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BIOTECH SUPPLY
CHAIN ACADEMY
October 8-9, 2012
Crowne Plaza, Foster City, CA
SCREAM: We all need to do it!
Implementing a supply chain risk assessment
program in a small pharmaceutical business
Tim Jordan
Manager, Supplier Engineering
Intuitive Surgical
What is SCREAM?
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S - SUPPLY
C - CHAIN
R - RISK
E - EVALUATION
A - AND
M - MANAGEMENT
Why Implement a Supply Chain
Risk Assessment Program?
• When evaluating risk in a supply chain, it is not IF a
disruption will happen, it is WHAT will occur and
WHEN
• Research(1) shows that firms with supply chain
disruptions have between 33% and 40% lower stock
returns
• Having a plan for identified risks enables a faster
response to supply chain issues
• There will always be an event you DIDN’T plan for!
(1) Kevin B. Hendricks and Vinod R. Singhal - An Empirical Analysis of the Effect of Supply Chain Disruptions on Long-Run Stock Price Performance and Equity Risk of the Firm
Why Implement a Supply Chain
Risk Assessment Program?
• Global Events
• Natural
• Japan Earthquake/Tsunami/Fukushima Nuclear incident (2011)
• Eyjafjallajökull volcano in Iceland (2010)
• Hurricane Katrina and Rita (2005)
• Man-made
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Economic/Political
Terrorist incidents (Domestic or International)
War
Global warming
Why Implement a Supply Chain
Risk Assessment Program?
• Local events
– Accidents
– Supplier bankruptcy
– Supply Chain visibility
• Where do your suppliers get their materials from?
– Local weather (flooding, tornadoes)
– Regulatory issues
– Production issues
• Process failures
• Lack of capacity
• Unplanned demand
• OR A COMBINATION OF LOCAL AND GLOBAL EVENTS!
Example - Acetonitrile(2)
• Acetonitrile is a by-product of acrylonitrile, used to make plastic
parts, and is used by pharma in small quantities to measure
impurities
• 2008 Olympics
• August - China shut a plant making acetonitrile to reduce pollution in
Beijing
• September – Hurricane Ike shut down an acetonitrile facility in Texas
• September – Start of the Financial markets collapse
• Lehman Brothers failed, Merrill Lynch sold
• Economic downturn caused significant reduction in plastic part
demand
• Demand for acrylonitrile dropped (plastic parts)
• Production of acetonitrile dropped
• Supply decreased
(2) http://www.zurichna.com/internet/zna/SiteCollectionDocuments/en/corporatebusiness/Supply%20Chain/Insights%20Final%201%2024%2011.pdf
• Price increased
Japan Earthquake/Tsunami/
Nuclear incident
• Sendai quake in 2011 was 178 times bigger than Kobe
in 1995
• Major automakers Toyota, Nissan, Honda, Mitsubishi
and Suzuki temporarily suspended production
• Toyota had parts supply issues for several months
• Disrupted the global supply chain of semiconductor
equipment and materials
• Japan manufactures 20% of the world's semiconductor
products
• World Bank estimated the cost between $100-$235
billion, and take five years to rebuild
Global Earthquake Statistics
(3)
• Number of 8.0 or greater earthquakes in the
last 10 years? - 15
• Number of earthquakes from 7.0 to 7.9? - 151
• Number of earthquakes from 6.0 to 6.9? - 1597
• The SF Loma Prieta earthquake in 1989 was 6.9
Are you prepared?
