Smart Sourcing: Transforming the Supply Chain Into a Value Network

Globalization and outsourcing have increased the volume of geographically dispersed partners, facilities, and suppliers in the life sciences global supply chain. This has led to increased supply chain risk and decreased predictability due to variability and complexity, thereby increasing the impact of “Black Swan”¹ events on the healthcare ecosystem.

In 2010, we published a research report highlighting the benefits and risks associated with globalization, outsourcing, and single sourcing prevalent in global life sciences supply chains (Achieving Global Supply Chain Visibility, Control & Collaboration in Life Sciences: “Regulatory Necessity, Business Imperative”). Seventy percent of industry executives responding to our survey reported having key suppliers overseas. Our research also showed that industry leaders have significant concerns due to single sourcing stemming from risks associated with Black Swan events (43 percent).

While many focused on the rewards of these practices, Axendia took a holistic risk-based approach, defining the risk-benefit profile of this practice.

The Benefit-Risk Profile of Global Supply Chains
Globalization has enabled consumers to benefit from medical innovations around the world. It has also allowed cost containment in the manufacture of some life science products by enabling companies to offshore and outsource various activities to lower-cost markets.

On the other hand, the growth in the volume of global facilities and suppliers, as well as the increased variety and complexity of globally sourced products from a large number of countries calls for a new paradigm in supply chain management. While globalization will continue, current disruptions and the potential of future Black Swan events are driving organizations to reassess their outsourcing models.

COVID-19: The Tipping Point for Transformation
SARS-CoV-2 is the largest Black Swan event to affect the life sciences supply chain in a generation. Black Swan events once seemed extremely rare and had little or no impact on life sciences supply chains. However, in recent years, geopolitical unrest, natural disasters, and health pandemics have had significant impacts on global supply chains.

As life sciences companies considered ways to lower costs, many shifted to global supply chains and “single source” suppliers. The reliance on offshore, single source suppliers has greatly reduced the robustness, flexibility, and resilience of supply chains. In fact, single sourcing has increased supply chain vulnerability, particularly in light of the global challenges resulting from the COVID-19 pandemic.

Building a Resilient Value Network
Life sciences organizations must consider the network approach to lean operations. To gain operational efficiencies while safeguarding supply chain resilience, companies must leverage business process workflows and edge-based IoT solutions to generate real-time performance measures that will provide feedback to the virtual model. This approach supports orchestration of activities across the value network and provides comprehensive tasking of activities, status, exception handling, actionable intelligence, traceability, and reporting.

The Time to Smart Source is Now
While globalization will continue, current disruptions and the potential of future Black Swan events are driving organizations to reassess their outsourcing models. These include build, buy, or partner as well as onshoring, offshoring, and outsourcing decisions. In addition, these companies must shift from rigid supply chains to integrated value networks. These value networks must be integrated and flexible, yet tightly controlled, with transparent data at every layer of the sourcing, manufacturing, and delivery process.

To this end, companies must consider the shift to value networks based on a “smart sourcing” strategy that evaluates the total cost and implications of their decision, not just the initial cost.

These, along with improved visibility, would support product and process controls based on actual parametric attributes, rather than incoming inspection testing. This approach also drives improvements in operational efficiency and on-time delivery while reducing inventory, operational cost, and the cost of poor quality.

The ability to leverage smart sourced supply networks allows life sciences manufacturers to build resilience proactively, instead of reacting to shortages after they happen. Integrated solutions can predict people, processes, and product constraints, while optimizing against business and regulatory conditions to drive supply network effectiveness and competitiveness. 

This column is based on the eBook “The Life-Science Factory Of The Future, Reinventing The Value Network.”

Reference

1. In his book “The Black Swan: The impact of the highly improbable,” Nassim Taleb defines a ‘Black Swan’ as an event characterized by rarity, extreme impact, and retrospective (though not prospective) predictability.

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Daniel R. Matlis is founder and president of Axendia, an analyst firm providing trusted advice to Life-Science Executives on Business, Technology and Regulatory issues. He has three decades of industry experience spanning the life sciences value chain, starting his career at Johnson & Johnson, where he provided leadership in the areas of technology, regulatory compliance and business. Before founding Axendia, Matlis was a partner and general manager at a leading life sciences consultancy firm. He is an active contributor to FDA’s Case for Quality Initiative, is a member of FDA’s Advisory Council on Modeling, Simulation and in-Silico Clinical Trial, has co-chaired the Product Quality Outcomes Analytics initiative with agency officials as well as provided input to the FDA on Computer Software Assurance for manufacturing, operations, and quality system software.

Sandra Rodriguez is a market analyst at Axendia. Sandra has over 17 years of experience working within FDA-regulated industries in varying roles including sales, marketing and market research projects. She has authored numerous articles and white papers and ebooks on technology trends and their impact on the industry. Rodriguez has also led market research projects and presented Axendia’s primary research findings at industry events, on webinars and to senior FDA Staff. Rodriguez is a U.S. Army Reserve veteran.