Major Pharmaceutical Company; ABC portfolio analysis
LCP Consulting, 2011
Major Pharmaceutical Company – ABC portfolio analysis
In recent years our client faced challenges to align demand and supply
resulting in high stock levels and expirations for some products and out-of-
stock occasions for other products. LCP was brought into the company
launching a project to design and implement a full S&OP process. Whilst
developing the process, LCP identified additional points of improvement: the
existing product allocation into fast, medium and slow movers was neglected
and many items were wrongly or not allocated. Each department started to
produce their own ABC segmentation leading to unaligned planning and
prioritisation. One of these departments was production management
optimising production utilisation and costs with limited consideration of
accurate inventory levels and demand.
After completing the S&OP project, a new project was launched to review the
ABC segmentation based on demand and other factors such as shelf life,
product value and importance of stock (e.g. classification of life saving).
Additionally, the project reviewed production and inventory rules according to
the product segments and identified possible savings.
Our client, one of the world’s leading pharmaceutical companies, was
experiencing difficulties to align supply and demand. The various
departments were working in silos optimising each part of the supply chain
on its own. The highest disconnect was experienced between bulk production
and the pack production requirement resulting in high buffer stock levels.
LCP designed an S&OP process with emphasis on the Master Production
Scheduling Review for bulk production and pack production requirements.
Implementation focussed on bulk production and the communication to the
pack production plant to improve the connection of this part of the supply
chain. As part of the implementation, LCP recommended to review the pack
production methodology to align the market demand level with the finished
products supply level. A requirement for this alignment would be the
introduction and maintenance of a product segmentation to be able to base
production and inventory rules on this segmentation. This would regulate
appropriate levels of inventory based on demand. The existing product
segmentation was undefined for many products and not updated since
introduction for others.
LCP analysed current demand, lead time, product value, shelf life and other
factors for each product and developed segmentation rules and production
and inventory rules based on this segmentation.
To undertake this project LCP defined 3 phases of work:
1. Data validation to agree on the datasets used for analysis and diagnostics
of various product factors to determine which attributes should influence the
2. Analysis of the selected attributes to define segmentation rules
3. Development of pack production rules and inventory rules for each product
The project identified considerable inventory reduction opportunities by
redefining the rules for inventory holding and pack production. LCP
recommended a new pack production approach which is aligned better with
the market demand.
Additionally, LCP recommended a new production method which leads to
shorter set-up operations and therefore gives the opportunity to free up
production capacity. Finally, LCP put together a high level road map to help
the client to achieve the identified savings. Throughout the project we worked
with the global supply chain team to align the recommendations with current
and possible operations.
The client was complementary on the result of this piece of work. The plan
for implementation was formed at completion of the project.
During this short project, LCP analysed and recommended not only
segmentation factors but also a new production methodology and identified
significant inventory saving. During completion of the project, LCP was asked
to further support the client in analysis and decision making for other parts of
the supply chain.
Results and Benefits
A number of improvement opportunities were identified as part of this
project, these included:
- Major opportunity to reduce inventory value through aligning demand and
supply (around a third of central inventory holding)
- Additional set-up time savings when introducing a new production