(3) USGS - http://earthquake.usgs.gov/earthquakes/eqarchives/year/eqstats.php
Typical Small Pharma Situation
• Mostly pre-NDA environments
• Virtual manufacturing business
• No internal manufacturing
• Focus on R&D and introducing a drug to the market
• Supply Chain Management (SCM) not an established
function
• Supplier management led by scientists/engineers in virtual silos
• Lack of resources for SCM
• Everything scheduled for “post-approval”
• Complicated supply chain flow in place
• Geographically and economically
Step 1: Management Buy-in
• ISSUE: Company focus on submitting the
NDA/resolving technical issues, not on Supply Chain
• Low priority for Supply Chain activities
• Obtain approval from senior management to carry
out a risk evaluation
• Ensure they approve the use of the existing in-house process
experts
Step 2: Brainstorming
• Brainstorming - 4 hour session
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Ground rules
5 minute introduction to the supply chain
5 minutes introduction to each supplier and their process
Idea generation
Clustering of Ideas
Evaluation of ideas
Prioritization
Summary of brainstorming results
Risk Evaluation – Method 1
High Impact
Low Probability
1
2
Low Impact
High Probability
3
4
12
Risk Evaluation
– Alternative
Method 2
Risk
Evaluation
– Method
Created from a presentation by Craig Malzahn – Human Genome Sciences
Brainstorming Results – Supplier 1
Low Probability
High Probability
FDA citation on a
different product
High Impact
Measurement delta
between MFR and CRO
results in multiple lot
rejection
Products overheat during
shipment
Damage to injection
mold
Nuclear accident at
local nuclear reactor
Flood at facility
Tool crashes
Line stop – unable to
store temp sensitive
product
A/C failure in
summer
Data entry and
verification errors
Test equipment
breakdown
Low Impact
MFG equipment
breakdown
Lot failure
Inabliity to retain
trained employees
14
Contamination in
injection molding
presses
Resin supply
interruption
Presses not
available
Brainstorming Results – Other
Low Probability
High Impact
High Probability
‘Force majeure’
event
Strategic inventory
planning
Single source
suppliers
Capacity constraints
Low Impact
SME to specific
process quits
15
Global economic
collapse
Yellowstone/
Yosemite volcanic
eruption
IP positions not
upheld
Terrorist attack in
the USA
Step 4: Develop Risk Mitigation Plans
Priority Supplier
Description
1
Other
Strategic Inventory Planning
1
Other
Capacity constraints
1
Supplier 1 AC failure in summer in hot area (e.g. Texas)
1
Supplier 1 Data entry and verification errors
2
Other
Global economic collapse
2
Other
Force majeure event
2
Other
2
Other
2
Other
Company IP positions not upheld
FDA citiation at a Supplier for a different
product
Bankruptcy
2
Other
Yellowstone eruption
2
Other
Terrorist attack in the USA
Mitigation
Plan strategic inventory
- API
- Final Drug Substance
- Final Drug Product
Short-Mid Term - Add additional manual lines
Long-term - Automation
1. Supplier 1 has multiple AC units
2. Review and monitor Supplier 1 disaster recovery plan
3. Develop plan to move material to 3rd party storage
1. Automated data entry system to be implemented
1. Mitigate liability by closely managing inventory.
2. Review supply chain financial health quarterly
1. Develop second sources
2. Keep inventory in duplicate locations
1. Develop plan for alternative processes/material
1. Develop second sources
1. Develop second sources
1. Develop second sources
2. Keep inventory in duplicate locations
1. No transportation by plane - road network only
2. Multiple Lots in FGI inventory
Step 4: Develop Risk Mitigation Plans
Priority Supplier
2
Supplier 1
2
Supplier 1
2
Supplier 1
2
Supplier 1
2
Supplier 1
2
Supplier 1
2
Supplier 1
2
Supplier 1
Description
Mitigation
Spare system has been ordered. Will be available
Test equipment breakdown
before launch.
1. Partial spares in place
Damaged injection mold (1 year to replace)
2. Safety stock (strategic inventory) of parts in place
3. Purchase spare set of tools or second source
1. Partial spares in place
Supplier 1 tool crashes
2. Safety stock of parts
3. Purchase spare set of tools or second source
Temp-sensitive Pharma products overheating Dedicated trucks with dedicated drivers in validated
during shipment
temperature controled trucks with backup A/C units
Line stop - unable to store temp sensitive
1. Store material back in the warehouse/storage area
product
1. Store material in an elevated area
Flood at facility
2. Fast inventory turns through facility, with strategic
inventory at downstream and upstream Suppliers
1. Review Supplier 1 Disaster recovery plan
Nuclear accident at local nuclear reactor
2. Develop second source/location.
1. Maintains a reserve supply of resin
Resin supply interruption
2. Qualify a second source of resin
Senior Management Approval
• Important step!
• Summarize results and present to senior
management
• Plans include all risk evaluation levels 1 and 2
with their mitigation plans
• Manage risk evaluation levels 3 and 4 through
supplier managers, with SCM oversight
Senior Management Approval
• Management approve and resource plans for
the highest impact/highest probability risks
identified.
• Create inventory and production plans to
reduce impact of other identified risks
• Should be a good, educational experience for
the team
• Start the business thinking to be longer-term than
just the NDA/Approval/launch of the product
Continual Review
• Implement periodic internal review of risks and
the mitigation plans
• Use the same core project team as the initial Supply
Chain Risk assessment
• Quality teams have taken a similar approach to
quality risks, and implemented a similar
program for quality risks and mitigation
• Once business is in commercial production,
program should be reviewed and take a larger
role in the Supply Chain organization
SCREAM: We all need to do it!
REMEMBER: If you aren’t doing the “sniff test”
on your supply chain…….
…. you won’t be prepared for the outcome!!
SCREAM: We all need to do it!
Questions or Comments??