Supply Chain and Risk Management
Introduction Like economies and financial markets, as supply chains grow more global and interconnected, they get more exposed to disruptions and risks. Moreover, the supply chain speed exacerbates the problem. Even minor miscalculations can have major consequences as the impact spreads like viruses throughout the complex supply chain networks. Hence, it is vital to build smarter supply chains and address the issues that pose a challenge to this objective. These risk factors can effect productivity, economy and band image of the company so it is very important to identify and manage these problems on right time. Risk is a set of unexpected or unpredictable event that directly or indirectly affects the efficient working of an organization. ” So to avoid this situation there should be a effective risk management process which can help the company to work efficiently and effectively Risk management can be defined as Risk management is an important function in business industry. It is an entrepreneurial need which caters all the solution which are needed for the efficient working of an organization to achieve is goals. It helps the management to understand the root cause of the problem and all possible ways by which it can be solved.
Risk management process About The Company Cipla is one of the pioneer’s in the Indian Pharmaceutical Industry. The company was first started in 1935 and throughout its long journey of 75years has introduced many life-changing and innovative drugs to serve humanity while supporting, improving and enriching millions of lives worldwide. Cipla has 50 manufacturing plants with its headquarters situated in Mumbai, India. Its current stable has over 1200 products in current production which can cure almost every illness known to man.
Cipla boasts the world’s largest range of respiratory medicines, dosage forms and devices for the management of asthma and other respiratory illnesses. The company is well known for providing consistently high quality of medical updates and patient education material to help patients as well as doctors in their respective environments. The company had also setup a dedicated center which carried on research and education on respiration named the Chest Research Foundation (CRF) in Pune, India. The company has also pioneered revolutionary medicines for treatment of cancer, AIDS, hepatitis A, B and C. ardiovascular disease, arthritis, diabetes, weight control, depression and many other health conditions, distributing its product to almost every country. Recently the company had researched and created a medicine called QVIR that can cure AIDS and can be used for both first and second line treatment of HIV-AIDS. Currently, 40% of the worlds HIV patients undergoing anti AIDS therapy are taking Cipla Drugs. Pain Points with QVIR Cipla is well known for is innovations in the field of pharmaceutical but not so for its supply chain and impeccable delivery.
This was also the case with the recently launched QVIR which had not been effectively distributed or consumed at the right time. Every year around 5 -7 % of the patients failed their first line treatment because the dose was unavailable and wasn’t there at the stipulated treatment time. For a drug priced at a paltry sum of $ 3 and the life changing benefits of containing four drugs in one single strip, it never served its intended purpose. From our qualitative data collection method we understood that the pain points facing Cipla in the delivery of QVIR were as follows: * Inventory levels are too high and/or misplaced Spending is too high, either indirect or direct categories * Cash-to-cash cycles are too long * Lean manufacturing and quality goals are not being met – potentially accompanied by excess waste generated or scarce resources used Cipla’s Supply Chain Cipla has over 180 manufacturing plant across the world out of which 50 manufacturing plants manufacture QVIR. Cipla also manufacturing some of its own raw material in three of its own factors situated in Mumbai, Himachal Pradesh and Karnataka states of India.
For some of the raw materials of QVIR, Cipla also conducts import/export trade with some of its local and international suppliers located in India, Germany, USA, UK, Italy, France, Australian, South Africa and South Korea Chine and Japan. Cipla has its export market in 180 countries of which its main customers are USA, Germany, South Africa, New-Zealand, Australia, China, Sri Lanka, Singapore and Japan. The transportation is carried out internationally via ship and air and domestically either by road or rail. Value Stream Mapping for QVIR
The Top challenges of Cipla’s Supply Chain for QVIR After conducting our initial investigation, assessment and analysis we were able to group the top challenges of Cipla’s supply chain into 3 major components: * Supply Chain Visibility * Increasing Customer Demands * Globalization Supply Chain Visibility There is an inherent lack of willingness to share information and collaborate effectively. Inhibitive organization silos are widespread across Cipla where individuals are too busy to share within the organization and among supply chain networks.
