Forecasting and supply chain optimization

Wayne Swanton, director of global planning and processes at Abbott Laboratories, on how to take out 50% of inventory and cycle time of key strategic products.



Wayne Swanton, director of global planning and processes at Abbott Laboratories, on how to take out 50% of inventory and cycle time of key strategic products.



Over the past eight years many pharmaceutical firms have integrated their supply chains by improving forecast accuracy and adopting Lean and Six Sigma approaches. The question now, according to Wayne Swanton, director of global planning and processes at Abbott Laboratories, is how to take that increased integration and optimize it for other business benefits.


Its critical that you link the improvements in forecast accuracy to other aspects of the business, says Swanton. At the end of the day, its not about improving forecast accuracy for forecast accuracys sake; its really trying to drive cost and working capital improvements across the supply chain.


Integrating the global supply chain


Abbott is, in many respects, a prototypical pharma company. Headquartered just outside Chicago, it has more than 100 facilities globally and serves patients in more than 130 countries. It makes products for a broad spectrum of fieldsfrom infant health to elderly diseases to nutrition, medical devices, and vascular disordersand from these various streams has netted nearly $30 billion in revenue, more than half of that from the global marketplace.


Starting in 2004, as its presence in emerging markets continued to rise, the company moved quickly to integrate its global supply chain. It formulized a Class 1 planning and control program, implemented a global S&OP process to drive stability in the supply chain, implemented local Lean and Six Sigma programs at individual sites to drive efficiencies, and increased forecasting accuracy.


And Abbott did it well. Our improvements have rippled through to a lot more stability in our manufacturing operations, which has resulted in significant improvements for our customers, says Swanton. But he acknowledges that this colossal effort was like grabbing the low-hanging fruit. Despite our improvements in driving cost and working capital down, and increasing forecast accuracy and service levels, we still felt that there were some common issues across various nodes of the supply chain.


For instance, Swanton continues, does product flow through the supply chain smoothly, with no manual intervention, no duplication of effort, or special handling or expediting, and do we pay our suppliers on time? These are some pretty fundamental things but we werent sure how good or bad we were in these areas.


Holistic management


So, in the first quarter of 2008, Abbott decided to launch a pilot with one of its significant pharmaceutical products to see if it could optimize the supply chain from a holistic, end-to-end perspective. As it started to analyze the supply chain, the company found numerous inefficiencies, says Swanton: We found that actually less than 30% of the cycle time of these activities was relevant to this process. And I think if you were to look at other supply chains, you may find that its significantly less than 30%.


Thus, Abbott drafted a number of optimization goals: to reduce cycle time, remove redundancies, and set clear targets for QA/QC processes; to move from a monthly planning process to a weekly planning process, as to be more responsive to demand while deferring commitment of resources until the last possible minute; and to establish a truly cross-functional team to represent its manifold stakeholders and view the product from a holistic, end-to-end perspective.


Transformational change


Were trying to capitalize on process improvements and lead knowledge that already existed within the supply chain, but trying to apply it across the whole, says Swanton. Its really important that were able to identify opportunities for efficiencies and, if there are any barriers to that, then make sure we deal with them swiftly. If you bring a cross-functional, end-to-end team together, you really get benefits, versus asking individual nodes in the supply chain to optimize within their four walls.


Swanton says that just two years into the pilot, Abbott already has taken more than 50% of inventory and cycle time out of the product. The company now plans to roll out a similar approach across all of its key strategic products. This is the keystone for us in translating this from a project with one brand to a sustainable process across all of our strategic products, he says.


For other pharmas considering a similar journey, Swanton offers a few tips. First, dont expect a quick win. Second, be sure to implement constant stakeholder and sponsorship assessment. Third, dont make assumptions about how the supply chain operates; use data to validate it. And finally, Be bold and go big. Were talking about transformational change here, 50% or 60% improvements or reductions. If you really set your sights low, youre not going to drive out-of-the box thinking within your organization and really see some transformational change.