Life Sciences companies undoubtedly put more effort into supply chain risk management than any other sector. We’re different. After all, patients’ lives are at stake. It’s more important to us. Isn’t it?
Over the last 6 months the MIT Center for Transportation and Logistics (CTL) conducted a worldwide survey of supply chain risk attitudes, opinions, and management practices. With 12 teams of researchers around the globe we collected 1500 valid survey responses from over 50 countries and 20 industries. Enough Life Sciences responses were obtained (103) to enable meaningful comparison between this industry and others especially industries who act as suppliers to Life Science companies.
So, are Life Science companies different? Well, in a few places, yes, but in most instances, no. Here are some results that compare the Life Science companies to 5 other industries of interest: Chemicals, Electronics, Food, Petroleum, and Rubber/Misc Products.
Prevention vs. Response
The question: “Should your company spend their efforts in planning and implementing risk prevention measures or in planning and practicing event response measures?” There was no difference in the responses. All industries answered about the same. Life Sciences had 56% favoring prevention, 17% favored response, and 27% said to treat them equally. As children we are all taught “an once of prevention is worth a pound of cure” so it is interesting that 17% of the respondents seem to have rebelled against this sacred truism. Supply chain managers who are promoting corporate risk prevention programs need to be aware that 1 in 6 people in these relevant industries do not believe much in prevention programs.
Central Control vs. Local Control
In terms of planning for prevention, Life Sciences were no different than other industries. 74% favor centralized planning vs. 26% that favor local planning of prevention. In terms of who controls the response to a risk event, all industries including Life Sciences on average favored more local than central control, although Life Sciences had a larger fraction than any other industry of responders favoring central control of disaster recovery (24%).
Most Frequent Risks
For Life Sciences, Raw Material Supplier Failure, Product Quality Failure, Inventory Write-offs, and Finished Goods Manufacturing Failure were the top risks. Other industries reported similar results but they also reported enduring Cash Crises and Cost Spikes, risks much less common to Life Science companies.
Most Important Risks
Most industries agreed that Raw Material Supplier Failure was their 1st most important risk. Beyond that they divided between those that were concerned about quality and those that cared most about cost. Life Science firms worry about Product Quality (2nd) and Finished Goods Manufacturing Failure (3rd). Chemical companies, an important supplier to Life Sciences, ranked Product Quality as 5th. Rubber and Misc. Plastics manufacturers, also important suppliers to Life Sciences ranked Product Quality as 4th. In each case, Spike in Raw Material Cost was ranked higher.
In the larger survey, 25 different risks were offered as choices. Every single risk received multiple votes as “the most important” risk. The top risk received only 16% of the votes. In other words, if you were most concerned about Raw Material Supplier Failure the chance that any other specific trading partner was also most concerned about Raw Material Supplier failure was only 1 in 6. You have a 50-50 chance of having a trading partner who top priority risk is not even among your top 5 risks.
The Takeaway
This reversal of priorities between Life Science firms who worry about Product Quality and their supply base, Chemical, Rubber, and Plastics companies, who worry about costs could spell problems for supply chain managers. The broader message is that supply chain and quality managers in Life Science firms need to be aware that their trading partners likely do not share the same concerns as they do. While many attitudes are the same as in other industries, such as the tradeoff between prevention and response, there are many cases where they are really different. And don’t forget the fraction of people who have thrown off conventional thinking and now hold off-beat opinions – i.e. the people who make up the tails of these distributions. These might be your suppliers. Talk to your suppliers about their beliefs and attitudes concerning various types of supply chain risks and disruptions. Discuss contingencies plans. Once a crisis starts, it’s a little too late for a “get to know you” conversation.
Bruce Arntzen, PhD, MIT Center for Transportation and Logistics
| RANKING OF RISKS BY INDUSTRY | Manufacturer Pharmaceuticals Medical Devices and Supplies | Manufacturer Chemicals & Allied Products | Manufacturer Electronics & Electronic Equip. Except Computers | Manufacturer Food and Kindred Products | Manufacturer Petroleum Refining and Related Industries | Manufacturer Rubber and Misc. Plastic Products |
| Number of Responses |
103 |
62 |
124 |
103 |
32 |
24 |
| Raw Material Supplier Failure |
1 |
1 |
1 |
1 |
3 |
1 |
| Product Quality Failure |
2 |
5 |
2 |
4 |
4 |
4 |
| Finished Goods Manufacturing Failure |
3 |
2 |
4 |
3 |
3 |
3 |
| Inventory Write-off Due to Design Change |
4 |
10 |
7 |
6 |
14 |
13 |
| Transportation Carrier Failure |
5 |
4 |
5 |
5 |
1 |
4 |
| Spike in Raw Material Costs |
6 |
3 |
6 |
2 |
4 |
2 |
| Sales Collapse Due to New Competing Product |
7 |
9 |
8 |
9 |
13 |
16
|
| Price Collapse Due to New Competitor |
8 |
10 |
9 |
14 |
16 |
7 |
| Product Tampering or Counterfeit Products |
9 |
12 |
19 |
17 |
19 |
16 |
| Spike in Energy Costs |
10 |
6 |
11 |
8 |
8 |
8 |
| Failure of Major Software Systems |
10 |
11 |
12 |
11 |
12 |
15 |
| Get Involved! MIT is now inviting companies who are interested in supply chain risk management to join a new research project. The project will develop a method and tools to: “Efficiently Identify and Display the Weakest Link in a Supply Chain.” Pilot tests of the method and tool will be conducted inside participating companies. Interested? Contact: |
Tags: Risk Management, Supply Chain
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