This leads to misaligned performance measures, ineffective integration and collaboration not viewed as important. Namita Kelwa, Partner Management director who is also a champion of change within Cipla says, “When we talk about supply chain visibility, it does not simply mean visibility into your own supply chain and your own shipments. It means visibility among partners, which enables collaborative decision making closer to the customer. This is both a science (managing the technology) and an art (using the information and metrics for competitive advantage). Partial and experimental adoption is widespread in visibility, but extensive adoption is still very low. Increasing Customer Demands Customers are almost always last on the list for synchronizing supply & demand. Cipla as an organization has forgotten to identify that customers continue to have aggressive demands for differentiated products & services, while their own product lifecycles have been shortening. According to Garima Singh, vice president of consumer products, “We must combine SCM with CRM… get supply chain staff thinking in terms of a commercial customer mindset.
Bringing the customer perspective into all facets of SCM will push us to further supply chain excellence” Remaining competitive in developing a new product or service also has the following challenges such as cross function cooperation, product/service innovation and proper allocation of resources. There should be a further integration of customer demands from inception to delivery – the entire Cipla global supply chain network focused on the end customer. Globalization Globalization for many businesses including Cipla is the complexities of interconnectivity.
The impact of global sourcing has led Cipla to experience delivery issues in the form of unreliable commitments especially in the case of the QVIR drugs. It has also resulted in larger than anticipated lead times and quality issues. While looking for lower cost sourcing options, Cipla should pave the way for constantly updated and differentiated business models and distribution strategies. Identifying Risk factors Supplier Risks In the supply chain management of the pharmaceutical industry the selection of supplier should be done very carefully because the raw material can directly affect the finished drug.
In CIPLA API Plants the ingredient are manufactured as per Regulatory requirements like USFDA, WHO, MHRA, and TGA and but these API plants are not enough for 50 manufacturing plant so they need external suppliers to provide other ingredients such as Diluants, binding agents, colorant, lubricant and granulating agents. 1. Imports The major risk associated with the import is the availability of the raw material at right time. Some of the delay includes: * Delay in movement of cargo * Custom handling * Delay in processing documents due to system error at Seaport/Airport. Continuous holidays, strike by laborers customs may delay clearances. 2. Inferior Quality of supply Quality is very important in case of any pharmaceutical manufacturing as it directly deals with the life of the people therefore it is governed by many regulations. The inferior Quality of the raw material can increases the risk of waste in the final steps of manufacturing. Some of the adverse effects would be * Breaking and rusting of tables * Short shelf life * Less potency * Side effect to patents * Batch rejection * Market complain Packaging Risks
Packaging material for QVIR is one of the important concerns which can not be compromised on the terms of availability and quality, a special packing is needed for the QVIR since it is a four in one drug packing which contain a kit of Tenofovir, Emtricitabine, Atazanavir and Ritonavir. If the packaging material is not available in that situation * The raw material shelf life will increase ( as kept in stores) * Productivity will decrease * Unable to fulfill order on time * Holding of batch can increase the reanalysis cost Production Risks 1. Malfunctioning of Machinery
In CIPLA entire process of manufacturing is automated. So efficient working of the machines is essential in that manufacturing process any malfunctioning of machine can lead to increase the production time and cost. 2. Human error Although in the company most of the production process is automated, there is still chance of human error due to negligence of the employee who operates the machines. This can lead to serious problem not only to the company but to the employee himself some of the common human errors are: * Improver gowning * Negligence in handling of material * Improper documentation * Negligence in following SOPs Negligence in maintain personal hygiene * Negligence in clearing the apparatuses * Negligence during handling chemicals * Negligence during operating machines The human error can led up to some serious problems such as * can cause damage to the life of others * wastage of material * wastage of time * can damage the machine * can lead to batch failure 3. Quality Risks Quality of the QVIR is an important concern for CIPLA pharmaceutical because it directly deals with the life of the customers moreover the industry is highly regulated so it is extremely necessary to produce products with high quality.
