Identifying and Defending Critical Assets: Is Pharma Different from Other Industries? A Presentation at Pharma Integrates 2013 by Andrew Cox of IIAPS. Pharma Integrates is an event for Senior management in the pharmaceutical industry created and run by Life Sciences Index.

1. IIAPS
Critical Asset Management –
How to Avoid Sub‐Optimal Sourcing
Professor Andrew Cox
Vice‐President
International Institute for Advanced Purchasing & Supply
acox@iiaps.org
© © IIAPS Services, 2013. All Rights Reserved.
IIAPS Services, 2013. All Rights Reserved.

2. Critical Asset Management
Agenda
IIAPS
• Key Issues In Sub-Optimal Make-Buy Decision-Making & Outsourcing
• 4 Pillars of Operational Excellence to Drive Improved VFM from Sourcing
© © IIAPS Services, 2013. All Rights Reserved.
IIAPS Services, 2013. All Rights Reserved.

3. Critical Asset Management
Key Issues – Loss of Critical Assets & Post-Contractual Moral Hazard
•
General Poor Competence in Analysis & Management of Make/Buy
(Insourcing/Outsourcing)
•
Trend towards increased Outsourcing & Importing recently due to:
–
Desire for More Flexible Use of Assets
–
Lower Perceived Costs of External (Developing Country) Supply
–
Short‐term Headcount Cost Reduction Targets
–
Latest Fad
© © IIAPS Services, 2013. All Rights Reserved.
IIAPS Services, 2013. All Rights Reserved.
IIAPS

4. Critical Asset Management
Key Issues – Loss of Critical Assets & Post-Contractual Moral Hazard
•
IIAPS
Incompetence in Make‐Buy & Outsourcing caused by 3 major factors:
– Unforeseen Loss of Critical Assets = Inadvertent outsourcing of assets that
provide the basis for differentiation/competitive advantage
– Unforeseen Post‐Contractual Moral Hazard = creation of post‐contractual
dependency due to shifts in the power & leverage position of the buyer and supplier
over time
– Inability to Drive VFM Improvement in the Supply & Value Chain = failure
to understand how to proactively control and drive quality, costs and delivery (QCD)
improvements in the end‐to‐end value stream
© © IIAPS Services, 2013. All Rights Reserved.
IIAPS Services, 2013. All Rights Reserved.

5. Critical Asset Management
Key Issues – Loss of Critical Assets & Post-Contractual Moral Hazard
•
IIAPS
Evidence of Poor Practices in Pharmaceuticals:
– Unforeseen Loss of Critical Assets
•
•
•
Loss of IP & technical design, manufacturing and quality control competencies
Loss of brand differentiation
Counterfeiting & creation of unanticipated competitors
– Unforeseen Post‐Contractual Moral Hazard
•
•
•
Increased regulatory & supply chain complexity, with threats to
reputation/litigation
Unanticipated dependency on supply chain partners (Distributors/Manufacturers)
Unforeseen switching costs and high exit barriers from key suppliers
– Inability to Drive VFM Improvement in the Supply & Value Chain
•
•
•
•
Poor quality control and adulteration of raw materials/products/services
Poor schedule compliance and on‐time delivery
Rising prices and TCO
Lack of Cross‐Functional Supply Chain Value & Process Optimisation
Competence
© © IIAPS Services, 2013. All Rights Reserved.
IIAPS Services, 2013. All Rights Reserved.

6. IIAPS
Critical Asset Management
Key Issues – Limited Sourcing Process Coverage & Competence
Top = 83.0%
Mean = 39.6%
Lowest = 4.2%
Top = 78.2%
Mean = 38.4%
Top = 78.7%
Lowest = 4.1%
Mean = 35.8%
Lowest = 2.6%
OVERALL 8-STEP
CATEGORY MANAGEMENT
& STRATEGIC SOURCING
BENCHMARK SCORES
Top = 77.5%
Mean = 39.7%
Lowest = 3.9%
Top = 78.3%
Top = 80.1%
Mean = 44.5%
Lowest = 8.5%
Mean = 46.8%
Lowest = 6.8%
Top = 85.3%
Mean = 58.6%
Top = 79.2%
Lowest = 26.7%
Mean = 40.2%
Top = 80.6%
Lowest = 4.0%
Mean = 57.2%
Lowest = 15.8%
© © IIAPS Services, 2013. All Rights Reserved.
IIAPS Services, 2013. All Rights Reserved.
PSCM Index Benchmarking Findings (n= 215)

