Architecture & Supply

Mgmt System providing robust

flow management information about supply & spend by

business units, contracts, POs,

suppliers

(2) Rigorous Category

Management & Strategic Sourcing Process

meeting all QCD KPIs and ‘stretch’ VFM improvement

targets

(4) Competent

Line & Functional

Staffwith all of the skills to proactively drive & optimise VFM &

QCD ‘stretch’ improvement

targets

Each pillar has ‘bottom-line’ outputs, driven by rigorous & robustperformance measurement and management

Critical Asset Management 4 Pillars of Sourcing Excellence

IIAPS


• The best supply (internal or external) provides Ideal VFM Improvement Outcomes

against

‘stretch’

improvement targets

relative to the Baseline Technical & Commercial

Requirements.

Commercial Development

Commercial Development Ideal VFM

Outcome

Ideal VFM Outcome

Worst VFM Outcome

Worst VFM Outcome

Technical Development

Technical Development

Commercial RequirementCommercial Requirement

Tech

nica

l Req

uire

men

t Te

chni

cal R

equi

rem

ent TH

ighe

rFu

nctio

nalit

yLo

wer

Func

tiona

lity

C LowerCost

HigherCost

X = Baseline Value Proposition

X

=TC

Some Alternative VFM Trade-OffsSome Alternative VFM Trade-Offs

=TC

=TC

=TC

=TC

Critical Asset Management Sourcing Excellence – First Understand VFM Trade-Offs

IIAPS


TECHNICAL PERFORMANCE

COMMERCIAL PERFORMANCE







Critical Asset Management Sourcing Excellence – Proactively Drive Improved VFM Outcomes

• Proactive sourcing

requires on‐line

Supply Chain & Value Stream Process Visualisation,

with rigorous QCD

Performance Measurement & Management

against ‘stretch’

VFM

improvement targets in the chain.

Customers Focal Company

1st TierSuppliers

Suppliers in the Chain

IIAPS


• First understand where

and

why

you are

positioned

in the overall supply chain process

InboundLogistics

Tier 1 Contract

Manufacture

Tier 2:Sub

Components

Tier 3:Raw

Materials

End Customers

Wholesale/Distribution

Insourced Logistics

3rd Party Logistics

3rd Party Logistics

Outbound Logistics

UPSTREAMDOWNSTREAM

Branded PharmaceuticalManufacturers

• Also understand

and visualise

the key issues:

1.

Which Assets

are so Critical to Value Appropriation

they Must be Insourced?

2.

What

is the Current Quality, Cost and Delivery

(QCD)

Performance, and How can Profitability

and Value For money

(VFM) be Improved in the Future?

Critical Asset Management Sourcing Excellence – Understand Your Position in the Supply Chain

QCD/VFM Analysis

QCD/VFM Analysis QCD/VFM

AnalysisQCD/VFM

AnalysisQCD/VFM Analysis

QCD/VFM Analysis

QCD/VFM Analysis

QCD/VFM Analysis

QCD/VFM Analysis

Critical Assets Analysis

IIAPS


• Downstream competence requires greater visualisation and measurement of the current technical and

commercial performance

of the key stages in the process, as follows:

• This analyses and visualises the

current

‘effectiveness’

(customer satisfaction, sales revenue, cycle

times etc.) and ‘efficiency’

(profitability, costs to serve etc.) of Downstream Channel Partners and

Logistics Providers Downstream, so that

superior performers can be

rewarded and precise remedial

action can be focused on

under‐performers.

Highly ConfigurableReports on Relative

Quality, Cost & Delivery (QCD)/Value for Money (VFM) Performance

at the Activity & Task Levels

QUALITY

DELIVERY

• Customer Satisfaction

• Sales Revenue

• On-time Delivery• Cycle Times

• etc

=TC

Technical Key Performance Indicators

Commercial Key Performance IndicatorsCOST• Profitability

• Cost to Serve• etc

End Customers

Wholesale/Distribution

Critical Asset Management Sourcing Excellence – Improve Downstream Supply Chain Management

QCD/VFM Analysis

ViakableLogistics

3rd Party Logistics

3rd Party Logistics

Outbound Logistics

QCD/VFM Analysis

IIAPS


SourceVueImproving Downstream Supply Chain Management

• SourceVue

supports the visual

analysis

of

current

‘effectiveness’

(customer satisfaction, sales revenue,

cycle times etc.) and ‘efficiency’

(profitability, lower costs to serve etc.) so that precise remedial action

can be focused where maximum impact will be achieved.

• SourceVue

provides highly customisable

dashboards

tailored to an organisation’s specific requirements.

Highly Configurable Dashboard for

Management Reports on Relative

Quality, Cost &Delivery (QCD)/

Value for Money (VFM) Performance

at the Activity & Task Levels for Specific

Suppliers

=TC

Management Dashboard showingQuality Performance against Targets

at the Activity & Task Levels for Specific Downstream Channel

Partners

Management Dashboard showingQuality Performance against Targets

at the Activity & Task Levels for Specific Downstream Channel

Partners

IIAPS


SourceVueImproving Downstream Supply Chain Management

• Downstream supplier performance

can also be visualised and

measured to identify current

‘ineffectiveness’

and

‘inefficiency’

in the management of the key stages in the process.