The inferior quality of drug can cause * Batch rejection * Market complain * Economic lose * Lose of company reputation * As the industry is highly regulated by government law inferior quality can lead to close done of organization Storage Risks Improper storage of the drug special QVIR can lead to serious problems not only to the manufacturer but also to there customers. Some of the common storage risks are * Drug contamination * Drug deterioration * Batch rejection * Market complain * Reduce the self life of drug etc Demand Side Risks 1. Forecasting Errors
Forecasting errors can lead to serious problems related to the long lead times, over production, demand analysis, short life cycle, and order placement in the value chain which lead to bullwhip effect. Forecast error can affect the whole supply chain from the beginning till the end affecting the entire resources in inventory, facilities, transportation, sourcing, pricing and information management so there should be a proper forecast analysis. 2. Transportation Risk The main risk factors involved after the batch is moved out of factor is the transportation risk. The major problem during the transportation process is Tracking the shipment * Delay of the shipment * Product contamination * Stock clearness 3. Information Sharing Risks Information sharing is the foundation on which supply chain processes work. Without information sharing manager cannot indentify the demand related to the product and the amount to be produced. Information systems will help the manager to know how the inventory is flowing in the supply chain and how the stocks are maintained. Moreover in the production process the flow of information help to minimize the risk and maintain the quality of the product. Risk Analysis
Root Cause Analysis The root cause analysis can help CIPLA mangers to identify and correct the root causes which may lead to the identified risks Below Fish Bone diagram is used to perform the root cause analysis for Cipla – After conducting the root cause, we were able to establish certain glaring problems in the supply & demand of QVIR such as supplier selection, non-availability of resources, machinery problems, improper management SCM Specific Brainstorming A periodic ‘All Hands’ session has to be conducted with the entire supply chain team of QVIR at Cipla.
These sessions could be either fortnightly or monthly basis. During these sessions, members of the team are encouraged to ask several sets of questions related to improvement and transformation of a SMARTER Supply Chain. Some possible questions include: * Do you have real time visibility into the cost & performance of your supply chain both inside and across organizational boundaries? * Are you able to collaborate with your upstream and downstream trading partners on changing supply and demand conditions? Have you exploited rapid ROI opportunities relating to inventory optimization, demand forecasting, network design, and procurement spend? * What are your inventory levels vs. peers, your cash-to cycle time vs. peers? * Is your business able to quickly and directly make changes to supply chain processes and policies based on identified savings opportunities? * Have you balanced your cost reduction initiatives against customer requirements and supply chain risk including those related to sustainability issues? * Would cost reduction quick wins allow investing in future necessary SC capabilities?
By predicting the risk components while brainstorming and doing the root cause analysis, there are also other risks during production which is more human error and packaging error. As part of the analysis for this assignment, we’ve also assessed the risks during production and how that risk can be controlled Risk Mitigation Supplier Risk Mitigation To overcome all the relative problems with the supplier Cilpa management needs to:- 1. Planning 2. Supplier selection 3. Supplier evaluation 4. Performance measurement 5. Feedback and communication Production Risk Mitigation
Malfunctioning of the machinery Malfunctioning of machinery in the production process can be overcome by- * Regularly checking and maintaining the working of the machines. The machines should be checked after each batch production. * Special engineers should be hired for the maintenance job with deep knowledge * The checking and maintenance process should be added into the standard operating process and proper validation process should be conducted for the clearing process for each machine. * There should be a proper training process for the employees who are operating the machines.
This will not only prevent the risk in the production process but also help in maintaining the quality of the product. Human error risk The human error can be minimized by providing proper – * training to the employee * maintaining proper standard operating procedures * automating the process where possible * providing proper documentation Packaging Risk Mitigation To minimize the risk in the packing and packaging process Cipla has to move out from the traditional model to more technological side. * Photo scanning system * Ratio frequency identification system and ePedigrees technology
Photo scanning system is a modern way of minimizing risk in the packaging line by using photo scanning system. Cipla can eliminate the risk on cross labeling, miss printing and over printing of the labels this will minimize the risk of batch rejection by the customer in different country Advantage of using Photo Scanner System 1. Minimize the risk cross labeling 2. Minimize the risk of miss print related with date of expire, date of manufacturing and dose to be taken 3. Minimize the waste 4. Safe time 5. Increases the efficacy of the production line.
