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Smarter Supply Chains

The life sciences industry is currently in a difficult place, and the direction that a company chooses to take will determine if it will fade or flourish. The economic environment is increasingly more volatile, complex and structurally different than in the past. Add to this an industry business model – reliant on blockbusters – which is broken, and a healthcare ecosystem that is changing dramatically. Global business leaders are starting to feel that the speed, immediacy, unpredictability and viral nature of change means they need to do more to manage in this environment. Rather, success will depend on their ability to innovate and work smarter, not least in the area of the supply chain (1).

To ascertain the depth to which today’s uncertain environment impacts the global supply chain, a 2010 study surveyed 664 supply chain management executives in 29 countries around the world, of which 33 identified themselves as life sciences companies (2). It discovered that complexity exacerbates the host of challenges these executives must manage on a daily basis. The findings reinforce those of another study in which 83 per cent of CEOs in the life sciences industry identified complexity as among their top organisational challenges (3).

Study Findings

The most significant issues revealed by supply chain management executives participating in the latest study can be divided into three categories.


Some 52 per cent of respondents from life sciences companies reported that fluctuation in customer demand has been one of the leading challenges.

Additionally, demand variances are increasing customer requirements for sustainable products and services, as well as heightening expectations for responsiveness, quality and low cost. Parallel to this, supply chain managers are encountering poor quality and reliability performance from suppliers which, along with logistics constraints and bottlenecks, hampers delivery performance and customer service levels. These issues are exacerbated as life sciences companies continue to globalise their operations and enter emerging markets – their operations are becoming increasingly dependent upon a growing number of customers, suppliers, regulators and markets.


As the number of supply chain partners increases, so does the need for accurate, time-sensitive information become more acute. However, the lack of collaboration and integration between supply chain and product development partners continues to be a major concern. Product life cycle traceability in life sciences and other industries is a growing requirement. Yet, despite continued technological enhancements, lack of visibility to worldwide, timely information, needed for making in-stream decisions, remains a significant issue for 45 per cent of life sciences respondents to the survey.


There is constant pressure for supply chain management and operations to create enterprise value. Inventory optimisation is a predominant challenge for half of life sciences executives that were surveyed, as is the means for protecting margin and decreasing working capital.

Optimising Performance

Overcoming the obstacles that complexity and uncertainly introduce into the relentless challenges of managing the supply chain will require three new rules:

1. Know the customer as well as yourself – by smoothing volatility with predictive demand

2. See what others do not – by unveiling information with collaborative insight

3. Exploit global efficiencies – by enhancing value with dynamic optimisation

1. Know the Customer as Well as Yourself

From interviews conducted in the 2010 CEO study, we learned that 67 per cent of top life sciences executives view volatility in the new economic environment as their largest concern (3).When CEOs speak of volatility they refer to deeper and faster processing cycles, such as order-to-cash and procure-to-pay.

Responding to volatility in market conditions, and the resulting customer demand patterns, has proved to be the biggest challenge for supply chain executives and, not surprisingly, a key investment area. Still feeling the repercussions of the worst economic downturn in decades, many companies are currently focused on stabilising their businesses against this volatility. Leading companies are:

  • Rapidly responding to constant changes in market conditions and demand variability. Investments are directed towards improving demand management and forecasting beyond the ‘four walls’ of the enterprise. They are sharing forecasts, production, supply and replenishment plans with key suppliers and service providers to help make sure that all are on the same page. They are also building consensus from sales and marketing through operations towards networked sales and operations planning
  • Using advanced analytics, market intelligence and customer collaboration to predict demand
  • Carrying out in-process reallocation of inventory in response to demand variation: resupply; redistribute; and reroute

Those who are following a predictive and demand-driven model include customer considerations, interaction and performance criteria in all of their supply chain activities.

2. See What Others Do Not

Supply chain visibility continues to be a major concern today, as companies seek agility and responsiveness in their global operations. Indeed, in a 2012 study, half of life sciences CEOs said they were looking to improve their ability to draw meaningful insights from information across their supply chain (4).

At a time when the free flow of information is readily available to most of the world through the Internet, supply chain managers still struggle with getting accurate and timely information to run their global operations. Effectively capturing, managing and analysing information – and collaborating with global partners to make real-time decisions – are major concerns and require substantial effort. This was highlighted in another recent study which looked at applying social business strategies and tactics within an organisation and its surrounding value chain (5). Some 80 per cent of life sciences respondents said they were looking to use social business approaches to enable their vendor and partner interactions to help increase transparency and collaborate inside and outside the ‘four walls’.

Leading organisations are developing the following capabilities:

Customer Service

Business intelligence and advanced analytics are being used to analyse, monitor and detect changes, from the highest priority events to the smallest transaction, that influence customer service. From adjustments in forecasts due to real-time point-of-sales or actual orders, to production schedule adjustments from a supplier, or to intransit shipment status from a carrier, they are aware and reacting quickly.

Performance Management

Performance management and event monitoring includes evaluating thresholds of tolerance, responding to business rules with either corrective actions automatically or with alerts for human intervention. In the latter, leaders are integrating and synchronising end-to-end information among all parties, bringing together pertinent data on events in order to monitor activities and the performance of plans. They are implementing dashboards, in multimedia, on multi-devices, to proactively manage their supply chains. They are taking ‘sense and respond’ to greater levels of ‘predict and act’.

Collaborative Decision-Making

Businesses are creating ‘virtual command centres’ to fuse real-time information, event processing and advanced analytic technologies. Their extensive connectivity enables the entirety of their supply chain network to plan and execute decisions collaboratively.

