Considering the dynamics of the pharmaceutical industry today, is there ever a bad time to re-analyze distribution networks? It sure seems that everything is changing – customer profiles, number and size of suppliers, product characteristics, service requirements, transportation needs, postponement approaches, etc. It remains safe to say that the constant in the foreseeable future is change. As a result, the need to quickly and efficiently perform a supply chain network “optimization” analysis is becoming increasingly relevant.
Need for network agility/ adaptability
Interestingly, as the need for analysis accelerates, the related ability to execute network design recommendations quickly and efficiently becomes more important. If the network cannot adapt, why even analyze it? This reality adds complexity to the network design analysis in that time phased implementation plans warrant additional scrutiny and involve difficult to quantify trade-offs between efficiency and adaptability. As a result, supply chain network design is becoming more and more strategic and not just a cost minimization focused endeavor.
Growing temperature-controlled volumes
A generally accepted rule of thumb over the last several years is that temperature-controlled volume continues to grow at about 2 times the growth of pharmaceuticals overall. At the same time, regulators are making temperature-controlled requirements more stringent and relevant for more products. This means higher distribution costs both from a network perspective as well as the maintenance of the IT and related infrastructure to monitor temperature excursions. When considered in conjunction with potentially significant reductions in traditional volumes due to patent cliff realities, a manufacturer’s product mix may be shifting at an unprecedented pace. Only with good planning, analysis and execution can the network keep up.
Supporting supply chain risk management
A few years ago, even with significant concerns about a broad spectrum of risks across the supply chain, research by the UC Berkeley Center for Excellence in Logistics and Distribution (CELDi) Biopharmaceutical Operations Initiative (BOI) stated that, “…there is relatively little focus in the industry on detailed analysis of relevant data, relatively little formal quantification of risk, little formal modeling and simulation of risk or risk mitigation strategies, little focus on inventory optimization, and little measurement of uncertainty.” Many supply chain risks are relatively easy to simulate and quantify within common network analysis activities. What if we lost the use of a manufacturing site due to a contamination issue or a hurricane? What if an important air freight lane was affected by a volcanic eruption? What if the recall of a competitor’s product causes significant demand spikes? All these “what if” scenarios hit the sweet spot of network modeling and analysis.
Developing a network design rhythm
As this pace and magnitude of change increases, so does the need to re-analyze supply chain networks. Luckily, the data, computing power, optimization/simulation tools and expertise to perform these analyses exists today like never before.
But let’s be practical. Doesn’t it make sense to offset our increasing complexity with some supply chain network stability? The answer to that question lies within the strategic direction of each company. No matter what the strategic direction, however, creating a rhythm of analysis to investigate opportunities for continuous improvement provides insight and information for better strategic decision-making.
A few years ago, research published by Gartner  suggested a 1 to 5 year time horizon for network modeling. That’s quite a range. But depending on the rate of change a particular organization is facing, re-analyzing the entire supply chain network every year or two is certainly not unreasonable to consider. This doesn’t mean that distribution centers, manufacturing sites or transportation approaches should change that often. It does, however, suggest that enough analysis be done to prepare an organization and potentially its trading partners for change and adaptability. This mindset is another factor that makes supply chain processes more strategic.
Since the data availability, tools and processes can accommodate it, smaller scale analyses can be performed in more frequent intervals, allowing for smarter, more informed decisions to be made as more tactical processes change. In essence, supply chain design can become, strategic, tactical and operational, preparing for the long term and analyzing major network changes even before they occur.
Who can best perform supply chain network analyses?
In a discussion group at an industry event, one company presented how they analyzed their distribution network in detail with the intent to “re-bid” their warehousing and logistics contracts based on the results of the analysis. Someone asked, “Why don’t you just let your current 3PL provider perform the network analysis for you?” That simple question essentially split the room and a very energetic discussion ensued. At the core of the debate was the fundamental “insource vs. outsource” decision. Some companies would never let a 3PL “design” their logistics network, others prefer to let a 3PL or other partner control/influence logistics more completely because they don’t feel logistics is a core competency. Both approaches are acceptable and potentially controversial.
Nowadays, lots of organizations can perform the network analysis, there are plenty of readily available tools to leverage and the data to support the analysis is nowhere near as difficult to collect and understand as it used to be. Who performs the analysis is basically a matter of business intent and strategic approach. Today, the what, when and how questions may be more important than who.