MEETING GLOBAL CHALLENGES

Logistics Insight Asia, 1/11/2007

Dr Karsten Benzing is Global Head of Supply Chain Processes for German pharmaceutical manufacturer Boehringer Ingelheim. He spoke with Logistics Insight Asia recently.

Founded more than a century ago, Boehringer Ingelheim is the world’s 15th largest pharmaceutical company. Net sales in 2006 were 10.6 billion euros (US$15.1 billion), it employs more than 38,000 people, has a global network of manufacturing plants, and markets products in more than 150 countries. Top three drugs in terms of sales are Spiriva (lung disease), Micardis (blood pressure), andFlomax (prostate care).

Q: WHAT ARE YOUR MAIN RESPONSIBILITIES?

A: It starts from materials procurement and then all the way down to delivery to the customer. One of my chief tasks is setting inventory targets for the organization. Inventory is one of the few variables in the supply chain, since all the critical steps are registered with the authorities so we cannot easily increase capacity, and logistics routes and information flows are also pretty much set.

In 2006, economic order quantity (EOQ) was implemented for all SKUs, based on detailed breakdown of cost elements and set collaboratively by customers and suppliers. And we use safety stock for finished goods, as a reserve to cover unforeseen opportunities, and this can vary between a few days and several weeks of coverage.

Q: SOME KEY CHALLENGES?

A: In the distribution chain, drugs, by their nature, need to be protected from adverse influences from the environment, especially temperature. While we are being asked by the regulatory authorities to track this part of the supply chain, the logistics service providers do not seem to be following through to the level that we would like. For example, air cargo containers being left outside airport terminals for several hours in a tropical climate. We are trying to address these issues with the 3PLs.

Q: HOW ABOUT IN ASIA?

A: Here, the pharma markets are nationally regulated with different policies pursued, and there are issues related to patent protection, generic competition, and price pressures. Boehringer’s decentralized setup means that there are country organizations rather than a regional organization. The result is high SKU complexity with many low profit “C” items, and local rather than end-to-end optimization. In addition, the problems regarding temperature occur particularly often in Asia.

Q: DO YOU USE RFID?

A: We are getting ready to use RFID in North America next year for itemlevel tagging, because of the new California law. (Note: From January 2009, all drugs distributed within California must be accompanied by an electronic pedigree.) But right now we only use RFID internally within our plants.

Q: ANY FUTURE SUPPLY CHAIN INITIATIVES?

A: The focus now is to run our plants more efficiently while keeping up our high service levels. We are also moving into managing throughput times because they the basic drivers of supply chain performance. Along with absolute duration, throughput variability is a key factor, and to manage this we are using lean and Six Sigma tools.

I am also looking to extend throughput initiatives to our forwarding chain. This involves gathering detailed data from freight forwarders on reliability, customs clearance times. And another area is on improving our forecasting capabilities.