S&OP, a different perspective - Podcast Transcript
Tim Foetisch
Welcome everyone to this fourth episode of Supply Chain Operations’ Podcast. Supply Chain Operation is a Swiss-based consulting firm, specialized in supply chain management for the pharmaceutical, the healthcare, and the life science companies. Today we are sitting with Julien Belin who brings to the table his experience on the S&OP process and his unique perspective linking the commercial activity and the supply chain activities or the functions. And I'd like to start by giving the floor to Julien for him to introduce himself.
Julien Belin
Good morning Tim. Good morning everyone. My background is supply chain, but as you know, supply chain is quite wide. Apart from saying that I've had the chance to live and work in a couple of different countries in Europe and working with many different nationalities during the last 20 years, I would like to focus today on one of the supply chain function, the commercial supply chain, which goes far beyond the management of the demand forecast. And to start, I can tell you what wakes me up in the morning, the customer perception of the delivered service level, and I'm not only talking about the OTIF, the on time in full usual acronyms that everyone is used to, but also the product and how it is handled, stored by the customer. And what I mean by customer here is not the patient but really the prescriber. Taking an example in the medical device field, imagine a multi-component kit of about one meter high, 20 centimeters depth to be kept at ambient temperature. So 15-25 degrees and requiring about four units for one surgery because of size, uncertainties and backups needed. This is a complete different approach than a regular box of 31 pills of paracetamol, for example. As you can imagine, many hospitals have pharmacies space limitation and even fewer have a temperature control room.
Tim Foetisch
Indeed, absolutely. I mean this is very interesting and fascinating to see the differences that you can have amongst products. So can you further elaborate on what does it imply and what does it require?
Julien Belin
Yeah, for this example of the kits that are quite big, you need then to deliver the product just before they will be used or at least in very in a reasonable time before not to have too many kits stored in those places. To do so, you need to know the current inventory of your customers to anticipate that needs, you need to know the inventory turns and the probability of usage. You need to know as well how long the customer usually keep those kits before returning them to you. We are talking about consignment model, so there are returns and if you can anticipate when the kit will be returned, you can also calculate the residual shelf life each component will have when the kit will be returned to you. So this imply a demand management not at kit but component level and taking as we're in summer, the example of the season, some customers will return you all the inventory when the surgeons will go on holidays when there will be little or no activities and where the room temperatures will go far beyond 25 degrees.
We can see those days where the temperature is 40 degrees outside in the south of Europe that you can't keep them for a while and those same customers, they will order them back when the activity will restart. So you have a huge amount of products going back and forth in the end. Just to put the things in perspective, when there's a consignment, there is a contract and there are liabilities and the customers are required to keep the kits at the right temperature. So to avoid on their side, to take the risk you have to pay kits or products that they won't be able to use. They prefer to return them in all. So you need to also to consider the shelf life that your customers can manage. For example, a customer with a lot of usage, a high rates will not necessarily need to have a long remaining shelf life.
What is important for the company is to maximize the probability to use the product which is on the shelf before it expires, and at the same time to minimize the back and forth returns that are impacting your transportation costs. So this is to my point of view, the commercial supply chain, knowing your customer's, ways of managing your goods, as good as you know how you manage them internally and this should drive your operating model. All of that to say that commercial supply chain is not only trying to understand what commercial does with the demand planning, but also going and sitting with your customers to understand their expectations, which is fundamentally different. How many companies are pushing their supply chainers to visit customers? I don't know but probably few. I would like to take this opportunity to thank someone who has really been a change actor to me and a mentor on this aspect person is Pierre Saumande, the VP operations of Edwards Lifesciences EMEA Canada and Latin America. He has really been the first one I saw going to the customers and voice those customers at the executive committee. He was also very much encouraging and even pushing his team to do the same. Naturally. When you're able to do it for your external customers, you usually excel in doing it for your internal stakeholders.
Tim Foetisch
Thank you Julien for sharing those insight on the commercial supply chain and I think very rightly you mentioned a great opportunity of putting together the supply chain with the client and to really have a complete end-to-end vision up to the last usage of the product. So now I'd like to move into the S&OP process and I'd like you to walk us through in your eyes what is this famous S&OP process?
