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The digital edge in life sciences The business case for digital supply networksExpectations of tech-savvy customersand regulatorsThe life sciences sector does not operatein a vacuum. Blurring of the lines betweenindustries and the idea that there is justone single customer means that lifesciences should meet the expectationscreated by the digital revolution. Just likeany other industry—think of the impactof e-commerce on traditional retailers orthe shift to self-driving technologies bytraditional automakers—the life sciencessector is ripe for change. An increasein online pharmacy operators typicallyrequires manufacturers to change theirtraditional sales and distribution modelsand become faster, more transparent, andmore efficient. This is not going to happenwhen it takes inventory four months tomove through a traditional supply chain.8Almost every executive from every industrycites Amazon when asked about customerexperiences. Customers expect the quality,visibility, and speed of fulfillment that today’stechnologies enable, which is possible with adigital supply network in place.highly regulated industry, financial services,also runs on compliance. Its digital investingis typically geared for compliance at first, butfinancial executives are beginning to realizethat their technology investment will gomuch further if they use it for other areas,such as becoming more customer-centric,for example. The life sciences sector has anopportunity to become more digital-drivenand data-centric not only in compliance butalso in business outcomes.Regulators are also increasingly expectingcompanies to conduct data-driveninvestigations, and to demonstrate theability to trace design of manufacturingmodifications, or prove the resolution of theroot of a problem with a data trail. While theintense regulatory environment may be achallenge, it can also become an opportunityby applying digital supply networks. AnotherHow digital supply networksmeet customers’ andregulators’ expectations: Hospitals can get the suppliesthey need when they need themand cut waste thanks to electronictracking and connectedness ofdigital supply networks Regulators receive data-drivenreports or results of investigationsthanks to data and analytics5

The digital edge in life sciences The business case for digital supply networksSpecific benefits for the lifesciences sectorProvider enablementA digital supply network can deliver onthe ability to hit the market with the rightproducts, of high quality, manufactured intarget volumes, and delivered at the righttime to the right customers. Such an abilitycan have a double benefit. It can providecustomers with what they need so theycan deliver health care, leading to betterpatient outcomes. It can also help lifesciences companies, which are among theindustries with the highest inventory-torevenue ratios,9 to better control inventory.Not surprisingly, demand sensing (demandplanning, forecasting, and management)is the area where digitization will have thebiggest impact (51 percent).10Doctors in hospitals need to have thenecessary devices at the ready in theoperating room, and hospitals need to beable to locate all the surgical devices intheir cabinets. Nurses can spend as muchas 30 percent of their time searching forproducts that may or may not be usedduring a procedure—that is more thantwo hours per shift per nurse.11 Such lackof visibility generally leads to financiallosses. High-cost, high-value cardiologicalmedical devices and implantables, such asstents and pacemakers, continue to flowthrough a highly inefficient supply chain. Theinefficiency in the medical devices marketalone leads to an estimated 5 billion inwaste annually.12 Hospitals spend more than 36 million per year on wasted orthopedichip and knee arthroplasty implants.136To stem their losses many hospitals andhealth care systems have been pushingresponsibility for inventory managementto their suppliers, resulting in a myriadof inventory models—and exposureof manufacturers. Manufacturers arecurrently managing many different typesof inventory, with typically more thanhalf of inventory being held either onconsignment or by sales reps. This canmake it more difficult to accurately accountfor supply levels, location, ownership, andusage, which further complicates billingand replenishment, and can lead to excessinventory. Vendor representativesalso spend a considerable amountof time managing inventory on behalfof customers.14A digital supply network can helpeliminate waste from the system for bothmanufacturers and providers. Surgicalkits are a good example of an area ripefor improvement. Typically, they containseveral types of devices and are soldon consignment. Without digitization,hospitals generally send back the kits forre-provisioning after having used someitems. After a 30-day lag, the manufacturerdiscovers which parts of the kits need to bereplenished. To guarantee their customersenough supplies, most manufacturers keepsufficient consigned inventory, at a hugecost and a big impact on the rate of excessand obsolete inventory.A digital supply network connectsmanufacturers with suppliers by, forexample, having the kits tagged with RFIDs,which can be tracked by a hospital’s smartcabinets. As soon as the kit or parts of itare removed, the hospital is billed, andthe inventory replenishment processstarts even before the other kit has beenshipped back. That way, the companies arepotentially able to lower consigned inventoryby about 25 percent and reduce their excessand obsolete inventory by more than50 percent.Spine Wave, a medical device company, usesa tracking technology, iTraycer, to createa device-focused inventory managementsystem. Sensors on the spinal equipmentenable the company to remotely trackindividual units within a kit, replenishinventory, and activate invoicing.According to Medical Tracking Solutions Inc.,the maker of iTraycer, the technology canrealize an improvement in operating marginsof between 2 percent and 4 percent.

