Insights From Highly Outsourced Supply Chains

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Insights from highly outsourced supply chains

Trevor MilesDirector, Thought [email protected]


Comparison of Pharma Supply Chains

BioPharmaceutical High-Tech/ElectronicsReverse V-shaped BOM Regular A-shaped BOM

Nascent outsourcing Pervasive outsourcing

Highly regulated Relatively little regulation

Product expiry Price ‘expiry’

Over 75% gross margin About 15% gross margin

Avg DOI of 200 past 3 years Avg DOI of 30 past 3 years

Avg C2C of 220 past 3 years Avg C2C of 30 past 3 years

Avg WC Ratio of 0.33 past 3 years Avg WC Ratio of 0.12 past 3 years

High-tech supply chain’s recognized as best-in-class


Why compare with High-Tech/Electronics?

• Highly outsourced

• Global supply chains

• Very volatile demand

• Explosion of products

• Consistently outperforms other industries


Price ‘Expiry’- ASPs Decline 15% per Year

Also faced with demand ‘expiry’ leading to E&O


Price ‘expiry’ experienced throughout SC


Highly Outsourced


Global Supply Chains


Explosion of Products


Very Complex Foundry Manufacturing Process

• Constantly changing technology – speed/power, size• $3B-$4B investment• 2-3 years from ‘first shovel’ to ‘first wafer’• 6-18 week manufacturing lead time

• Variable yields• Low yields• Speed binning

Source: http://www.sematech.org

http://www.sematech.org/�


Growth of Fabless Semiconductors

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

Semi ($M)Fabless ($M)Fabless/Semi

SI ASSource


Foundry Concentration = Supply Chain Risk

NA Fabless, 600

EMEA Fabless, 200

APAC Fabless, 500

NA Foundries, 100

EMEA Foundries, 50

APAC Foundries, 100

Fabless• 24% of Revenue• 84% of Companies

SI ASSource


Foundry Concentration = Supply Chain Risk

30

40

50

60

70

80

90

100

0.0

400.0

800.0

1200.0

1600.0

2000.0

2400.0

2800.0

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

Perc

ent

CapacityWafer StartsUtilization

SI ASSource


Foundry

Fabless Semi

Postponement is key

• Very lean• Tightly

coupled• Risk

mitigation• OEM/Fabless

– Design– Sales

• CM/Foundry– Mfg– Efficiency

Wafer Fab

Wafer Sort

Assembly Test

Assembly TestSuppliers

Customers

VMI

Suppliers

Customers

Contract Manufacturer

Assembly Test VMI

Suppliers

Customers

Original Equipment Manufacturers

Kitting/ Assembly

Order Mgt VMI Customers

Push Pull Pull

Pull

Pull

Pull


Visibility is a core requirement

Secure systems integration across a globally distributed heterogeneous manufacturing environment

Automated data exchange with ERP systems


Utilization of Outsourcing in BioPharma

Source: Frost & Sullivan


Global Bio-Pharma CMO Market Forecast

Source: Koncept Analytics


Supply Chain efficiency impacts the bottom line

Source: How to Unlock $43 Billion in Value by Improving Working Capital Management, PharmaPro.comBy Carol Cruickshank, David Hanfland, Paul Inglis and Shiv Shivaraman; A.T. Kearney, Tuesday, April 27, 2010

$16.60 $16.60

$13.50

$16.60

$13.50

$13.70

$43.80

05

101520253035404550

Inventory Receivables Payables Total

Potential Working Capital Improvement - Pharmaceutical Industry 3Q2009 ($B)

The Pharmaceutical industry can free up over $43B in cashby operating at the first quartile of industry performance

1st Quartile = 137 Days 1st Quartile = 82 Days 1st Quartile = 48 Days


• Many– Companies– Data sources– Objectives– Horizons– Functions

• One– Place– Second– Supply Chain

• Single data model• Single UI

– Role specific views

• Single set of analytics– S&OP– Demand planning– Supply planning– Inventory mgt– Lean– CTP– …

• Imbedded reporting/alerting

• Long/medium/short term

• Finance & Operations

Insights From Highly Outsourced Supply Chains

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