In the first piece on financial planning and analysis, (FP&A), in the pharmaceutical sector, we looked at some of the issues the industry faces and how companies are increasingly embracing patient-level forecasting, using our partner Anaplan’s connected planning platform, as a way of improving forecasting accuracy and planning agility. Now we’ll take a deeper dive into supply chain planning; an issue that many within the industry say needs to drastically improve.
Further disruption of an already compromised supply chain
Lack of actionable visibility up and down a complex supply chain, has meant the pharmaceutical industry has always struggled to match fluctuating demand, with an often unpredictable supply to a satisfactory level of accuracy. Recently Covid-19, and Brexit if you are in the UK, has exacerbated the situation with drug wholesalers and retail pharmacies tending to stockpile medicines in the downstream supply chain. Meanwhile interruptions in the supply of active pharmaceutical ingredients, (API’s), many of which come from Chain and India, has disrupted manufacturing. In a recent research report on the industry by the IT advisory group IDC, commissioned by logistics technology specialist Tracelink, 63% of survey respondents said they had lost faith in their demand forecasts, 75% said they are in reactive mode and constantly expediting shipments to fulfil orders, resulting in a deterioration in on-time in-full (OTIF) delivery performance, and subsequently in customer service and satisfaction. With poor demand forecasts and unpredictable supply, most respondents reported that their companies had simply bolstered inventories of both finished goods and raw materials which were already running at high levels, causing a large increase in working capital.
Going from reactive to proactive
Building a resilient supply chain that can quickly respond to fluctuations in supply and demand requires better visibility into suppliers, inventory, business processes, and customers. This is something that the sponsors of the IDC can help companies achieve with their ‘smart inventory’, track and trace technology. But having visibility is not enough. Supply chains also need to be agile and many respondents in the IDC survey report taking steps such as diversifying their sources of raw materials, shifting manufacturing closer to key markets and reducing reliance on outsourced manufacturing to improve it.
But as the authors of the report point out, achieving step changes in agility requires managers to be provided with analytics and planning tools that will enable them to quickly assess and respond to disruptions, while implementing changes to minimise similar problems in the future. Such tools must also help improve the accuracy of supply chain forecasts by getting closer to the demand source data, which in the case of pharmaceuticals is patient-centric dispensing and usage data. This is exactly the same data that is essential to improving FP&A processes in pharmaceuticals that we discussed in the previous piece, However, the findings of the IDC report suggest that currently, only 23% of respondents have adopted patient-level forecasting, with the majority still working towards it. But once in place, patient-level forecasts will help companies proactively forecast demand much more accurately, allowing companies to reduce their traditionally high inventories and release working capital while simultaneously improving customer service.
One of the key recommendations of the report is that companies ‘investigate platforms to enable integration of planning and operations across the end-to-end demand and supply network’. Some are already there, having adopted our partner Anaplan’s cloud-based planning platform to shift from disparate planning solutions to end-to-end supply chain planning across multiple time horizons. Driven by patient-based sales forecasts that align with commercial and financial forecasts, these companies now have better visibility across their supply chain and the insight and agility to make long-term strategic plans and take short-term decisions that all help make their supply chains more resilient.
With quick and easy modelling and a data structure designed to support an agile approach means implementation is rapid with one company rolling out connected patient-based forecasting and end-to-end supply chain planning in just 4 months!
Click here to read more about how our team at Profit& can help you transform your supply chain.
Meanwhile, if you are still suffering with spreadsheets and legacy planning systems, we’ll be happy to talk through your requirements and show you how connected planning on Anaplan’s cloud-based planning platform can be a real tonic for FP&A.