The digital edge in life sciences The business case for digital supply networksSupply assurance and risk:Data-driven visibilityWhen buying from Amazon, customers havecomplete visibility as to how their order isbeing processed and when it is scheduledfor delivery. Such transparency and speedare possible thanks to an interconnectedelectronic platform, which collects andanalyzes data from across the supply chainand puts it into action.The life sciences industry recognizes theimportance of data. Eighty-one percent ofsupply chain leaders see big data analyticsas the most disruptive and importanttechnology with respect to supply chain,during the period 2014 to 2016.15 But whilethe industry is awash in data, it is generallynot able to put it to optimal use. One ofthe issues is siloed data warehousing anddatabases that keep data in lockboxes,which make it very hard to access andderive insights, or even know what datais available. Data from different functionsacross the supply chain, including externalstakeholders, could be combined, analyzed,and presented in dashboards that would,for example, alert to stock-outs or risks,such as changing of weather conditions orunavailability of certain raw materials.But while the industry is based on science,it does not yet fully apply it to achieve datadriven business outcomes. Just 6 percentof life sciences companies have declaredthemselves fully on board with big dataand cloud computing, while 52 percentintend to be looking at big data and/or cloudcomputing in the future.16 In the meantime,vital insights can be missing, and decisionsmight be made based on a gut feel.One life sciences company invested ina data-driven platform and analyticalsolutions for its global supply chain thatallowed it to gain visibility based on datafrom multiple sources—and thus canunderstand and predict risks and eventsbefore they become issues, and take action.The heightened visibility also allows thecompany to make smarter decisions evenwhen disruptions are not an issue. Forexample, shipping items via overnight aircan be very expensive. Having a real-timeinsight into inventory at the destinationsite allows for more-informed economicdecisions about shipping. This is especiallyimportant with some drug categories, suchas biologics, which may require transportin specified temperatures and conditions,the so-called "cold chain." While the currentstate of the cold chain is likely adequate forthe transport of personalized medication,necessary error rates of nearly 0 percentwill pose the biggest challenge as uniquemedications and treatments are added tothe process.17Having created a data-driven platform toreplace the typical reactive, fire-fightingmode of handling the supply chain, thecompany has significantly improvedits efficiency and realized cost savings.Inventory benefits are from 10 percent to15 percent, expedited shipments have beenreduced by 5 percent to 8 percent, overtimecosts have been reduced by 10 percent to 15percent, and efficiencies due to backorderreduction have been improved by 2 percentto 4 percent.Figure 3: Global control tower providing end-to-end supply chain visibilitySupplier to customerconnectivityRM/WIP/supplierAlways-onsupply chainMake/distribution centerOptimized lead times andsupplier performanceEnd-to-endvisibilityCustomerOptimized inventory levels7

The digital edge in life sciences The business case for digital supply networksOptimizing assets use:Preventive maintenanceTransfer of information helps allowmanufacturing assets to be at the readywhen needed by preventing unplanneddowntime by using machine learning. Thistechnology can supply information notonly to address the issue that’s causingcurrent downtime, but also to alert asto what is needed to avoid stoppagesSynchronized is referred to asin the future—whatpredictiveplanningmaintenance. Overall operationaleffectiveness, including machine uptime, isConnectedthe top problem that supply chainleaderscustomerare looking to solve with digital technologies(45 percent).18DIGITAL SUPPLY NETWORKSynamicfillmentTechnologiessuch as sensors and advancedDigitalcoreanalytics embeddedin manufacturingequipment enable predictive maintenanceby