BIOTECH SUPPLY
CHAIN ACADEMY
October 8-9, 2012
Crowne Plaza, Foster City, CA
The Supply Chain Challenge:
Creating Value
Wayne McDonnell
Director, Advisory
PwC
Preparing for the “New Normal”
In an era of increased change and unanticipated events, volatility
is becoming the “new normal”
Shifting Global
Demand Growth
2x
32%
Higher GDP
growth in AP,
MEA vs EUR, NA*
of CEOs are
“extremely
concerned”
about volatility*
66%
of CEOs say that
uncertain growth
influences their
strategy*
Volatility and
Uncertainty
* PwC 15th Annual Global CEO Survey (2011)
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Continued Cost
Pressure
66%
Operations
Management
Challenges
>60%
of CEOs expect
to implement
cost reduction
initiatives, an
increase over
2010 survey*
of operations
executives named
supply assurance
and flexible supply
chain architectures
as top priorities**
End-to-End Value
Chain Flexibility
** 2011 PRTM Global Supply Chain Trends Study
2
Emerging from the “Save” Mentality
Companies can realize the strategic advantage of a robust
supply chain by modifying the ‘old’ view of its capabilities
Resiliency
Cost
Containment
Risk Avoidance
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Agility
Companies are shifting from
the ‘save’ mentality to seeing
the effects a robust and
flexible supply chain has on
top line growth and bottom
line value
Integration
Flexibility &
Segmentation
3
How do we create value?
Supply Chain Strategy and Capabilities
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4
Six key elements of an end to end
supply chain planning process
.
Organization and Decision
Making
1
•
•
•
•
Sales and Operations
Planning Process
3
Metrics
2
Executive staff
NPI / Operations / SC
Sales and marketing
Finance
Step
1 Demand
•
•
•
•
Step
3 Demand /
Supply
Balancing
Planning
Step
2 Supply
Planning
Business Assumptions
4
•
•
•
•
Key market trends
Product roadmap
Pricing and promotion plans
Financial targets
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Inventory turns
On-time delivery
Cycle time
Forecast accuracy
Step
4
Implementation
Demand Plan
Step
4
Implementation
Supply Plan
5
Planning Calendar
• Cross-functional
responsibilities
• Daily/weekly activities
• Weekly//monthly/quarterly
approval meetings
6
Systems and Tools
• Automated demand and
supply plan generation with
allocations
• End-to-end supply chain
inventory visibility
5
Understanding Segmentation
Customer & Market
Analytics
Current Capability
Assessment
Govern & Refine
Seven Step Process
Align Crossfunctional Metrics &
Incentives
Align & Enable
Dynamic Cost Model
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Cluster Value Chain
Requirements
Design Portfolio of
Supply Chains
6
The Power of Supply Chain
Segmentation
Supply chain leaders know how to created differentiated supply
responses to various demands…and create / deliver value
Grouping
Planning
Benefits
High
A
A
Volume
High
B
I.
C
A
B
Volume
Volume
II.
B
C
III.
C
Event/ Promotions
Low
Low
Low/Constant
High/Erratic
Consumption Variability
NPI/ EOL
Forecast Accuracy
Safety Stock
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7
The Power of Supply Chain
Segmentation
Increasing forecast accuracy and reducing forecast dependency
is equally managed by supply chain leaders
Smallest
Return on
Investment
A demand driven, near
real-time supply chain
successfully optimizes
inventory and manages
other costs related
forecasting error
SC Planning
Practices
Forecast
Accuracy and
Process
Improvement
Differentiated
End-to-end
Supply Chain
Model
SC Planning Processes
and Systems
Highest
Return on
Investment
Reduce
Dependency on
the Forecast
Supply Chain/
Performance Impact
Strategic Options
Deploy processes to
increase forecast accuracy
-andOptimize Safety Stock
Co-planning
NPI / EOL
Event/ Promotion
Process
Reduce Forecast / SC
Planning Dependency
Seasonality Statistic
Safety Stock
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Aggressive
Lead Time
Reduction
Optimal
Safety Stock
Postpone
Differentiation
MTO
Deploy strategies to reduce
forecast dependency whenever
possible
8
Understanding Net Profitability
Profitability modeling enables fully loaded net margin visibility
and provides new insight into the drivers of financial performance
Worst:
Managing
primarily by
Gross Margin
•
Slightly Better:
Managing
primarily by
Contribution
Margin
Best:
Managing by
primarily by
Net Margin
•
•
•
•
•
•
•
•
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Ignores substantial costs to
serve
Justifies unprofitable
business
Leads to business
complexity
ILLUSTRATIVE
Customers that Gross Margin suggests
are the “best” often become the “worst”
when all cost are included
Includes only direct
variable costs
Excludes substantial costs
that should be managed as
variable but typically are
not (overhead, SGA, etc.)
Includes all costs of
business
Clarifies profit contributing
and non-contributing
customers, products,
channels, etc.
