Major pharmaceutical company; ABC porfolio analysis

Summary

In recent years our client faced challenges to align demand and supply resulting in high stock levels and expirations for some products and out-of-stock occasions for other products. LCP was brought into the company launching a project to design and implement a full S&OP process. Whilst developing the process, LCP identified additional points of improvement: the existing product allocation into fast, medium and slow movers was neglected and many items were wrongly or not allocated. Each department started to produce their own ABC segmentation leading to unaligned planning and prioritisation. One of these departments was production management optimising production utilisation and costs with limited consideration of accurate inventory levels and demand.
After completing the S&OP project, a new project was launched to review the ABC segmentation based on demand and other factors such as shelf life, product value and importance of stock (e.g. classification of life saving). Additionally, the project reviewed production and inventory rules according to the product segments and identified possible savings.

Project background

Our client, one of the world's leading pharmaceutical companies, was experiencing difficulties to align supply and demand. The various departments were working in silos optimising each part of the supply chain on its own. The highest disconnect was experienced between bulk production and the pack production requirement resulting in high buffer stock levels.

LCP designed an S&OP process with emphasis on the Master Production Scheduling Review for bulk production and pack production requirements. Implementation focussed on bulk production and the communication to the pack production plant to improve the connection of this part of the supply chain. As part of the implementation, LCP recommended to review the pack production methodology to align the market demand level with the finished products supply level. A requirement for this alignment would be the introduction and maintenance of a product segmentation to be able to base production and inventory rules on this segmentation. This would regulate appropriate levels of inventory based on demand. The existing product segmentation was undefined for many products and not updated since introduction for others.

LCP analysed current demand, lead time, product value, shelf life and other factors for each product and developed segmentation rules and production and inventory rules based on this segmentation.

Approach

To undertake this project LCP defined 3 phases of work:

1. Data validation to agree on the datasets used for analysis and diagnostics of various product factors to determine which attributes should influence the segmentation
2. Analysis of the selected attributes to define segmentation rules
3. Development of pack production rules and inventory rules for each product segment

The project identified considerable inventory reduction opportunities by redefining the rules for inventory holding and pack production. LCP recommended a new pack production approach which is aligned better with the market demand.

Additionally, LCP recommended a new production method which leads to shorter set-up operations and therefore gives the opportunity to free up production capacity. Finally, LCP put together a high level road map to help the client to achieve the identified savings. Throughout the project we worked with the global supply chain team to align the recommendations with current and possible operations.

Client testimonials

The client was complementary on the result of this piece of work. The plan for implementation was formed at completion of the project.

Success factors

During this short project, LCP analysed and recommended not only segmentation factors but also a new production methodology and identified significant inventory saving. During completion of the project, LCP was asked to further support the client in analysis and decision making for other parts of the supply chain.

Results and benefits

A number of improvement opportunities were identified as part of this project, these included:

- Major opportunity to reduce inventory value through aligning demand and supply (around a third of central inventory holding)
- Additional set-up time savings when introducing a new production methodology