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LIFESAVING MEDICINES AND THE HIGH COST OF MISSING A SALE
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Pharmaceutical companies take a different approach to supply chain management. Too much inventory is not a meaningful term to use when people s lives are at stake. In many industries, the cost of goods sold is high relative to price, so gross margins are relatively low. As a result, companies tend to focus on controlling supply chain costs by minimizing inventory levels and improving efficiency. Missing a few sales can be less important than managing inventory levels overall. In the pharmaceutical industry, it s different: People s lives and health depend on an uninterrupted supply of medicine. Disrupting patients lives by missing a sale is simply unacceptable. Financially, missing a pharmaceutical sale is bad business. The cost of goods sold is low relative to price, so gross margins can be comparatively large the income of the few successful research products is the only financial stream feeding the R&D engine. A new blockbuster product can generate millions of dollars in sales in just a few months, and at peak, sales may amount to as much as $10 million of income per month. Thus even short-lived supply problems are considered
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ELI LILLY PROFILE: Supporting Product Lifecycles with Supply Chain Management
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very seriously. This is why Lilly focuses its supply chain management efforts primarily on never missing a sale and only secondarily on keeping inventory levels low. This is not to say that inventory levels don t matter. Expired products are costly. Lilly focuses its So is squandering manufacturing capacity on low-demand, low-margin products. As supply chain a result, accurate forecasting and demand management are critical to Lilly s supply management efforts chain operations. The company conse- on never missing a quently takes a global approach to supply chain management especially given its sale and only aggressive growth plans. Explains Stephan secondarily on Bancel, executive director of global manufacturing strategy, global supply chain, and keeping inventory U.S. distribution, If we want to scale this levels low. company, we have no choice but to have common, global processes.
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During the 1980s and 1990s, each site planned and scheduled its own operation with a focus on optimizing local results. This approach didn t recognize the additional efficiency and productivity that could be gained from a global supply chain focus especially as the business grew larger and more complex. Consequently, in 1997, Lilly began developing global supply chain management capabilities with standardized processes, metrics, and terminology throughout the world, capturing this knowledge in its Operational Standards Supply Chain Excellence (OSSCE) program. As a part of OSSCE standards, for example, market affiliates and plants are graded on their adherence to these standards. This standardized approach means that the activities required to convert raw materials into final products that are distributed to customers are planned and scheduled in the same way around the world. Additionally, Lilly has put in place a series of manufacturing networks groups of plants with standard equipment and processes geared to specific product types, such as dry products, freeze-dried products, and parenteral products. As a result, development of processes prior to the launch of a new product is consistent from product to product. Each new drug being developed fits within an established toolkit environment.
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This approach saves millions of dollars each year while boosting productivity and efficiency. It also results in greater security because redundant facilities can back each other up. Common processes also help demand forecasting a critical element of Lilly s never-miss-a-sale approach. The company s global demand management center is the link between sales, marketing, and manufacturing around the world. The center owns the forecasting processes and tools and ensures that the 159 marketing affiliates around the world deliver accurate forecasts to manufacturing. All plants use Manugistics Web-enabled global planning system. Other companies may predict demand accurately in a particular country or region, but Lilly has established truly global precision. Overall, the company forecasts demand with 76 percent accuracy, and in the United States, that figure soars to 90 percent. What is the key to this capability Notes Allison Leer, manager of global demand management, We have extremely good, experienced people working in this area, who stay on the job forever. Well-documented processes, good training materials, and sound practices supplement the group s expertise. Vigilance helps, too. Forecast accuracy is measured monthly. If a market submits an errant or incomplete forecast, someone calls to find out why.
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