Modernized supply chain strategy: PwC

Digital technology supports a new supply network that’s resilient and delivers better value

Life sciences companies that seize the opportunities of a modernized supply chain can position themselves to deliver quality products, reap savings and build trust with customers and ultimately shareholders.

Pharma and medtech supply chain and operations leaders were understandably preoccupied with critical supply issues as the COVID-19 pandemic took hold. The coronavirus left them grappling with an unpredictable product supply chain, cost spikes, labor shortages and the shift to remote work.

Now the major issues affecting their business include gross margin pressure, increasing operational complexity and heightened regulatory scrutiny. Furthermore, pharmaceutical companies have recently underperformed the S&P 500 by about one-third, underscoring the need to deliver better value across the enterprise and drive better shareholder returns. The industry is also now facing inflation and the specter of recession.

Pharma and medtech operations leaders have shared with us their common goals for their strategic agendas for the next two to five years. Those goals include:

Digitizing the supply chain and establishing end-to-end (E2E) visibility for improved delivery performance
Leveraging automation and artificial intelligence (AI) to drive manufacturing efficiency at scale
Refocusing sourcing on savings while balancing risks
Using quality to gain competitive advantage

A modernized supply chain is critical for competitive positioning. We strongly encourage companies to start now and act with urgency, even if a full transformation is expected to take a few years.

Benefits of digital transformations and digital operations solutions for pharma

Revenue growth

%

Cost savings

%

Higher EBIT margin

%

Increased throughput

%

Overall equipment effectiveness

%

Source: PwC supply chain research findings from Leaders vs Laggards study

Deploying a digital supply chain at scale

The ambitious goal of the digital supply chain is to build an altogether new kind of supply network that’s resilient, responsive and transparent. A digital supply chain provides visibility, connectivity and integration, without the information silos and blind spots of traditional setups.

PwC research shows pharmaceutical and medtech companies that successfully execute digital transformations and implement digital operations solutions are rewarded with greater efficiencies and cost savings.

Executives are aware of the need for long-term planning to secure the supply chain, yet in a recent PwC survey many executives said that they were prioritizing the bottom line over developing digital capabilities (see chart). While focusing on supply chain basics, life sciences businesses risk missing out on value creation opportunities in digitization.

While our research indicates medtech and pharmaceutical companies are investing in the digital supply chain, they lag behind other industries in their level of adoption and investment. When asked about the challenges holding them back, some life science executives tell us that they lack a clear understanding of the capabilities needed to successfully digitize and don’t have the right processes in place across different supply chain subfunctions.

The good news is that cloud-based technologies and solutions available today to businesses of all sizes make it more feasible to implement digital supply chain functions at scale in a targeted, cost-effective manner. Knowing where and how to begin the process can seem overwhelming because there are so many different providers and ways to configure architecture. We find it’s best to start by developing a vision for the capabilities your organization wants to develop and taking an evolutionary rather than revolutionary approach. One approach is to identify a discrete project, build experience and then use the lessons learned to tackle the next project. Step by step, you can build a cloud-based supply chain.

To make the leap, companies will need to build new organizational capabilities to manage vast amounts of data. That includes recruiting new staff to take on these responsibilities: solution architects, data scientists and developers.

Basic priorities far outweigh others that could help create value

Q: What are your top priorities for the next 12-18 months? (Select up to three.) Source: PwC Digital Trends in Supply Chain Survey 2022; base of 244

How it works in practice
Key takeaway

A leading medtech company sought an improvement in E2E visibility and control. Though the company had a mature supplier management, smart factory solutions, transportation and an inventory control tower, the lack of horizontal connectivity was limiting value. Partnering with PwC, the company developed a solution that tied information sources across all parts of the supply chain together. This enabled them to triage and address issues based on downstream significance.

The first step is to build a sound business case that quantifies the value of modernizing the supply chain. Take into account the breadth of cost-effective solutions that were not available in the past.