Radio Frequency identification system (RFID) and ePedigees technology is a modern way of thinking in supply chain of Pharmaceutical industry. RFID is a better solution to minimize the risk associated with packaging and delivering, inventory management forecasting, monitoring and collecting data. In this process the RFID tag is attached to the product and than it can be tracked any where in the entire supply chain. The tag transfer electronic information through radio frequency electromagnetic ways that can be read from several meters away.
Unlike the traditional bar code system there is no need of aligning the product in front of the reader. There is no chance of data error with this system In this system the electronic documents know as ePedigree are generated. These E pedigee have all the historical information regarding the product movement in the supply chain which makes it easy to monitor the product and remove optical in the supply chain. Advantages of using RFID * Improve Forecasting and Planning * Reduce Out-Of-Stock Conditions * eliminate excess and missing inventory as well as reduce losses and write * Improves Decision-Making Improve Customer Experience. * Reduce Theft * Increase Efficiency of production process * Improves Asset Utilization and Visibility Quality and storage risk mitigation Quality management play most crucial role in the pharmaceutical industry so a systemic monitoring and evaluation of quality in the production process is necessary to reduce the risk associated with the quality of the product This can only be achieved by following strict quality protocols at each stage. The Quality assurance team and the Quality control term should monitor – * The quality of the raw material purchase Storage condition of the raw material and the finished product * The standard operating procedure of the production process * Proper cleaning of the machines as per validation * Quality of the packaging material * SOP for labeling and packaging * Proper storage of the finished good with correct labeling At each step of quality management data should be collected and reports should be generated to identify where the problem is occurring in the supply chain and how to mitigate those problems simultaneously. Demand Side Risk Mitigation Transportation risk mitigation To minimize the risk related to the transportation there should be a proper selection of the transporter as per GMP requirement * There should be a proper procedure to select the logistic supplier * Proper communication * Regular inspection Information flow risk Technology plays an important role to minimize the risk factor in the information flow. Use of certain ERP tools such as SAP and ORACLE can help CIPLA minimize the risk. Moreover using RFID the electronic documents – epidgees make the flow of information quite easier and quicker.
Recommendation The supply chain of the future for Cipla would be Smarter. It would be Instrumented, Interconnected & Intelligent. Flexibility will be the watchword for cost containment, Visibility will become vital, Risk would be managed systematically, and customer input would permeate the supply chain. The smart map of this new supply chain for Cipla would help in the following: * Integrated real-time transactions (ERP) with business intelligence * Multi-partner collaboration platform * Dynamic supply & demand balancing Predictive sense-and-respond event detection & resolution * Probability-based risk management * Supply chain risk analysis & mitigation models * Risk-adjusted inventory optimization * Environmental strategies & policies with sustainability models for usage impact analysis: Carbon. Energy, Water, Waste * Customer-segmented product lifecycle management * Real-time consumption & replenishment programs * Optimized pipeline inventory * Variable cost structures that fluctuate with market demand * Outsourcing non-differentiating functions Global “centers of excellence” to optimize capability and delivery * Asset management strategy & global execution Conclusion By employing the risk mitigating factors for this supply chain and leveraging on the data collected, deep supply chain management expertise, methods and analytical tools Cipla can quickly assess current inventory situations for inventory optimization realizing 30-50% inventory reduction, significantly improve demand forecasting accuracy 10-30% and provide direction to reduce spend 5-20%.
With the futuristic instrumented, interconnected and intelligent smarter supply chain, smart devices, sensors and actuators can capture real-time data including: shelf-level replenishment, forecasts and orders, pipeline inventory and shipment lifecycle status. Advanced instrumentation will “sense-and-respond” demand and supply signal notification with thresholds to determine corrective actions from disturbances and there would be more “self-correcting”, “self-actuating” transactions.
With the new smarter supply chain model and future integration of sustainability principles our desire with this assignment is to have the supply chain emerge as a major business tool that can help control costs, manage risks and make profit in a fully responsible manner. Much of the opportunity to address related energy, water and waste management costs rests on the supply chain.