responding to alerts and resolvingDigitalSmart if a partmachine issues. A sensor can detectvelopmentfactoryis working within its parametersand activatea work order, automatically ordering parts orIntelligentschedulinga preliminary service call.supplyAn example of the use of Internet of Thingsand machine learning can be illustratedby predictive maintenance of machinesDigital Maturityused for manufacturing titanium implants.DigitalTitanium’s hardness requires tools withTransformationdiamond tips to cut it. The level of dullnessof the diamond tips, and thus the optimalutionthe them, has been difficulttime toChangesharpenaliazationbusinessto figure out because of many differentvariables that affect it. The use of vibrationor sound sensors and torque monitors canExpand successhelp assess the state of the machinery, asdull tips move and sound differently.equipped with virtual reality-type glassesthat see and sense all that the experiencedoperators do. Such glasses can be used fordetecting downtime and for guidance aboutthe best time to perform maintenanceprocedures. The cost savings can runinto the millions, as the cost of an hour ofdowntime went up 260,000 per hour, onaverage, between 2014 and 2016.19Rapid product innovation:This technology platform enables a scalableThe merging of physical-digitalSupplier to CustomerAlwaysmodelonEndlowersto end thebusinessthat greatlyDigitization allows for mergingof theconnectivitysupply chainvisibilitycompany’s inventory requirements,physical and virtual worlds. Thanks toreduces the amount of working capitaltoday’s technologies, companies can createrequired to support operations, and allowsa digital twin—a model of their physicalitDCto launch new products and productenvironment. It can be a specific design orimprovementsmore rapidly,as comparedRM/WIP/SupplierCustomermanufacturing process,with the digital twin Make/DCwith manufacturers of traditional implants.being a computer-based virtual simulation ofthe real thing. Designing, vetting, tweaking,It’s not only good business but also betteror testing products virtuallycan beleadmuchOptimizedtimes andOptimized inventoryhealth care. A clinicalsupplier performancelevels study sponsored byfaster than doing so in the physicalworld.ConforMIS20 demonstrated that patientsMoving to the manufacturing stage can alsowith the company’s customized kneebe done electronically. Cutting out some ofimplants have motion patterns that morethe most cumbersome and off-line elementsclosely resemble those of a normal knee,of commercializing a product can speed upcompared with patients who have thethe start of production to three days aftertraditional, off-the-shelf implant.the design is finished, from three months toa year when done the old way.Figure4: 2.Physical-to-digital-to-physicalloopof Industry 4.0FigureThe physical-to-digital-to-physical leap2. Analyze and visualizeMachines talk to each other toshare information, allowing foradvanced analytics andvisualizations of real-time datafrom multiple sources.1Thebest ishumanThe DigitalFoundarya scalable,operatorsagile delivery can assess themodel that rapidly ideates, prototypes, andstate of machinery by nuanced factors suchimplements digital tactics.as the amount of heat they feel on theirfaces coming from different parts of themachine, or from how hard it was for themolded piece to be ejected from the molditself. To bring all other operators up to thesame level, inexperienced operators can bePhysical1. Establish a digital record2Digital3Capture information fromthe physical world to create adigital record of the physicaloperation and supply network.3. Generate movementSource: Deloitte Center for Integrated Research.8Speed of innovation, design, andmanufacturing is becoming even moreimportant with customized products,which are designed to fit a specific patient.ConforMIS is a manufacturer of kneeimplants, customized to fit each patient’sunique anatomy. The company has aproprietary iFit Image-to-Implant technologyplatform, which includes proprietarysoftware and 3D-printing capabilities.Apply algorithms and automationto translate decisions and actionsfrom the digital world intomovements in the physical world.

