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Supported by a robust sales force and tight cost controls, PharmaCo* experienced sustained double-digit growth over a number of years, only to find that their supply chain struggled to keep pace. In particular, the initial state of the company's sales and operations planning capabilities limited their ability to account for demand variability or raw material lead times in production and distribution. As a result, PharmaCo faced shortages of popular and critical medications at sales locations across their network.
An advanced and agile supply chain promised to fuel PharmaCo's continued growth and increase their market share. Failure to act placed all of their recent gains at risk.
Working together, the Bain and PharmaCo teams tackled their supply chain challenges in two stages: an initial diagnostic review and a solution design phase. The work addressed three critical issues for PharmaCo:
- Improve sales and operations and production planning: The teams focused their efforts on a few of the highest-value S&OP levers in order to review the current planning process, identify gaps in the planning infrastructure and analytically understand demand and supply variability.
- Determine the right inventory level: With hundreds of medications in the market, PharmaCo needed a proper method to predict and manage their inventory. Using a mean absolute percentage analysis (MAPE), the teams defined appropriate levels for raw materials and finished products by mapping actual versus forecasted sales on the most important SKUs. They also identified the root causes behind previous delivery delays.
- Optimize the supply chain for perfect order planning: The diagnostic determined the stressors that affected sales and service levels. The teams focused on resolving issues related to higher-than-normal back-orders and lead times, which stressed the entire supply chain and led to delays in medications reaching consumers.
The teams developed tailored recommendations for PharmaCo's specific challenges on each dimension of the effort:
- Sales and operations production planning: The recommendations focused on re-aligning people, KPIs and systems and processes, including altering the S&OP process and timing to allow for input from sales and longer lead times, adjusting organizational spans and layers within planning and modifying production KPIs.
- Inventory levels: Bain recommended new inventory levels and policies for PharmaCo's raw materials and finished products that reflected the forecasting errors and lead-time variability of the most important SKUs. We also created new models for PharmaCo to use moving forward, working alongside their supply chain operations team to ensure the standards were reasonable and reflected past experience.
- Perfect order planning: To ensure medications made it efficiently from raw material to laboratories and distributors and on to customers, the teams recommended fine-tuning PharmaCo's inventory level policy. By adjusting end-of-month stock levels and creating a SKU-specific methodologies, PharmaCo could alleviate problematic end-of-month logistical stress. They also redesigned PharmaCo's stock management to factor in forecasting errors and production frequency, enabling a reduction in inventory levels.
The work also included a comprehensive review of the necessary tasks associated with implementing each supply chain improvement, including reviewing the IT and talent capabilities that would allow PharmaCo to continue to grow.
Bain's work with PharmaCo resulted in a number of significant improvements that moved their supply chain from a reactive one to a source of competitive advantage.
The effort vastly improved the company's planning and execution functions, created and implemented a new stock policy that accounted for specific SKUs and key variables, streamlined the order preparation process and reduced distribution transport times.
By the numbers, the effort:
- Reduced lead time by 43%
- Decreased variability by 50%
- Lowered the risk of back-order by 95%
- Increased stock for finished goods by 10%
Bain helped reduce PharmaCo's lead time by 43%
* We take our clients' confidentiality seriously. While we've changed their names, the results are real.