Biotechs can reduce supply chain risk

Risk mitigation for raw materials

25 June 2009 00:00  [Source: ICB]

Correction: In the article headlined "Biotechs can reduce supply chain risk," in the byline, please read: "Brooke McIntyre and John Hollenbach/Doe & Ingalls of North Carolina," instead of "Brooke McIntyre and John Hollenbach/Doe & Ingalls." In the 13th paragraph, please read: "Failure Mode and Effect Analysis (FMEA)," instead of "Failure Mode Evaluation and Analysis (FMEA)" and in the end note, please read: "US supply chain consultancy and raw material supplier Doe & Ingalls of North Carolina," instead of: "US supply chain consultancy Doe & Ingalls." A corrected story follows:

The performance of a biotech manufacturing operation hinges upon the security of its supply chain

Brooke McIntyre and John Hollenbach/Doe & Ingalls of North Carolina

SUPPOSE A critical raw material used in the production of a biopharmaceutical or other biotech product is interrupted when your supplier suffers a catastrophic event. You might have to shut down an entire line, costing your company thousands of dollars in delays and rearranged production schedules. A compromised source can also result in compliance issues with regulatory bodies, product recalls or adverse impacts to human health.

The stakes are high. Biotech companies need to analyze their supply chains to identify and assess the potential pitfalls to supply. Recognizing the risks today will enable them to moderate the impact of any adverse events that may occur tomorrow.

Assessing risk is not simple. However, answering three fundamental questions will make it easier.

ASSESSMENT SCOPE
Consider your situation carefully. The greater the urgency, the smaller your scope should be. The more personnel and time you can commit to the project, the larger your scope can be.

Company-wide assessment can yield broad benefits, because you are analyzing the entire system instead of just one of its components. For example, materials used across multiple products present greater risks, but that may not be apparent if a product is studied individually.

On the other hand, it is easier to manage the risk assessment of a single product. There are fewer raw materials to analyze, and the time commitment is reduced. A small-scale assessment can also be a model for future ones. You can identify any weaknesses in the assessment, refine the process, and then scale the process to the rest of your organization.

Once you have decided on the scope, you need to assemble a project team and create a project plan. The team will ideally involve people representing different functions and interests. Set a timeline for your group and milestones along the way. We find that these assessments typically take three to six months.

WHAT MATERIALS SHOULD BE USED?
If you are doing a comprehensive analysis, make a list of all the raw materials used - whether your pharmaceutical product is commercially available; in Phase I, II, or III; or preclinical. If you are assessing raw materials for one or several biological products, follow the same process for each. Then map each raw material to its use in your production process, as in the raw materials map opposite.

This map highlights materials that are used in multiple processing stages and/or in multiple products, helping to prioritize materials for assessment.

Next, determine how critical the material is in the process against its stage in development. What happens if the material is delayed or unavailable? You will do a more refined impact analysis later, but it's necessary to prioritize your assessment effectively. Give each item a ranking or plot it in a risk matrix like the one opposite.

A two-by-two matrix can quickly demonstrate urgency and communicate priority assessment areas. With this list or diagram in hand, you are ready to begin the assessment.

WHAT FRAMEWORK WILL YOU USE?
Whatever framework you choose, it will have common elements. First, you will identify risks to the material's supply. Then you will examine the probability of each risk's occurrence and the impact on your production process.

We use Failure Mode and Effect Analysis (FMEA), a rigorous process adapted from engineering that enables a thorough risk assessment material by material. Notably, FMEA considers detection risk - the risk of not finding out about a failure.

There are four steps in a FMEA:

• Consider all ways that a particular material can cause disruption in your supply chain.
• Link the failure with possible root causes.
• Determine the impact on your organization of each type of event. Look at the impact in terms of severity, probability of occurrence, and detection risk.
• Determine the risk factors for analysis.

Look at risk factors, or failure modes, for each component of the supply chain. These might include: the manufacturing process and primary industry use (macroeconomic risks); the original source or basic manufacturer; the specialty chemical manufacturers; the distributor or supply chain partner; and your own company (internal risks).

The biggest challenge will be to evaluate macroeconomic risks associated with the process and primary industry and the risks at the original source/manufacturer level. Supply chain transparency is difficult to achieve: to fully map the supply chain, you must request information from those who serve you indirectly.

STARTING THE FMEA MODULE
There are three components you will look at for each material and risk factor: severity, probability of occurrence, and detection risk.

• Severity. This revisits the back-of-the-envelope impact assessment you did earlier. Take the information you have already gathered and add to it to gauge severity. We use a one to 10 scale, with 10 being the most severe.
  Severity is likely to be highest for parts of the supply chain closest to you. For example, a hurricane could slow or halt delivery from the distributor of a critical material needed the following week; but a hurricane in the original source's area might not affect delivery for weeks or months because the material for the next batch is already in the supply chain.
• Occurrence. What is the probability of this unpreventable event occurring in the future? On a one to 10 scale, 10 is the greatest likelihood of occurrence.
• Detection. What is the risk of not detecting a failure before it happens? An undetected failure could occur anywhere within your supply chain, but failures are generally most difficult to detect early in the supply chain process. On a one to 10 scale, 10 is the greatest likelihood of escaping detection.

Determine the composite score by multiplying the individual scores together.

The primary objective is to lower the high and moderate risk scores to an acceptable level by developing and executing on an action plan. An acceptable score should be determined prior to the analysis, and each part of the supply chain might vary. As a general guideline, if the composite is over 200, the risk is high, and it must be addressed first. If it is between 100 and 199, the risk is moderate, and it should be addressed next. A composite risk score below 100 is considered low and can be addressed last, if at all.

Assessing risks in the supply chain is highly subjective. We recommend you work with an industry expert who can assist in the analysis and make recommendations to lower risk. Because there will usually be a cost associated with reducing risk, we also recommend a payback or return on investment analysis of the recommended action plan to confirm that it is economically viable.

You will also need to cultivate close partnerships with your supplier base. Because sensitive information provided by the supplier is critical to a thorough analysis, success will depend on their strong support, and you will need to communicate a coherent, wellthought-out plan to them.

Finally, a thoughtful monitoring program needs to be developed, which can be updated routinely based on changes in the supply chain. The program should be supported by the appropriate resources and personnel, or can be outsourced.

Brooke McIntyre is marketing manager and John Hollenbach is vice president and general manager of US supply chain consultancy and raw material supplier Doe & Ingalls of North Carolina. Contact Brooke McIntyre at bmcintyre@doeingalls.com

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