CPOs Offer Views on What’s Next in Business Continuity Planning at Virtual DCAT Week
CPOs offer their views on how they see business continuity planning evolving in a post-pandemic world and what actions will be needed by the industry to further mitigate supply risk. Plus, their take on what may be in store to improve supply-chain transparency, reduce lead times, and better supplier relationship management.
Gaining executive insights
The bio/pharmaceutical industry has adapted its sourcing, procurement, and supply-management practices to adjust to the challenges arising from the COVID-19 pandemic, but a key question is how may supply practices continue to evolve as the industry moves beyond the pandemic. In an executive forum, The CPO Lens: What’s Next in Business Continuity Planning and Risk Mitigation, presented at Virtual DCAT Week, held July 12-16, 2021, Pravin Khandare, former Chief Procurement Officer, Biogen, and David A. Montecalvo, Senior Vice President and Chief Operations & Supply Chain Officer, West Pharmaceutical Services, provided perspectives from an industry view on practices to further strengthen business continuity planning and mitigate supply risk. The program was moderated by Mike Velez, former Director, Procurement, Merck & Co. Inc. (retired). DCAT Week is the premier global event for companies engaged in the bio/pharmaceutical manufacturing value chain and is organized by the Drug, Chemical & Associated Technologies Association (DCAT), a global business development assocation.
Adjustments to business continuity planning
One of the important issues for the industry is what will be needed to strengthen business continuity planning in the future given the challenges that arose during the pandemic.
“Companies had to learn very quickly how to work and implement strategies to operate globally without interruption, especially at the early stages of this pandemic” said West’s Montecalvo. “It required executing their business continuity plans, but even with the best laid plans, it took a lot of adapting as we were all learning as the pandemic was evolving.” He explained that adaption involved stabilizing operations in the COVID environment while at the same time responding to volatile demand stemming from COVID-19 vaccines and treatments and having to increase supply quickly and significantly. He added that a key consideration in business continuity planning going forward is that the industry will “accelerate a transition to supply-chain resilience versus just looking solely at cost.”
Khandare elaborated on the strategies taken by the industry to the pandemic. “The demand surge was unprecedented and was compounded by buffers that companies were trying to build to add a safety net,” he said, and by additional complexity as governments became part of the demand for critical materials. The strategies used and that continue to be used by the industry to address these challenges, he explained, are increased communication with suppliers for greater visibility of material and material supply, an acceleration of dual-sourcing plans, and increased stockpiling and inventory build.
Another significant consequence of the pandemic has been higher lead times. “Lead times were a major issue and the visibility into lead times to be able to plan production was part of the challenge as higher lead times have a domino effect across the supply chain,” Khandare said. “Companies very quickly pivoted from a ‘just in time’ strategy to ‘just in case’ and that became a prevailing strategy for many companies to focus on stockpiling inventory and building safety stock.” He added that deeper and more collaborative supplier relationships have been key to issue resolution relating to lead times, as well the acceleration of dual-sourcing, both in using a second source and qualifying new suppliers, and building inventory and safety stock.
In terms of further best practices, West’s Montecalvo elaborated that companies using risk mapping in their supply chains have fared better during the pandemic “as they were already a step ahead in assuring that they were partnering with suppliers that could maintain needed supply.” In terms of operational best practices, he underscored the value of process excellence, driving lean through value-stream mapping, driving velocity of operations, overall equipment effectiveness and equipment utilization. That emphasis on process excellence and other practices, such as applying real-time data and digitalization of manufacturing “contribute to a culture of continuous improvement as a foundation to enable companies to react quickly and effectively to the constraints imposed by the pandemic,” he said.
What may be next
David A. Montecalvo
Both executives were asked what they see as the key issues on the industry’s radar as it emerges from the pandemic. “I think we are now working through a pathway to stability, implementing all the learnings and building higher capabilities overall as a result of the pandemic,” said West’s Montecalvo. “Reorganizing assets and supply chain to create flexibility and resilience is a key consideration. Overall, mitigating network risk will be top of mind for the industry’s operations leaders, and a higher level of strategic partnership across the supply chain will be needed.”
He also sees end-to-end supply chains becoming more patient centric and with higher levels of supply-chain visibility, including through the use of increased digitalization, artificial intelligence (AI) and predictive analytics, to improve demand forecasting and supply planning. Related to increased digitalization is a need to secure workforce talent equipped with technical skillsets in these digital technologies for supply-chain management as well as manufacturing through increased automation and digitalization. Part of that also involves the continued adaption by the industry to work remotely in the post-COVID environment. “I think the industry will focus more on developing center-led operations strategies and overall risk management,” he said, by focusing on driving maturity in core competencies in key areas such as manufacturing strategy and network optimization, global supply chain, procurement, operational excellence, advanced manufacturing, and digitalization.
Khandare concurred with these observations and further elaborated. “The pandemic did prove that we can work remotely for a period of time such that the impact was minimal to the supply chain…Certainly there were challenges in supplier qualification, contracting, and negotiations, but teams figured out a way to make it work,” he said. Going forward on the industry’s radar, he said, will be how the industry will continue to work remotely to realize the efficiencies and productivity gained from this approach. He added that this workforce flexibility also factors into workforce talent and workforce planning and the well-being of the workforce. As a separate issue, he added that remote clinical trials and telemedicine are practices that will continue to impact the industry.