The digital edge in life sciences The business case for digital supply networksDigital supply network-enabledquality and complianceThe quality function in the life sciencessector is used almost solely for regulatorypurposes and is generally not seenas a competitive capability. Of course,compliance is a critical area. More thana third (35.6 percent) of companies inthe life sciences sector reported thattheir companies experienced a businessdisruption because of a product compliance,safety, or quality-related issue within thepast 12 months, compared with one-fifth(19.2 percent) of respondents across a rangeof industries in a recent Deloitte survey.21Losses incurred can be staggering. Forexample, the average monthly opportunitycost of an ANDA (Abbreviated New DrugApplication) delay is 50,000.22Compliance-based business disruptionscan take longer to correct due to lack oftraceability of specifications or modificationsthat have been made in the design ormanufacturing process. In fact, regulators,such as the FDA, are pushing companiesto become more data driven by issuingwarnings or observations for investigationsthat are not supported by empirical data.A slow response to a quality- or compliancebased disruption can have a threefoldnegative impact. It starts with the negativemarket perception around the time of thepublic announcement of a product recall orinvestigation, followed by delays in terms ofresponding to the regulatory agency and theenormous investment to compensate forthe lack of having controls in place.But there can be a better way to handle theinefficient and expensive practice of “puttingout the compliance fires,” which would notonly speed up remediation but also preventquality lapses or improve the quality offuture products. This can be achieved withquality management system transformationor integrating a digitized qualitymanagement system into a digital supplynetwork, starting with R&D and carryingthrough to product design, manufacturing,and service. Big data and analytics will bekey enablers in unlocking the potential ofdisparate data and should improve theability of companies to identify and quantifynew and emerging compliance risks.As opposed to a purely regulatory approachto quality, this approach would be businessdriven. Many life sciences companiesmaintain large and growing compliancefunctions at significant operational cost toensure they maintain regulatory compliance.However, today many life sciencescompanies, lacking insights from data, do notknow how much they spend on compliance.The initial benefit of digitizing and integratingthe quality function into the digital supplynetwork could be lowering the cost oflabor. A digitized and integrated quality andcompliance function can thus become acompetitive advantage in terms of pricing,quality, and innovation.9

The digital edge in life sciences The business case for digital supply networksConclusionThe life sciences sector is ripe for digitaltransformation and can greatly benefitfrom digital supply networks to createvalue. They can help optimize operationsand inventories and free up capital for R&Dinvestment. They can also help improvecustomer satisfaction, fulfill regulators’requests, and speed up innovation.However, the industry needs to overcome itsmind-set that the current inefficiencies areindustry-specific, unique, and business asusual. There are several approachesto consider.Identifying the business case.Demonstrating ROI from technologyinvestments has been tough acrossindustries. This is especially challenging inthe life sciences sector, which, because ofits blockbuster-based growth paradigm andhealthy margins, may not see the need forincreasing value in the first place. The sectoris also often not able to access, integrate,and analyze its abundance of data, andthus is often unable to calculate the cost ofcurrent inefficiencies or potential benefits.But the business case can, and needs to, bemade. Both premises underlying the currentmindset—high margins and lack of dataanalytics—should not become the hurdlesthat keep the sector behind its competitors.Apart from making a data-driven businesscase, it is also important to consider changemanagement to deal with cultural andorganizational biases.10Identifying top challenges and painpoints.Lack of an overall roadmap is seen as thetop obstacle in beginning a digital pilot (45percent).23 Every company has its specificsilos that stand in the way of a holistictransformation. Identifying these silosand pain points is especially crucial to thesuccess of a digital supply network becausethe supply chain involves all functionsand is a loop that needs to be integratedto function smoothly. There are someareas that may have traditionally operatedseparately, maybe because of different goalsand incentives, that may be more difficultto integrate than others. It is important toidentify these pain points of integration anddevise a plan for how to incorporate themin a digital supply network. One of the topchallenges is the present thinking about theseparation of quality from manufacturing,which can slow down the flow because thequality function, both in terms of quality

The digital edge in life sciences The business case for digital supply networks Staying competitive: Supply chain as value creator This is one reason consumer products and retail typically lead in the maturity of these areas. The pharmaceutical and health care industries, on the