Product Tagging

Finally, companies are capturing real-time information to proactively monitor product and service flows using smart devices (such as radio frequency identification, sensors and actuators). As product life cycle traceability is becoming a major concern, the use of smart devices is likely to become more prevalent for tagging products, as well as the containers and modes that are transporting them. In life sciences, the issue of counterfeit drugs is one area. The World Health Organization presumes that 10 per cent of the worldwide drug supply is counterfeit, and a lifesaving drug could turn into a killer as counterfeit and contaminated medicine spreads across the globe. In emerging markets, the problem is even worse. In India, for example, the counterfeiting problem is seen as a key cause of morbidity, mortality and loss of public confidence in medicines and health structure. Being able to manage the pedigree of a drug through traceability solutions not only helps protect the safety of the patient but also extends brand and industry credibility (6).

3. Exploit Global Efficiencies

Supply chain management is not just about aligning supply and demand. In the end, it has to be about developing and executing the strategies to achieve the company’s financial objectives. Executives are under constant pressure to ensure their supply chain operations create enterprise value. Each interaction in the supply chain network represents an opportunity to perform more efficiently and more productively.

Studies have shown that companies are focused on bringing value through using enabling technologies to manage costs, inventory, risks and talent. Top strategic and smarter capabilities include:

  • Extensive outsourcing of nondifferentiated functions. Leaders are taking advantage of global capabilities, skills and cost structures and share risks across the extended network 
  • Optimised pipeline inventory. Inventory is kept at ideal levels throughout the global supply chain 
  • Efficient cost structures. Leaders employ variable costs structures that fluctuate in direct synchronisation with demand variability
  • Cost-efficient sustainability practices which analyse and optimise cost and service levels, while evaluating the trade-offs against carbon footprint, energy or water usage. For example, product design can include environmental considerations such as recycling and after-life disposal
  • Hedged risks in which companies use inclusive risk management policies and programmes that are adjusted for the probability of an event occurring and which can also offer supporting mitigation strategies

Strategic Direction for the New Decade

Based on input from executives around the world, the research demonstrates the value of building smarter supply chains. The motivation behind smarter operational practices is not just for efficiency, but also growth – having the foresight to generate innovative capabilities in the midst of extreme periods of volatility and complexities. The three top strategies that must be continuously advanced to counter demand variability, increase supply chain visibility and enhance enterprise value are:

  • Analytics applied to demand management with networked sales and operations planning 
  • Collaborative network visibility with intelligent performance management
  • Variable and optimised cost structures, modelling inventory and talent deployment, adjusted for risk

As supply chain executives plot their course, here are a few questions they should consider asking themselves:

Smooth Volatility with Predictive Demand

  • With volatility and variability rising, do you have the analytical capabilities to determine the optimal global configuration for your supply chain?
  • Are you using market intelligence and your customers’ data to predict buying patterns with real-time adjustments to demand planning and execution?
  • Are your customer relationships as strong as your supplier relationships?
  • Which parts of your supply chain lack participation?

Unveil Information with Collaborative Insight

  • Do you have real-time visibility on key control point indicators such as forecasts versus orders, or shipment status?
  • Do you have integrated performance management of all events with realtime dashboards, key performance indicators, event alerts and performance thresholds?
  • Do you closely collaborate with your supply chain partners?
  • Is your performance measurement system centred on customer goal achievement?

Enhance Value with Dynamic Optimisation

  • Are you focusing on core capabilities? Are you outsourcing the right functions? Are you taking advantage of the global cost, capabilities, local regulatory knowledge and skills of partner companies?
  • Do you dynamically allocate all of your resources: human; assets; supply; production?
  • How is risk factored into your operational decision-making and contingency planning? How do you measure the effectiveness of your risk management strategy?
  • Do you have a sustainable strategy, refl ected in product design and packaging, collaboration with customer initiatives and supplier compliance programmes?


Today’s global marketplace for life sciences companies will become increasingly competitive over the next few years. As enterprises seek to optimise their supply chains and respond to constant demand variance, adopting new rules to restore stability to supply chain operations will be critical in helping those organisations to flourish rather than fade.


1. Fade or flourish? Rethinking the role of life sciences companies in the healthcare ecosystem, IBM Institute for Business Value, August 2011

2. New rules for a new decade: a vision for smarter supply chain management, IBM Institute for Business Value, October 2010

3. Capitalizing on complexity: IBM global CEO study, IBM Global Business Services, May 2010

4. Leading through connections – insights from the IBM global CEO study, IBM Global Business Services, May 2012

5. The business of social business – what works and how it's done, IBM Institute for Business Value, November 2012

6. Partnership for safe medicines arms public against counterfeit drugs, Partnership for Safe Medicines. Visit: partnership-for-safe-medicines-armspublic- against-counterfeit-drugs-1.html

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Heather Fraser has over 25 years’ experience in the life sciences sector, working across community pharmacy, the pharmaceutical industry and in consultancy. She is currently the global leader for the sector in IBM’s Institute for Business Value, where she develops strategies on related business issues. Recent papers have investigated the future of the life sciences industry and the implications for clinical and pharmaceutical development, manufacturing and the supply chain; alliance management between pharmaceutical, biotech and academic organisations; collaboration across the pharmaceutical and healthcare industries; and the impact of emerging markets on pharmaceutical R&D. She has also developed a set of viewpoints based on interviews with life sciences and healthcare CxOs.
Heather Fraser
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