Management Dashboard showing a few display options for VFM Performance against Baseline

at the Activity & Task Levels for Specific Suppliers

Management Dashboard showing a few display options for VFM Performance against Baseline

at the Activity & Task Levels for Specific Suppliers

IIAPS


Critical Asset ManagementImproving Internal Value & Process Optimisation

• Internally companies should analyse Asset Criticality

& QCD/VFM

to measure the value for money

(VFM) performance of operating current processes

against

baseline quality, cost and delivery KPIs, to

identify

‘inefficient’

and

‘ineffective’

performance issues

(ideally against

stretch performance targets).

Highly ConfigurableReports on Relative

Quality, Cost & Delivery (QCD)/Value for Money (VFM) Performance

at the Activity & Task Levels

=TC

QUALITY

DELIVERY

• Product Quality• Defects

• Wastage


• Fill Rates


Commercial Key Performance IndicatorsCOST• Operational Costs

• Rework Costs• Other Costs

InboundLogistics

OutboundLogistics

QCD/VFM Analysis

UPSTREAMDOWNSTREAMCritical Assets

Analysis

Branded PharmaceuticalManufacturers

IIAPS


SourceVueImproving Internal Value & Process Optimisation

Highly Configurable Dashboard for Management Reports on Relative Quality, Cost & Delivery (QCD)/Value for Money (VFM) Performance

at the Process Activity & Task Levels

• This analysis

measures

and

visualises

current ‘effectiveness’

(product quality, wastage, on‐time delivery,


(operational and rework costs etc).

IIAPS


SourceVueImproving Value & Process Optimisation

• This analysis

measures

and

visualises


(product quality, wastage, on‐time delivery,


(operational and rework costs etc).

IIAPS


Critical Asset ManagementImproving Upstream Supply Chain Management

• Upstream

we companies should focus focused on QCD/VFM Analysis

–

visualisation

and measurement

of the

value for money

(VFM) performance of current

1st Tier suppliers (and if possible suppliers

upstream in the chain)

against contractually agreed

quality, cost and

delivery KPIs, to identify

superior

and

inferior performers.

• Analysis of the


(product quality, wastage, on‐time delivery, cycle times etc.) and

‘efficiency’

(purchase price and total costs of ownership etc) of the Upstream Supply Chain can be

visualised, so that precise remedial action can be focused on

under‐performing suppliers.

Highly Configurable Reports on RelativeQuality, Cost & Delivery (QCD)/

Value for Money (VFM) Performanceat the Activity & Task Levels

=TC

QUALITY

DELIVERY

• Product Quality• Defects

• Wastage


• Fill Rates


Commercial Key Performance IndicatorsCOST• Purchase Price

• TCO• Profitability

Tier 2: Vinyl Chloride

Monomer (VCM)

Tier 3:Chlorine/

Ethylene Crackers

3rd Party Logistics

Tier 1:PVC Resin

Manufacture

BrandedPharmaceutical

ManufactureQCD/VFM

Analysis

QCD/VFM Analysis

QCD/VFM Analysis

QCD/VFM Analysis

IIAPS


SourceVueImproving Upstream Supply Chain Management

Management Dashboard showing a few display options for VFM

Performance against Baseline at the Activity & Task Levels for

Specific Suppliers

Management Dashboard showing a few display options for VFM

Performance against Baselineat the Activity & Task Levels for

Specific Suppliers

• This analysis

measures

and

visualises

current value for money

(VFM) performance of current 1st Tier

suppliers (and if possible suppliers upstream in the chain)

against contractually agreed quality, cost

and delivery KPIs, to identify

superior and inferior performers.

IIAPS


SourceVueImproving Upstream Supply Chain Management

• Upstream

attention is focused on visualisation

& measurement of current

value for money

(VFM) performance 1st Tier suppliers (and if

possible suppliers upstream in the chain)

against contractually agreed

quality, cost and

delivery KPIs, to identify

superior and inferior

performers:

IIAPS


SourceVueAn Advanced Visualisation Tool for Management Analysis & Reporting

IIAPS


Critical Asset Management Sourcing Excellence – Proactively Drive Organisation & People Competence

IIAPS


Contacts

Andrew Cox Vice‐President

Email: [email protected]

Tel: +44 (0)1789‐415240

International Institute for Advanced Purchasing & Supply

EMEA

Office

180 PiccadillyLondon

W1J 9HF, UK

Tel : +44 (0)20 7917 6842Email: [email protected]

Americas Office

7702 E. Doubletree Ranch RdSuite 300

Scottsdale, AZ

85258, USA

Tel : +1 480 348 3939Email: [email protected]

Asia Pacific Office

3/296 Beaconsfield ParadeMiddle Park, MelbourneVictoria 3206, Australia

Tel : +86 (0)21 6217 0253Email: [email protected]

life sciences index presents andrew cox from iiaps at pharma integrates 2013

Business

improved vfm

decisionmaking outsourcing

suboptimal make