Deploying automation, AI and machine learning (ML) at scale in manufacturing

Increasingly, automation, AI and ML are coming to the forefront for life sciences companies. Automation is particularly crucial for companies that develop complex biologics, such as genetically modified treatments and messenger RNA (mRNA) vaccines, where complete control over the manufacturing process can boost yield, enhance quality and increase operating efficiency. Many companies are beginning to integrate prescriptive AI and ML into manufacturing systems for real-time alerts, trend analysis and process optimization.

Technology solutions can also help life sciences businesses diversify their product portfolios, for example, by introducing customized packaging and delivery. Solutions for warehousing and managing inventory, for automating quality inspections or for streamlining R&D are readily available. Emerging technologies including collaborative robots (cobots), machine vision and automated guided vehicles (AGVs) are transforming formerly repetitive, labor-intensive tasks. Such solutions are increasingly becoming “plug-and-play” with use of low-code environments and AI or ML to quickly train applications and demonstrate value across multiple units. At the shop floor level, they provide opportunities to increase productivity, mitigate labor shortages and reduce waste so that a business can spend less to make more.

The technology basics of automation include distributed control systems, which enable decentralized control of processors, and manufacturing execution systems (MES), which allow managers to monitor production processes in real time and change them as needed to improve efficiencies. More and more, organizations are aiming to link automated processes to their laboratory information management (LIM), quality management (QM) and enterprise resource planning (ERP) systems. They are also taking automation to the next level by incorporating cloud-based analytics and automating the generation of drug and device history records in order to reduce the administrative burden and to improve manufacturing process control and yield.

Ensuring interoperability with legacy information systems and training and hiring staff to handle them are among the challenges of implementing new technologies. There is no one-size-fits-all solution for life sciences companies, and end-to-end full automation is not always the right approach. Organizations should start by holding a multidisciplinary workshop on automation to understand the challenges and brainstorm solutions.

Source: PwC analysis

How it works in practice
Key takeaway

Large pharmaceutical companies have been making substantial investments in digital infrastructure to support smart factories and increasingly aspire to build the “factories of the future,” with connected equipment, fully automated operations, expansive data lakes and powerful analysis to optimize performance and yield. While large-scale implementations are impressive, they are capital-intensive and results may fall short of expectations.

Rather than casting a wide net and expecting innovation to follow, companies can reap benefits by focusing on targeted areas of innovation and operations. For example, a pharma company could leverage AI or ML to make real-time adjustments in biologics production to boost yield. Or it could use these technologies to predict component failures that cause frequent downtime events in its fill-finish lines.

After applying new technologies successfully to drive particular outcomes, firms can expand with deployments of similar solutions in other areas of operations and further build their digital infrastructure.

Automation, AI and ML solutions have moved beyond concept and can provide real operational efficiencies at scale when well executed. However, these solutions are capital-intensive and may face both technological and adoption hurdles. To make the most of investments, companies should focus on targeted development of a portfolio of automation and AI solutions with a system and technology roadmap linked to business outcomes, plus persistent focus on prioritization and value creation during deployment.

Refocusing sourcing on savings, while managing risks

During the pandemic, supply assurance superseded cost savings as the top priority for procurement officers. While supply assurance is still a priority, it is time to refocus on saving costs and mitigating cost increases through margin improvement programs, technology-enabled procurement and upskilling of personnel. In parallel, companies need to implement robust third-party risk management (TPRM) programs to ensure supply chain resilience. TPRM programs define mitigation strategies to address a wide range of risks, including pandemics, global political unrest and natural disasters.

Additionally, companies need to build infrastructure — such as cloud-enabled analytics — for tech-enabled procurement, which helps address risk and enables margin management. These digital tools provide real-time visibility into changes in spend, allowing for data-driven adjustments to category strategies. Moreover, technology solutions enable companies to proactively react to shifts in the market though predictive analytics. With good implementation, these digital solutions help build new capabilities among staff and across the organization while driving better efficiencies.

