Written by 6:32 pm analytics, Demand • 3 Comments

The Global Supply Chain Needs A Shot In The Arm

My left arm hurts.

I have been on a waiting list to get the shot for three years. This week, I rolled up my sleeve and got the Shingrix vaccine. Glaxo SmithKline introduced Shingrix in 2017, but shortages prevailed.

I paused when the pharmacist asked, “Do you mind which arm gets the shot?” I replied, “Isn’t it all the same?” However, two hours after getting the shot, my arm throbbed and turned red. I now understood. Shingrex has side effects. On the next day, I was glad that it was the left arm, not my dominant right arm. It hurts.

In Search Of A Vaccine

Yesterday, as I struggled with the side effects of fever and chills, I reflected. I am 66 and became eligible for the Shingrix shot at the age of 62. For three years, my name was on the waiting list at three different health care facilities. None called. During the pandemic, demand fell, and it was now available.

The global economy rebound from COVID-19 hinges on the discovery and manufacture of an effective vaccine. The promise is eighteen to twenty months, but there are no promises. However, supply chain leaders well understand that drug discovery, manufacturing, and distribution are all necessary to deliver the vaccine to a willing arm.

The measles vaccine took four years in 1968. Development and distribution, as any supply chain leader knows, are two different topics. Return to business as usual hinges on the introduction of a vaccine. My take? The intention is high, and the learning will be rapid, but it will not happen soon. As a result, the supply chain, as we knew it is dead. The approaches and technologies deployed before March 2020 are now legacy. Together, we need to go to a place that we have never been before in the evolution and innovation of supply chain processes.

The problem is that there is no clear supply chain leader in the pharmaceutical industry. The industry, with a typical operating margin of more than 20%, lags the distribution capabilities of other industries. In the eight years of the Supply Chains to Admire Analysis, there has never been a winner in the pharmaceutical industry. The companies are just not good at managing inventories and orchestrating distribution strategies. The industry planning team expertise lags the consumer goods, and hi-tech industries. The global supply chain recovery depends on a vaccine, but I expect the distribution cycle to be longer than the discovery phase.

In Table 1, we share the Supply Chains to Admire 2019 analysis.

Table 1. Supply Chains to Admire Analysis for the Pharmaceutical Industry

New Problems Require New Solutions

Today’s supply chain processes are functional. They are seldom cross-functional to optimize source, make, and deliver together.

Enterprises respond, but they do not sense market shifts at the speed of markets. The implementation of marketing and sales technologies made sales and marketing processes more efficient, but not market-driven. The difference? The issue is the time required to sense and adjust to market shifts. The average demand latency for a grocery retailer is eighteen days, three weeks for consumer manufacturers, and six-to-nine months for chemical companies. While we have played the beer game many times and laughed about the bullwhip effect, the investments over the last decade made it worse, not better. We focused on integration, not data synchronization, and interoperability.

We need to face facts. The focus on functional automation with an emphasis on efficiency amplifies the bullwhip effect. Companies are not good at sensing market consumption at the speed of business. Without a vaccine, the supply chain becomes increasingly local. As a result, investments need to shift from transactional system automation to sensing, and agile automation. Building sensing capabilities requires partnering with smaller and innovative technologists. Here I make the argument:

The Hammer and the Dance. Prepare for a different supply chain. Without a vaccine, regions will slowly resume activities. The dance will start slow and then become faster. However, when the virus resurfaces, the hammer will fall, and shutdowns ensue. Traditional supply chain approaches broad-brush market replenishment. Without a vaccine, the next two years will be all about doing local well. There will not be a new normal. Instead, expect constant change. Design agile supply chains. The impact? There are many. Traditional demand planning based on historical order patterns is obsolete. Recommendation. Build a data lake and implement demand sensing technologies to drive replenishment based on local market conditions. Redefine tactical and operational demand based on market inputs. Use network design tools to continually redesign and align. Retrain employees and design outside-in practices.

Factory design did not include the criteria of social distancing. Let’s face it. By definition, factories are not COVID-19 friendly. Improving factory design is not an easy fix. In the long-term, expect redesign through robotics, pattern recognition, cameras, and 3D printing. In the short-term, expect disruption. Recommendation. Localize supply—design inventory strategies to include buffer strategies. Simplify manufacturing scheduling to limit last-minute changes.

Constants are no Longer Constants. Prepare for Constants As Constraints. I grew up managing supply chains in a world where containers were readily available, airline bookings were costly but possible, and trucking a discussion on cost, not availability. We are entering a world where logistics availability is fragile: we cannot take it for granted.. As warehouses fill with the wrong products (items ordered and sourced before the shutdown), companies will scramble for outside warehouses and container storage. As border crossings become longer, often requiring quarantines, truck transits become more variable. In the post-COVID-19 pandemic, the logistics assets that we take for granted become a constraint. Containers and warehouses will quickly fill with products that are not selling, and logistics providers will struggle with illness in the trucking industry.  Recommendation. Be a good shipper. Share projections for demand and quickly unload containers. Track leadtimes and update planning systems with new data and trends. Use telematics data to track deliveries and update customers. Plan on variability and elongate leadtimes. Expect that this recovery is anything but business as usual.

Innovate With Innovators. The principles of traditional planning technologies fall short in helping companies through the recovery. For example. how do you optimize chaos? What is the role of order pattern recognitiion when the order no longer represents demand? Instead, partner with data scientists to sense demand locally and realign supply. Expect for this technology to be throw-away, but essential for short-term business continuity. Do not waste time with a RFP or stall pretending that there is a well-defined ROI. This is a time where there are no clear answers. Instead, consider the investment in new forms of analytics to be a business essential. (In parallel, stop the work on traditional demand and supply planning. The fundamentals are just wrong to help through the recovery.) Focus on demand sensing, what-if analysis and the alignment of demand and supply based on agile strategies. Explore new forms of analytics with technology companies like Aera Technology, Antuit, Celonis, Enterra Technologies, and Expero. If you are a LLamasoft or OMP client explore the use of network design technologies. If you are an E2Open client using Terra Technology, exploit the use of the demand sensing capabilities, but avoid investment in the rest of the suite until there is more testing and a proven solution. Likewise, if you are a Kinaxis client, fully exploit the what-if capabilities. However, don’t expect answers to come from the planning traditionalists of Blue Yonder, Logility, Infor, Oracle, SAS or SAP. This is not business as usual, and traditional planning technologies aren’t up to the challenge.  I expect that we will be doing the local dance for the next one-to-three years.

Design Now For Local. When There Is A Vaccine Think Global.

I was on a call last week with a group of logistics professionals discussing the recovery. The Canadian legislative representative painted a picture of a global recovery. It is tough when you follow as speaker when you have a different view. I think that this recovery is anything but global. While testing drives the cadence of the local supply chain, the restoration of the global supply chain hinges on the availability of a vaccine. I hope that the pharmaceutical companies build powerful supply chain capabilities and that it isn’t as problematic as getting the Shingles shot..

My left arm is ready…. Bring on the vaccine. Until then, let’s gear up to do locally well while adjusting to ever-changing rythms and cycles. In this new world, no one knows the answers. If someone says that they do, show them the door.