Julien Belin
The famous acronyms that probably everyone knows, I'm quite sure the S&OP process is a very educative way of managing the information and the problems a company has when it's time to articulate their sales objectives, wishes, and the reality of making it happen oversimplifying and saying produce what the market need is probably wrong considering the highly regulated markets, the life science industry is operating on all the quality regulatory licensees, pricing negotiation aspects are as important as your manufacturing capacities to execute, not being able to correctly anticipate the regulatory change and doing things in a rush is always, and I'm insisting always at cost.
Tim Foetisch
Indeed in our experience we see that it can be extremely costly. Can you share a bit? I mean can you share some example about those costs?
Julien Belin
The first one, you have a manufacturing planning. If you need to redo your manufacturing planning, you are using the bandwidth of people that could do something else. So disorganizing your manufacturing planning is a cost rushing for a leaflet. Change is another one. You have the cost of expediting to the customer. If you're in a rush, the cost of your customer service to call back customers to change an order, even if it's part of their job is always disturbing the customers and the image or the perception the customer you will have about your operations could be impactful. You can also have the cost of scrapping old materials if you don't have the time to mitigate them before a change. So the S&OP in that case is really the control tower, the cockpit of the wellbeing and the resilience temperature of your supply chain. And to continue the analogy if I can, I would say that the KPIs are your body status and for the body preventive actions should be much, much preferred than the curative actions
Tim Foetisch
In your career. You move from supply chain function to marketing and commercial roles and this open your eyes on the idea that the sales and the marketing teams are very often in the mindset of maximizing overachievement and this is a very important input that is influencing the S&OP process. Can you further explain and share your insights?
Julien Belin
Thanks for asking. From the discussion we were just having, you can see that I always wanted to be very much customer oriented and be even closer to the customers. Going in the field has been a very, very, very positive experience for me and I would like to thank someone else, my ex supply chain VP Frank Binder and the company Santen who allowed me and trusted my capacity in doing other things than supply chain. Thanks to them I've been able to move to marketing. The first goal was to manage the launch readiness of a newly acquired product by coordinating all the functions involved in the launch such as marketing, market access, regulatory supply chain come ups and so on. And then amongst all the things I worked on, the customer potential segmentation and profiling to define the metrics of low to high prescriber potentials, the marketers on their side were working on the best elements to present to unlock a prescriber, to move up in the adoption ladder and be convinced to prescribe more.
Right after this experience I took the lead of the CRM and Salesforce effectiveness in the commercial operations this time and thanks to the previous work made with marketing, I worked in defining the next best customer to visit in the journey of a sales rep or a KAM based on the visit frequency, the current location, the time to go to the next doctor office. But also based on the HCP preferences, which best product to talk about and which best like to present him to answer his questions and expectations. All of that was reported live in the CRM, but I've never seen so far a company linking it with what comes after the prescription, the pharmacy replenishment and the wholesale replenishment and so on and so forth. So imagine the results of a new clinical study well compiled into a material presentation to the prescriber.
You can have a significant impact to the prescription and so then to the supply chain in terms of volumes increase, you would probably see in the forecast if correctly done, but how much can you anticipate the result of a clinical study? Sometimes you cannot. You can expect but you only a guess and like for a launch, being able to monitor and anticipate the dissemination of the information into the field would allow you to anticipate the replenishments and having the right inventory in the right location or the right level to the right country if you prefer, especially under the supply chain constraint, which is usually the case when you're launching a new product. But basically what I initially wanted to demonstrate is that marketing and commercial would always target to do more and unlock HCP prescriptions, which would have a direct impact on volume increase.
Imagine as well tracking the competitor product supply by informing you live through the CRM about cities where the product starts to be out of stock. We are more on the short term and S&OP than the midterm, mid and long-term of the S&OP, but I believe there is an information flow potential here to unlock to the company benefits to allow to go beyond the forecast when the opportunity happens and all of that to disseminate appropriately the inventory and allow you to keep a good safety stock level. But this also relates to good S&OP with the right capacity management and anticipation of this kind of short-term situation in the what if scenarios we talked about before.