7. IIAPS
Critical Asset Management
Key Issues – Limited Sector Competencies
Highest Score
Average Score
Lowest Score
• 215 participants benchmarked using The PSCM Index tool
100%
WORLD CLASS
Upper Tier
79.3
83%
80.2
Lower Tier
76.4
69.8
63.4
64.4
65.5
56.7
49.8
65.3
64.1
51.7
48.0
50.2
47.9
62.3
61.1
Upper Tier
63.9 62.4
59.4
56.8
55.2
50.8
64.6
75%
68.5
52.3
54.1
48.0
50.2 50.1
52.0 50.2
54.1
51.2
58%
Lower Tier
48.2
48.6
Upper Tier
Middle Tier
Lower Tier
25%
Transport
Upper Tier
Retail
Public - Regional
Public - Quasi
33%
Public - National
Public - International
Pharmaceuticals
Oil & Gas
Metals/Mining
Media/Publishing
Leisure Industries
35.2
IT/Telecoms
Industrial Manufacturing
Food/Drinks
Distribution/Logistics
Consumer Goods/FMCG
Construction
Chemicals
Banks/Finance/Insurance
41%
16%
Middle Tier
8%
Lower Tier
0%
Bottom Class
Automotive
40.0
© © IIAPS Services, 2013. All Rights Reserved.
IIAPS Services, 2013. All Rights Reserved.
50%
46.6
Lower Class
Aerospace/Defence
Middle Tier
58.7
54.7
43.8
All Sectors
66%
Upper Class
67.6
70.0
69.1
Utilities/Energy
80.2
Top Class
91%
Middle Tier

8. Critical Asset Management
Key Issues – Some Organisations & Sectors More Competent than Others
60%
A X Professional Services
PROFIT MARGINS
50%
X
40%
X
B
E&P Oil
Wholesale Financial Services
X & Gas
Software Services
X
30%
20%
Pharmaceuticals
X
X IT Networking
Equipment
Retail Financial Services
X IT Processors
Household Products
10%
0%
IIAPS
C
X X Tobacco Products
Chemical Refining
X
X
Computer
Telecoms X
Manufacture X
X
Contract Manufacturing
0% 10% 20% 30%
40%
50%
60%
X
Automotive
X
X
Construction X
70% 80%
Food /
Retailing /
FMCG
D
90%
100%
% OF OUTSOURCED 3RD PARTY SPEND
A
TRANS ACTIONAL – Very Low strategic significance
B
CYCLI CAL – Low/Medium strategic significance
C
OPERATIONAL – Medium/High strategic significance
D
CRITICAL – Very High strategic significance
© © IIAPS Services, 2013. All Rights Reserved.
IIAPS Services, 2013. All Rights Reserved.
X
X

9. IIAPS
Critical Asset Management
4 Pillars of Sourcing Excellence
IIAPS research shows that
world-class make/buy & outsourcing is based on 4 Pillars…
(1)
A Mandated
Functional
Supply Chain
Management
Role
with responsibility
for value for money
in both internal &
external supply
(2)
Rigorous
Category
Management
& Strategic
Sourcing
Process
meeting all QCD
KPIs and ‘stretch’
VFM improvement
targets
(3)
On-Line IT
Architecture
& Supply
Mgmt System
(4)
Competent
Line &
Functional
Staff
providing robust
flow management
information about
supply & spend by
business units,
contracts, POs,
suppliers
with all of the skills
to proactively drive
& optimise VFM &
QCD ‘stretch’
improvement
targets
Each pillar has ‘bottom-line’ outputs, driven by rigorous & robust
performance measurement and management
© © IIAPS Services, 2013. All Rights Reserved.
IIAPS Services, 2013. All Rights Reserved.

