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Top-performing supply chains: Pharmaceutical companies
Supply chain excellence is not easy to define. At Supply Chain Insights, our goal was to do it in a meaningful and objective manner. After three years of research, in 2014 we developed the Supply Chain Index to quantify not just supply chain excellence but also supply chain improvement. We found that improvement (defined as the rate of change) when coupled with performance (current capabilities) and compared to a peer group was a good measurement of supply chain excellence.
To test the model, we studied balance sheet patterns for over 2,000 public companies and shared those results with over 150 executive teams. The metrics we selected are based on correlation to market capitalization: growth, inventory turns, operating margin, and return on invested capital (ROIC). (For more details about the Supply Chain Index and its associated metrics, see "The Supply Chain Index: A new way to measure value" in the Q3/2014 issue of CSCMP's Supply Chain Quarterly.)
We believe supply chain excellence is based on the ability to improve that portfolio of metrics. To help the reader, we have applied the model to different industries; this article looks at progress in the pharmaceutical sector. Progress in driving supply chain excellence in this sector is stalled. The reason? With a growth agenda and intense investment in research and development (R&D), growing regulation, and the building of global capabilities, the last decade has been a time of change for the global pharmaceutical companies. Their progress has not been equal to that in the consumer goods or food and beverage industries. The many mergers and acquisitions among companies in this category have also slowed progress in achieving supply chain excellence.
With a focus on both performance and improvement, which company did best? In the pharmaceutical industry, it is tough to judge which company is the leader—that is, who has the best metrics. The company posting the best performance in the portfolio of metrics is AstraZeneca; however, the company is not improving (as measured by the Supply Chain Index for the two periods studied). The companies making the greatest improvement are Biogen Idec and Novo Nordisk. Moreover, most companies in this sector are making progress on individual metrics, but not on the entire portfolio.
Traditionally, supply chain performance has not been as strategically important in this high-margin sector as it has been in other industries. However, this is changing. With the slowing of growth and rising regulation, supply chain excellence matters more than ever.
To effectively respond to the many changes in their industry, pharmaceutical companies will need to build better end-to-end supply chains. But given their strong project-based and functionally "siloed" culture, where will they find the capable and innovative supply chain talent to lead those efforts? The nuances of this industry run deep, and many individuals have failed in their attempt to make the career transition to pharmaceuticals from high-tech and consumer goods. There also is a shortage of mid-management global talent. For the leaders, the answer is to devote resources to building their talent pool. For the laggards, it will probably be a case of "too little, too late."
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We Want to Hear From You! We invite you to share your thoughts and opinions about this article by sending an e-mail to ?Subject=Letter to the Editor: Quarter : Top-performing supply chains: Pharmaceutical companies"> . We will publish selected readers' comments in future issues of CSCMP's Supply Chain Quarterly. Correspondence may be edited for clarity or for length.