Leads to better
management and higher
performance
9
Enterprise Profit Realization (EPR)
EPR is based on achieving dramatic improvements in customer
lifecycle, product lifecycle, and supply chain management
Customer Life Cycle Mgmt
• Customer portfolio
rationalization
• Sales force effectiveness
• Pricing strategy
• Customer profitability by
segment and channel
• Account management
• Sales OpEx
• CLC process improvement
and tools
Supply Chain Mgmt
• Sourcing improvement
• Manufacturing process
improvement
• Distribution network
optimization
• Inventory management
• Freight cost reduction
• SLA s reflect cost to serve
• Supply Chain OPEX
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Enterprise Profitability Realization Framework
Corporate/BU Vision, Mission, Values and Strategy
Customer
Lifecycle
Management
Product
Lifecycle
Management
Profitability
Modeling &
Measurement
Supply
Chain
Management
Product Life Cycle Mgmt
• Product line rationalization
• Marketing and technology
investment return/
affordability
• Price Setting and
Administration
• Product line profitability by
segment
• Portfolio management
• Marketing OpEx
• PLC process improvement
and tools
Profitability Modeling
Profitability Modeling is the critical
enabler to moving to best in class.
Factoring in fully loaded costs and
fully allocated discounts and
revenue offsets at a transaction
level is critical. It enables
transparency into true customer
and product profitability and
enables fact-based decision making
using new Performance Metrics
Delivery Model
10
Profitability Opportunities
Five typical issues that are usually not addressed by traditional cost-cutting
and restructuring initiatives; KEY is understanding Gross to Net
Value Levers
1
• Increase price/reduce discounts
• Change pricing/revenue model
Improve
Gross
Profit
Increase
Revenue
• Increase sales volume
2
• Change product mix
• Unbundle product/service offerings
• Change customer mix/Optimize portfolio
Decrease
COGS
• Reduce costs of supplies
• Change product mix
Reduce
Selling/
Marketing
Costs
Economic
Profit
Decrease
SG&A
• Increase Sales Force productivity
• Decrease staffing
• Consolidate/Optimize marketing/Media spend
• Optimize physical network
Reduce
Distribution
Costs
• Optimize scheduling
• Leverage alternative distributions
Increase
Capital
Efficiency
• Lower customer service costs
• Lower IT costs
• Lower HR costs
• Reduce inventories
Improve
Cost of
Capital
Large customers do not
always equate to
profitable customers
5
to sell products, not
target profitable
customers
Many Marketing/Media
Initiatives result in low
or negative ROI
• Reduce AR/Increase AP
• Improve capital planning process
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Large number of
products have low sales
and serve low or
unprofitable customers
4 Sales force is structured
• Consolidate transportation vendors
• Decrease staffing
Reduce
Admin.
Costs
3
Price is the largest
contributor to NOI
improvement, but
rarely used
• Reduce cost of Debt
• Reduce cost of Equity
• Adjust Debt/Equity Mix
Excess inventories due
to customer/ product
inefficiencies 11
Supply Chain Opportunities
Profitability modeling enables supply chain opportunities assessment on five
key supply chain areas; performed based on benchmarking
ILLUSTRATIVE
Plan
Processes that
balance aggregate
demand and supply
to develop a course
of action which best
meets sourcing,
production and
delivery
requirements
Source
Processes that
procure goods and
services to meet
planned or
actual demand
Make
Deliver
Return
Processes that
transform product to
a finished state to
meet planned or
actual demand
Processes that
provide finished
goods and services to
meet planned or
actual
demand, typically
including order
management,
transportation
management, and
distribution
management
Processes associated
with returning or
receiving returned
products for any
reason.
These processes
extend into postdelivery customer
support
• Production
Scheduling
• Manufacturing
• Assembly
• Kitting
• Warehousing
• Distribution
• Outbound
Transportation
• Reverse Logistics
Functional Processes
• Demand Planning
• Inventory Forecasting
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• Sourcing
• Procurement
• Inbound
Transportation
• Inventory
Management
12
Improving Profitability
Start with 360 degree profitability view of the enterprise, then rationalize
customers and products, and optimize operations and supply chain
Develop
Profitability Model
Create end-to-end financial
picture of the enterprise
Customers
Rationalize
Customer
Portfolio
Rationalize
Product
Portfolio
Optimize
Operations
Exit
unprofitable
customers
Sunset products
that no longer sell
Rationalize Sales and
Supply Chain for less
complex portfolio
Shift low
profitable
customers to
distributors
Rationalize low
performing
products to tier 2
or 3 customers
Align sales to more
profitable
customers/products
Customers
Customers
Products
Products
Customers
Products
Products
Sales
Sales
Sales
Sales
Supply Chain
Supply Chain
Supply Chain
Supply Chain
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Thank You!
We create client value by building the critical link between
strategy and execution…what is your strategy?
Driving Strategy to Execution
Business Strategy
Execution
Operations Critical Link
Business
Design and
Operational
Strategy
Organisation Design and
Change Management
End-to-end Capabilities
Strategy  Customer  Product Innovation 
Operations  People and Change  Finance 
Technology  Risk  Deals
4/13/2015
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Profitability modeling enables supply chain opportunities