10. IIAPS
Critical Asset Management
Sourcing Excellence – First Understand VFM Trade-Offs
T
C
T
C
T
C
T
C
=
=
=
=
Technical Requirement
Technical Requirement
Some Alternative VFM Trade-Offs
Some Alternative VFM Trade-Offs
Higher
Functionality
The best supply (internal or external) provides Ideal VFM Improvement Outcomes against
‘stretch’ improvement targets relative to the Baseline Technical & Commercial
Requirements.
Commercial
Commercial
Development
Development
Ideal VFM
Ideal VFM
Outcome
Outcome
X = Baseline Value
Proposition
X
T
Lower
Functionality
•
Technical
Technical
Development
Development
Worst VFM
Worst VFM
Outcome
Outcome
Higher
Cost
C
Lower
Cost
Commercial Requirement
Commercial Requirement
© © IIAPS Services, 2013. All Rights Reserved.
IIAPS Services, 2013. All Rights Reserved.
T
C
=

11. Critical Asset Management
Sourcing Excellence – Proactively Drive Improved VFM Outcomes
•
IIAPS
Proactive sourcing requires on‐line Supply Chain & Value Stream Process Visualisation,
with rigorous QCD Performance Measurement & Management against ‘stretch’ VFM
improvement targets in the chain.
Customers
Focal
Company
1st Tier
Suppliers
Suppliers in
the Chain
TECHNICAL
PERFORMANCE
TECHNICAL
PERFORMANCE
TECHNICAL
PERFORMANCE
TECHNICAL
PERFORMANCE
COMMERCIAL
PERFORMANCE
COMMERCIAL
PERFORMANCE
COMMERCIAL
PERFORMANCE
COMMERCIAL
PERFORMANCE
© © IIAPS Services, 2013. All Rights Reserved.
IIAPS Services, 2013. All Rights Reserved.

12. Critical Asset Management
Sourcing Excellence – Understand Your Position in the Supply Chain
•
First understand where and why you are positioned in the overall supply chain process
DOWNSTREAM
End
Customers
Wholesale/
Distribution
Outbound Logistics
3rd Party
Logistics
QCD/VFM
Analysis
•
IIAPS
QCD/VFM
Analysis
QCD/VFM
Analysis
Insourced
Logistics
3rd Party
Logistics
QCD/VFM
Analysis
Critical Assets
Analysis
Branded
Pharmaceutical
Manufacturers
QCD/VFM
Analysis
UPSTREAM
Inbound
Logistics
QCD/VFM
Analysis
Tier 1
Contract
Manufacture
QCD/VFM
Analysis
Tier 2:
Sub
Components
QCD/VFM
Analysis
Tier 3:
Raw
Materials
QCD/VFM
Analysis
Also understand and visualise the key issues:
1.
Which Assets are so Critical to Value Appropriation they Must be Insourced?
2.
What is the Current Quality, Cost and Delivery (QCD) Performance, and How can Profitability
and Value For money (VFM) be Improved in the Future?
© © IIAPS Services, 2013. All Rights Reserved.
IIAPS Services, 2013. All Rights Reserved.

13. Critical Asset Management
Sourcing Excellence – Improve Downstream Supply Chain Management
•
IIAPS
Downstream competence requires greater visualisation and measurement of the current technical and
commercial performance of the key stages in the process, as follows:
End
Customers
QCD/VFM
Analysis
Wholesale/
Distribution
Outbound Logistics
3rd Party
Logistics
Viakable
Logistics
3rd Party
Logistics
Technical Key Performance Indicators
QUALITY
T
C
• Customer
Satisfaction
• Sales Revenue
=
Highly Configurable
Reports on Relative
Quality, Cost & Delivery (QCD)/
Value for Money (VFM) Performance
at the Activity & Task Levels
•
DELIVERY
• On-time Delivery
• Cycle Times
• etc
COST
QCD/VFM
Analysis
Commercial Key Performance Indicators
• Profitability
• Cost to Serve
• etc
This analyses and visualises the current ‘effectiveness’ (customer satisfaction, sales revenue, cycle
times etc.) and ‘efficiency’ (profitability, costs to serve etc.) of Downstream Channel Partners and
Logistics Providers Downstream, so that superior performers can be rewarded and precise remedial
action can be focused on under‐performers.
© © IIAPS Services, 2013. All Rights Reserved.
IIAPS Services, 2013. All Rights Reserved.