The need to make new investments must be balanced against managing external pressures on margins, notably inflation. Our survey data suggests that executives expect inflation to remain an ongoing issue and that their companies will need to increase prices for goods and services. Building a playbook against inflation with tools such as should-cost modeling, hedging and strategic sourcing can help mitigate some of the impact.

Executives expect inflation to remain an ongoing issue, and that their companies will need to increase prices for goods and services.

How it works in practice
Key takeaway

If a large life sciences firm wanted to reduce risks, strengthen supply assurance and ensure margin protection, PwC would advise implementation of several comprehensive global category strategies for critical materials (for example, resins, electronics and high-level assemblies). The firm should identify and qualify secondary sources (accounting for geography, geopolitical unrest and other factors) to reduce risk, leveraging should-cost models to drive negotiations. We would also recommend design-to-value changes in research and development as well as shifting supplier relationships from being mainly transactional into strategic business partnerships.

Business must play offense when it comes to inflation and other external pressures on margins. Be forward-thinking in your approach to working with suppliers and capturing value, while simultaneously managing risk.

Using quality to gain competitive advantage

Traditionally, quality control has mainly been a policing function to ensure regulatory compliance in manufacturing. Today, leading life sciences companies increasingly viewing quality as a source of competitive advantage.

Supply chain vulnerabilities and their potential to cause shortages of drugs became more visible during the COVID-19 pandemic. Amid scrutiny on drug shortages, the US Food and Drug Administration released a white paper in May 2022 proposing a rating system for measuring quality that would “foster a more robust drug supply chain and greater commitment to quality in pharmaceutical manufacturing” and reward “good actors.” An organization’s ability to respond to supply chain disruptions, maintain the integrity of finished and unfinished product throughout the supply chain, and ultimately ensure reliable supply is fundamental to driving good patient outcomes and ensuring a strong reputation for a brand.

Operational efficiencies can improve quality, while ensuring supply and increasing margins. It’s possible to establish end-to-end processes based on risk, allowing companies to focus resources on the parameters that could have a potentially negative impact on patient safety and product quality.

Life sciences companies are investing in technologies that help streamline quality processes and generate predictive insights. Electronic batch records (eBR) and lab automation allow early

detection of batch failures, thereby avoiding waste and saving money. Using analytics and dashboards, operations professionals can monitor trends and continually make improvements throughout the product life cycle.

A focus on quality and how it is monitored should be embedded across business teams, including development and manufacturing, and with key suppliers. Your organization can develop and foster this cross-functional approach through formal and informal structures.

A commitment to quality bolsters a company’s reputation — not only with regulators but also with health providers and patients. An improved brand profile supported by robust products and reliable supply can help companies launch products and expand into new markets more quickly, boosting revenue.

An improved brand profile supported by robust products and reliable supply can help companies launch products and expand into new markets more quickly.

How it works in practice
Key takeaway

As part of a broader digital transformation plan, a large pharmaceutical company has been in the process of automating its pharmacovigilance functions across its global organization. The company is ensuring that adverse event information can be reported electronically around the clock. Data is automatically captured and processed using AI and robotic process automation technologies. Faster and more accurate reporting can increase patient safety and helps satisfy regulatory requirements, while minimizing costs and errors related to manual data entry. The company expects automated pharmacovigilance to bring millions in cost savings annually.

Quality must be integrated across operational functions, with formal collaboration and feedback. Performance data should be automatically fed back to other parts of the organization to spur continual improvement.

Building security for the future

Though the worst of the COVID-19 pandemic appears to be over, companies must continue to be on guard for virus-related supply chain disruptions.

Similarly, the conflict between Ukraine and Russia illustrates how geopolitical issues can disrupt the supply chain with little or no warning. We recommend assessing your supply chain footprint and ensuring geographic balance, so that you are not overly dependent on regions at risk of becoming unstable. Development of a dedicated geopolitical risk monitoring capability to model future risks, among other strategies, can help your organization build security.

There is no doubt that we are living in a disconcerting, uncertain time. But the right business planning can help you address challenges head on, modernizing and focusing on opportunities in digitization, as well as procurement and quality improvement.