BIOTECH SUPPLYBIOTECH SUPPLYBIOTECH SUPPLYBIOTECH SUPPLYOctober 8-9, 2012

Crowne Plaza, Foster City, CA

The Supply Chain Challenge:Creating Value

Wayne McDonnellDirector, Advisory

PwC

Preparing for the “New Normal”

In an era of increased change and unanticipated events, volatility is becoming the “new normal”

OperationsManagementChallenges

Shifting GlobalDemand Growth

Volatility and Uncertainty

Continued Cost Pressure

End-to-End Value Chain Flexibility

2xHigher GDP growth in AP, MEA vs EUR, NA* 66%

of CEOs expect to implement cost reduction initiatives, an increase over 2010 survey*

32%of CEOs are “extremely concerned” about volatility*

66%of CEOs say that uncertain growth influences their strategy*

>60%

of operations executives named supply assurance and flexible supply chain architectures as top priorities**

* PwC 15th Annual Global CEO Survey (2011) ** 2011 PRTM Global Supply Chain Trends Study

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Emerging from the “Save” Mentality

Companies can realize the strategic advantage of a robust supply chain by modifying the ‘old’ view of its capabilities

Companies are shifting from the ‘save’ mentality to seeing the effects a robust and flexible supply chain has on top line growth and bottom line value

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How do we create value?

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Supply Chain Strategy and Capabilities

.

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Six key elements of an end to end supply chain planning process

Business Assumptions

• Key market trends• Product roadmap• Pricing and promotion plans• Financial targets

Metrics

• Inventory turns• On-time delivery• Cycle time• Forecast accuracy

Planning Calendar

• Cross-functional responsibilities

• Daily/weekly activities• Weekly//monthly/quarterly

approval meetings

Systems and Tools

• Automated demand and supply plan generation with allocations

• End-to-end supply chain inventory visibility

Organization and Decision Making

• Executive staff• NPI / Operations / SC• Sales and marketing• Finance

4 5 6

1 2

Demand Planning

Supply Planning

Demand / SupplyBalancing

Implementation Supply Plan

3

Implementation Demand Plan

Step 1

Step 2

Step 4

Step 3

Step 4

Sa

les

an

d O

pe

rati

on

s

Pla

nn

ing

Pro

ce

ss

INTEGRATED

Understanding Segmentation

Seven Step Process

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The Power of Supply Chain Segmentation

Supply chain leaders know how to created differentiated supply responses to various demands…and create / deliver value

A

B

C

Volume

Low/Constant High/ErraticConsumption Variability

High

Low

A

B

C

Vol

ume

A

B

C

Vol

ume I.

II.

Event/ Promotions

NPI/ EOL

III.

Forecast Accuracy

Safety Stock

PlanningBenefits

Low

High

Grouping

FLEXIBLE

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The Power of Supply Chain SegmentationIncreasing forecast accuracy and reducing forecast dependency is equally managed by supply chain leaders

Strategic Options

Reduce Forecast / SC Planning Dependency

Deploy processes toincrease forecast accuracy -and-Optimize Safety Stock

Deploy strategies to reduce forecast dependency whenever possibleAggressive

Lead TimeReduction

Optimal Safety Stock

Postpone Differentiation

MTO

Co-planning

Event/ Promotion Process

Seasonality Statistic

Safety Stock

NPI / EOL

Smallest Return on Investment

SC PlanningPractices

DifferentiatedEnd-to-endSupply ChainModel

Supply Chain/Performance Impact

A demand driven, near real-time supply chain successfully optimizes inventory and manages other costs related forecasting error

Forecast Accuracy and Process Improvement

SC Planning Processesand Systems

Highest Return on Investment

Reduce Dependency on the Forecast AGILE

Understanding Net ProfitabilityProfitability modeling enables fully loaded net margin visibility and provides new insight into the drivers of financial performance

•

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Slightly Better:Managing primarily by Contribution Margin

Worst:Managing primarily by Gross Margin

Best:Managing by primarily by Net Margin

Customers that Gross Margin suggests are the “best” often become the “worst”

when all cost are included

• Ignores substantial costs to serve

• Justifies unprofitable business

• Leads to business complexity

• Includes all costs of business

• Clarifies profit contributing and non-contributing customers, products, channels, etc.

• Leads to better management and higher performance

• Includes only direct variable costs

• Excludes substantial costs that should be managed as variable but typically are not (overhead, SGA, etc.)