14. SourceVue
Improving Downstream Supply Chain Management
IIAPS
•
SourceVue supports the visual analysis of current ‘effectiveness’ (customer satisfaction, sales revenue,
cycle times etc.) and ‘efficiency’ (profitability, lower costs to serve etc.) so that precise remedial action
can be focused where maximum impact will be achieved.
•
SourceVue provides highly customisable dashboards tailored to an organisation’s specific requirements.
T
C
=
Highly Configurable
Dashboard for
Management Reports
on Relative
Quality, Cost &
Delivery (QCD)/
Value for Money (VFM)
Performance
at the Activity & Task
Levels for Specific
Suppliers
Management Dashboard showing
Management Dashboard showing
Quality Performance against Targets
Quality Performance against Targets
at the Activity & Task Levels for
at the Activity & Task Levels for
Specific Downstream Channel
Specific Downstream Channel
Partners
Partners
© © IIAPS Services, 2013. All Rights Reserved.
IIAPS Services, 2013. All Rights Reserved.

15. SourceVue
Improving Downstream Supply Chain Management
•
Downstream supplier performance can also be visualised and measured to identify current
‘ineffectiveness’ and ‘inefficiency’ in the management of the key stages in the process.
Management Dashboard showing aafew display
Management Dashboard showing few display
options for VFM Performance against Baseline
options for VFM Performance against Baseline
at the Activity & Task Levels for Specific Suppliers
at the Activity & Task Levels for Specific Suppliers
© © IIAPS Services, 2013. All Rights Reserved.
IIAPS Services, 2013. All Rights Reserved.
IIAPS

16. IIAPS
Critical Asset Management
Improving Internal Value & Process Optimisation
•
Internally companies should analyse Asset Criticality & QCD/VFM to measure the value for money
(VFM) performance of operating current processes against baseline quality, cost and delivery KPIs, to
identify ‘inefficient’ and ‘ineffective’ performance issues (ideally against stretch performance targets).
DOWNSTREAM
Outbound
Logistics
Critical Assets
Analysis
Branded
Pharmaceutical
Manufacturers
UPSTREAM
Inbound
Logistics
Technical Key Performance Indicators
QUALITY
• Product Quality
• Defects
• Wastage
T
C
=
Highly Configurable
Reports on Relative
Quality, Cost & Delivery (QCD)/
Value for Money (VFM) Performance
at the Activity & Task Levels
DELIVERY
• On-time Delivery
• Cycle Times
• Fill Rates
COST
Commercial Key Performance Indicators
• Operational Costs
• Rework Costs
• Other Costs
© © IIAPS Services, 2013. All Rights Reserved.
IIAPS Services, 2013. All Rights Reserved.
QCD/VFM
Analysis

17. SourceVue
Improving Internal Value & Process Optimisation
•
IIAPS
This analysis measures and visualises current ‘effectiveness’ (product quality, wastage, on‐time delivery,
cycle times etc.) and ‘efficiency’ (operational and rework costs etc).
Highly Configurable Dashboard for Management
Reports on Relative Quality, Cost & Delivery
(QCD)/Value for Money (VFM) Performance
at the Process Activity & Task Levels
© © IIAPS Services, 2013. All Rights Reserved.
IIAPS Services, 2013. All Rights Reserved.

18. SourceVue
Improving Value & Process Optimisation
•
IIAPS
This analysis measures and visualises current ‘effectiveness’ (product quality, wastage, on‐time delivery,
cycle times etc.) and ‘efficiency’ (operational and rework costs etc).
© © IIAPS Services, 2013. All Rights Reserved.
IIAPS Services, 2013. All Rights Reserved.