The speakers were also asked how they see supplier qualification evolving as the industry had to adapt to remote rather than face-to-face interactions in the supplier-qualification process during the pandemic using tools such as smart glasses and cameras for facility inspections, document sign-offs, information exchange, and other tools. “Going forward, the remote and virtual aspects of the process steps are mostly here to stay in my view,” said Khandare. “Companies will look at the materials being qualified to assess the onsite presence through a critical lens, and only for critical materials will onsite inspections be allowed with a specific number of people.” He added that keeping remote/virtual aspects of the supplier-qualification process is further supported by the need to find ways to maintain or lower the cost of goods sold (COGS) as companies have had to incur significant supply-chain costs as a result of the pandemic with COGS increasing for inventory build or supply-chain rework. “COGS need to be balanced with other savings,” he said, “to keep the price to the end user, the patient, relatively the same.”
West’s Montecalvo said while cost/price will always be factored in with supplier selection, other variables, such as the scalability of suppliers and their capital investment in capacity and technologies, such as enterprise resource planning (ERP) systems and quality and operational systems are important as well. With respect to risk, he stressed the importance of really understanding second- and third-tier suppliers and their risk-mitigation plans to ensure robust supply chains.
Risk mitigation: local versus global supply chains
An overarching issue for the industry is how to best balance localized and global supply chains as a way to mitigate risk. “Risk-proofing the supply chain has taken a front seat for everybody,” said Khandare. “In terms of strategies…simplifying supply chains by taking out complexities as much as possible internally and externally with suppliers in a systematic way has accelerated because of the pandemic,” he said. “There has been increased focus on where is my source—at least the critical source—and do I need to bring that closer to the usage point and mitigate risk further by near-shoring and onshoring or finding new sources,” he said.
“Companies are now more focused not on cost competitiveness but more so on risk competitiveness,” he emphasized. Over time, he added, companies are evaluating how other practices, such as advanced manufacturing technologies, including 3-D printing, can be applied to achieve a local focus. To optimize sourcing, companies will also look to develop new partnerships and explore new sourcing regions, such as in Southeast Asia, some parts of Africa, and Eastern Europe.
West’s Montecalvo agreed and further elaborated. “Post pandemic, network-optimization efforts across the supply chain and the integration of the supply chain into operations are going to take more of the form to balance risk and costs, and more importantly, how to mitigate any risk in the supply chain. This may result in shifts in the industry’s footprint,” he said. Such shifts may involve, for example, shifting parts of final production closer to local end-markets, which would also help to reduce logistics and custom-clearance risks. At the same time, however, he emphasized the need to reduce reliance on single-sourced suppliers or exclusively on regional/localized supply as a means of risk mitigation. “In addition, I do believe creating up-lift capacity in global supply networks will be emphasized more.”
Mitigating distribution/transportation/logistics risks
The speakers also were asked how to mitigate distribution/transportation/logistics risks given the uncertainties that arose during the pandemic and that continue today. West’s Montecalvo pointed to reducing the number of freight-forwarding bases and using optimized freight lanes to mitigate risks and working to form deeper relationships with fewer logistics providers to make the relationships easier to manage. He also emphasized increased use of digital tracking mechanisms by logistics providers to mitigate risk, including using real-time event management of global shipments and the value of having real-time data to respond to situations quickly, such as by re-routing shipments or changing the mode of transportation. Lastly, he emphasized the use of data analytics to complete capacity planning for current and future needs.
The executives were also asked whether the pandemic changed expectations between customers and suppliers for supply-chain transparency and what the industry may expect going forward.
“Supply chain has and continues to be a competitive advantage for companies, and times like these underscore that even more,” says Khandare. He elaborated that multi-tier and deeper visibility—looking at suppliers’ suppliers and their suppliers—is going to be much more in demand. He added that although there are several tools on the market to achieve improved supply-chain visibility, they do so on a linear basis and are limited to the quality of the data inputs. Khandare says what will truly jumpstart this area will be AI and machine-learning capabilities, which he describes “as the future of supply chain.” He explained that these capabilities can be used to create a smart data capture and be applied with cloud computing and other advanced analytical tools to drive more insight and enable a shift from more reactive to predictive decision-making using more continuous and real-time monitoring. He emphasized again that more collaborative supplier relationship management using the right key performance indicators and metrics on both sides (customer and supplier) will be key in further improving supply-chain visibility.
What’s next in digitalization
The executives agreed that digitalization is at the forefront of industry change in supply management. “The manufacturing industry as a whole is in the midst of a transformation, such as increased automation and digitalization, which in turn is transforming capabilities in the supply chain as well,” says West’s Montecalvo. He pointed out that certain practices such as score-carding tend to still be manual using spreadsheets, so the need and opportunity before the industry is to better harness data through sound analytics and new tools to make informed decisions. He provided as an example the Internet of Things (IoT), which provides a way to further connect and digitalize supply chains and integrate data between suppliers and customers. He added that IoT, for example, can provide real-time tracking of the utilization and efficiency of supplier’s manufacturing equipment across global sites, which can provide higher levels of certainty of manufacturing output to optimize supply chains.