ILLUSTRATIVEILLUSTRATIVE

Enterprise Profit Realization (EPR)

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EPR is based on achieving dramatic improvements in customer lifecycle, product lifecycle, and supply chain management

Customer Lifecycle

Management

Product Lifecycle

Management

Supply Chain

Management

Profitability Modeling &

Measurement

• Customer portfolio rationalization

• Sales force effectiveness• Pricing strategy• Customer profitability by

segment and channel• Account management• Sales OpEx• CLC process improvement

and tools

• Customer portfolio rationalization

• Sales force effectiveness• Pricing strategy• Customer profitability by

segment and channel• Account management• Sales OpEx• CLC process improvement

and tools

Customer Life Cycle Mgmt

• Sourcing improvement• Manufacturing process

improvement• Distribution network

optimization• Inventory management• Freight cost reduction• SLA s reflect cost to serve• Supply Chain OPEX

• Sourcing improvement• Manufacturing process

improvement• Distribution network

optimization• Inventory management• Freight cost reduction• SLA s reflect cost to serve• Supply Chain OPEX

Supply Chain Mgmt

• Product line rationalization• Marketing and technology

investment return/ affordability

• Price Setting and Administration

• Product line profitability by segment

• Portfolio management• Marketing OpEx• PLC process improvement

and tools

• Product line rationalization• Marketing and technology

investment return/ affordability

• Price Setting and Administration

• Product line profitability by segment

• Portfolio management• Marketing OpEx• PLC process improvement

and tools

Product Life Cycle Mgmt

Profitability Modeling is the critical enabler to moving to best in class. Factoring in fully loaded costs and fully allocated discounts and revenue offsets at a transaction level is critical. It enables transparency into true customer and product profitability and enables fact-based decision making using new Performance Metrics

Profitability Modeling is the critical enabler to moving to best in class. Factoring in fully loaded costs and fully allocated discounts and revenue offsets at a transaction level is critical. It enables transparency into true customer and product profitability and enables fact-based decision making using new Performance Metrics

Profitability Modeling

Enterprise Profitability Realization Framework

Delivery Model

Corporate/BU Vision, Mission, Values and Strategy

Profitability Opportunities

Five typical issues that are usually not addressed by traditional cost-cutting and restructuring initiatives; KEY is understanding Gross to Net

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Economic Profit

Economic Profit

Improve Gross Profit

Decrease SG&A

Increase Capital Efficiency

Improve Cost of Capital

Increase Revenue

Decrease COGS

Reduce Selling/ Marketing Costs

Reduce Distribution Costs

Reduce Admin. Costs

Large number of products have low

sales and serve low or unprofitable customers

Price is the largest contributor to NOI improvement, but

rarely used

Sales force is structured to sell

products, not target profitable customers

Many Marketing/Media

Initiatives result in low or negative ROI

Large customers do not always equate to profitable customers

1

2

3

4

5

Excess inventories due to customer/ product

inefficiencies

Supply Chain Opportunities

Profitability modeling enables supply chain opportunities assessment on five key supply chain areas; performed based on benchmarking

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ILLUSTRATIVEILLUSTRATIVE

Processes that balance aggregate demand and supply to develop a course of action which best meets sourcing, production and delivery requirements

Processes that procure goods and services to meet planned oractual demand

Processes that transform product to a finished state to meet planned oractual demand

Processes that provide finished goods and services to meet planned or actualdemand, typically including order management, transportation management, and distribution management

Processes associated with returning or receiving returned products for any reason.These processes extend into post-delivery customer support

Functional Processes

• Demand Planning• Inventory

Forecasting

• Sourcing• Procurement• Inbound

Transportation• Inventory

Management

• Production Scheduling

• Manufacturing• Assembly• Kitting

• Warehousing• Distribution• Outbound

Transportation

• Reverse Logistics

Plan Source Make Deliver Return

Improving Profitability

Start with 360 degree profitability view of the enterprise, then rationalize customers and products, and optimize operations and supply chain

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Develop Profitability Model

Develop Profitability Model

Rationalize Customer Portfolio

Rationalize Customer Portfolio

Rationalize Product Portfolio

Rationalize Product Portfolio

Optimize OperationsOptimize

Operations

Customers

Products

Sales

Supply Chain

Customers

Products

Sales

Supply Chain

Exit unprofitable customers

Shift low profitable customers to distributors

Customers

Products

Sales

Supply Chain

Sunset products that no longer sell

Rationalize low performing products to tier 2 or 3 customers

Customers

Products

Sales

Supply Chain

Rationalize Sales and Supply Chain for less complex portfolioCreate end-to-end

financial picture of the enterprise Align sales to more

profitable customers/products

Thank You!

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We create client value by building the critical link between strategy and execution…what is your strategy?

Driving Strategy to Execution

Business Strategy Execution

End-to-end Capabilities

BusinessDesign and Operational

Strategy

OrganisationDesign andChange Management

Strategy Customer Product Innovation Operations People and Change Finance

Technology Risk Deals

Operations Critical Link