19. IIAPS
Critical Asset Management
Improving Upstream Supply Chain Management
•
Upstream we companies should focus focused on QCD/VFM Analysis – visualisation and measurement
of the value for money (VFM) performance of current 1st Tier suppliers (and if possible suppliers
upstream in the chain) against contractually agreed quality, cost and delivery KPIs, to identify superior
and inferior performers.
Branded
Pharmaceutical
Manufacture
QCD/VFM
Analysis
QUALITY
3rd Party
Logistics
QCD/VFM
Tier 2:
Tier 1:
PVC Resin
Manufacture
Analysis
Vinyl Chloride
QCD/VFM Monomer (VCM)
Tier 3:
Chlorine/
QCD/VFM
Ethylene Crackers
Analysis
Analysis
Technical Key Performance Indicators
• Product Quality
• Defects
• Wastage
T
C
DELIVERY
=
Highly Configurable Reports on Relative
Quality, Cost & Delivery (QCD)/
Value for Money (VFM) Performance
at the Activity & Task Levels
•
• On-time Delivery
• Cycle Times
• Fill Rates
COST
Commercial Key Performance Indicators
• Purchase Price
• TCO
• Profitability
Analysis of the current ‘effectiveness’ (product quality, wastage, on‐time delivery, cycle times etc.) and
‘efficiency’ (purchase price and total costs of ownership etc) of the Upstream Supply Chain can be
visualised, so that precise remedial action can be focused on under‐performing suppliers.
© © IIAPS Services, 2013. All Rights Reserved.
IIAPS Services, 2013. All Rights Reserved.

20. SourceVue
Improving Upstream Supply Chain Management
•
IIAPS
This analysis measures and visualises current value for money (VFM) performance of current 1st Tier
suppliers (and if possible suppliers upstream in the chain) against contractually agreed quality, cost
and delivery KPIs, to identify superior and inferior performers.
Management Dashboard showing aa
Management Dashboard showing
few display options for VFM
few display options for VFM
Performance against Baseline
Performance against Baseline
at the Activity & Task Levels for
at the Activity & Task Levels for
Specific Suppliers
Specific Suppliers
© © IIAPS Services, 2013. All Rights Reserved.
IIAPS Services, 2013. All Rights Reserved.

21. SourceVue
Improving Upstream Supply Chain Management
•
Upstream attention is focused on visualisation
& measurement of current value for money
(VFM) performance 1st Tier suppliers (and if
possible suppliers upstream in the chain)
against contractually agreed quality, cost and
delivery KPIs, to identify superior and inferior
performers:
© © IIAPS Services, 2013. All Rights Reserved.
IIAPS Services, 2013. All Rights Reserved.
IIAPS

22. SourceVue
An Advanced Visualisation Tool for Management Analysis & Reporting
© © IIAPS Services, 2013. All Rights Reserved.
IIAPS Services, 2013. All Rights Reserved.
IIAPS

23. IIAPS
Sourcing Excellence – Proactively Drive Organisation & People Competence
Critical Asset Management
© © IIAPS Services, 2013. All Rights Reserved.
IIAPS Services, 2013. All Rights Reserved.

24. IIAPS
Contacts
Andrew Cox
Vice‐President
Email: acox@iiaps.org
Tel: +44 (0)1789‐415240
International Institute for Advanced Purchasing & Supply
EMEA Office
Americas Office
Asia Pacific Office
180 Piccadilly
London
W1J 9HF, UK
7702 E. Doubletree Ranch Rd
Suite 300
Scottsdale, AZ 85258, USA
3/296 Beaconsfield Parade
Middle Park, Melbourne
Victoria 3206, Australia
Tel : +44 (0)20 7917 6842
Email: info@iiaps.org
Tel : +1 480 348 3939
Email: info@iiaps.org
Tel : +86 (0)21 6217 0253
Email: info@iiaps.org
© © IIAPS Services, 2013. All Rights Reserved.
IIAPS Services, 2013. All Rights Reserved.