Tim Foetisch
Julien, I'm happy you talk about that and indeed this information flow is a major one and you and I have decided to further explore that in a later series of articles and podcasts on data in supply chain. So I think it would be a great opportunity to rediscuss that at a later stage. Now I'd like you to walk us in the last part of the article you've wrote and in the article you mentioned four opportunities to go further in the S&OP process. So what is the first opportunity?
Julien Belin
Yeah, the first opportunity, and probably maybe one of the basics, but it has to be in the S&OP is really the mid long-term capacity balance with your best case scenario, which should drive investments. And this should be part to my point of view of the S&OP discussion to see how the things are balancing to each other.
Tim Foetisch
The second one is about what if scenarios, what is it about and what is your insight on what ifs?
Julien Belin
What if scenarios, as you can imagine is low case scenario, reasonable case, best case scenario, we can name them differently, but is looking at different scenarios and for each of those scenarios, you need to look at your inventory projection and impact on the working capital it'll have if it's realizing or not. For example, in your best case scenario, if it's turning into being the low case scenario, what will be the impact in terms of inventory in the fields? Will you have expiry risk? Will the amount of working capital be too high compared to the company objectives and so on and so on.
Tim Foetisch
For the third opportunity, you shift gear a bit and you focus on a specific phase of the product, which is the launch and the idea of the readiness check. What is the implication of the readiness of a launch versus the S&OP process?
Julien Belin
The launch is probably the most tricky part of the lifecycle of the product because the uncertainty is the highest. I would say two things to have in the S&OP. The first one is a status of the cross-functional readiness to make sure that it's progressing as expected and that we'll be able to launch on time. The second one, and as important as the first one is to really think about which inventory you will need in the field, how you will fill the pipe of the inventory and really segregate the prescription you expect from the inventory you need in the field. And that's where sometime there's a conflict with the sales and marketing people who are doing the demand forecast with you because they very often think in prescription only, but you need to think about how much inventory you need to have in each pharmacies, you, each wholesalers and so on for the first products you're going to ship. And on top, if you could then link with your CRM and have a live monitoring of the prescription at some country regional level, you will be able to see how fast it goes and anticipates some replenishments.
Tim Foetisch
Thank you. I think it's very interesting that you mentioned this bridge again between supply chain and commercial activities. Last but not least, the first opportunity you mentioned in the article is the idea of focusing on portfolio margin contribution and how does it impact or interact in the S&OP process?
Julien Belin
That's right. Looking at the portfolio is a very good exercise. Focusing on the gross margin, on the highest gross margin products and discontinued the less profitable one is not directly linked to the S&OP, but it has an impact on the overall supply chain. Reducing the amount of SKU generally increased the overall margin but also simplified the operations on the remaining items from a production standpoint to the planning management, less items more focused on the highest added value ones is also less administrative burden and probably a good equation on an exercise to think about. Another thing you need to think about is the substitution level you can have on the items you will discontinue the highest the substitution is the more I would say the company should try to push in that direction from an overall simplification standpoint,
Tim Foetisch
Fully align with you. And what I particularly like in this idea, Julian, is the opportunity that the S&OP is already a dedicated moment where all key stakeholder, all functions are around the table and it's a great moment to actually put those topic about which product to keep or to discontinue.
Julien Belin
The S&OP will be very successful if you, you're able to articulate those different scenarios with rational and fact-based elements to allow a sound decision-making process with your key stakeholders. That's critical with the S&OP and that's the goal is absolutely not the goal to just report a situation, but to bring new options to the company in how to operate for the next months.
Tim Foetisch
Maybe in the end and that's my own view, but it's simply about having an S&OP process where discussions are open and that we are truly discussing amongst function about our true elements of the company.
Thank you for taking the time to listen. We would be happy to have any of your questions to share further on those topics, so feel free to reach out to Julian or to myself and we look forward to welcome you in the next Supply Chain Operations podcast.
Julien Belin
Thank you, Tim.
Read the related S&OP article
