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Supply Chains in different Industries – Part 1

A typical Supply Chain consists of a minimum set of Business Partners. Depending on which side you start – the demand or supply side the entities can be represented broadly in a linear format. Starting from Demand side backwards to Supply first you have Customers, then Distribution Centres, Manufacturing Plants (Assembly and Component), Subcontractors and Suppliers / Vendors.

Generic Supply Chain

While this is the generic Supply Chain industry-to-industry there are variances in terms of complexity and the levels of each of the business partners. To take an example in Auto industry the Suppliers / Vendors are tiered often as many as three-tiers. The First tier vendors are responsible for a complete Sub-assembly like say Seat who in turn have their own Supply Chain consisting of Suppliers (Tier Two) who provide the Seat finished components that are assembled by the Tier One vendor. Tier Two Suppliers are in turn supplied by Tier Three suppliers who can be fasteners / fabric manufacturers. On the other hand in the FMCG industry the Distribution side of the house is complex with multiple echelons (Tiers on the Supply side and Echelons on the Demand side) with Regional Distribution Centers supplying to Stockists then on to Distributors before being sent to the Retailers and finally end customers. In case of big retailers the products can be directly supplied from the Regional Distribution Center to the Retail Outlets.

While there is a large amount of literature available on Supply Chain models in different industries this blog is not an attempt to replicate the same. This blog is to share some basic Supply Chain models in few industries and the different entities with specific terminologies used. An attempt is also made to outline the degree of usage of different modules of SAP’s SCM more specifically APO solution.

The first Industry being discussed is Pharmaceutical Manufacturing (not Drug Discovery or Clinical Trials). Let’s take a common example of a generic tablet – Aspirin. Any drug consists of a tiny amount of Active Ingredient called API which is the actual chemical acting on the disease to bring relief to the patient (consumer). Different Dosage Forms exist like 100 mg, 250 mg that actually define the amount of the API. The doctor prescribes the drug in form of dosage and number of tablets per day. This determines the total amount of drug that is administered to the patient.

So how is this common tablet made and what is the supply chain that brings the tablet from the Pharmaceutical Company to the ultimate consumer – the patient. It all starts from the left hand side of the graphic above – the Supplier. In this case the active ingredient is Acetyl Salicylic Acid. The raw ingredients (chemicals like salicylic acid and acetic anhydride) is supplied by Vendors to the Pharma Manufacturing plant. Typically a Pharma Manufacturing plant consists of multiple “tiers” – starting with a Biochemical / API / Bulk plant. This is where the raw chemicals are “cooked” in reactors to synthesise the active ingredient. This manufacturing process can become quite complex involving specialized labs rather than normal manufacturing plant we know of. The active ingredient thus produced is crystallised into powder form. 

This powder is next sent to another Manufacturing plant in the Supply Chain typically called Dosage Form-Fill / Semi-finishing plant.  Here a specified quantity of powdered active ingredient (depending on the dosage form) is added with other chemicals called excipients which help in drug administration, binding, coating and giving the tablet shape. Likewise in case of capsules specified amount of the active ingredient is put into one of the half-shells and the other half plugged in. So the output product of the Dosage Form / Semi-finishing plant is large quantities (often in millions) of tablets or capsules.

The final Manufacturing Plant in the Supply Chain is the Finishing Plant where the semi-finished tablet (or capsules) are put into strips and packed into boxes with appropriate labels and literature. Why there is a separate Finishing Plant and a Semi-Finishing plant is because of the fact different markets (countries) and their regulatory bodies specify the strip size and labeling (how many tablets in a strip as also the amount of information in the label and booklet) requirements. While the basic tablet (or capsule) remains the same, putting the tablets in different strips with specified guidelines and batch numbering, expiry etc. results in different SKUs or products each for a specified market. For a multinational Pharmaceutical company it makes sense to carry out the Form / Fill operations at a centralised plant (say in North America or Europe) to get economies of scale and then carry out the Finishing operations in smaller plants around the world in different regions (like Asia-Pac, Europe, North America, South America) closer to the markets.

The finished packs (of tablets or capsules) are then kept in specialised Regional Distribution Centers (can be climate controlled depending on the kind of drug) before being shipped to the respective market distribution centers and finally to the retail outlets – the pharmacies.  

This brings us to the close of this blog. In the subsequent blogs Supply Chains in different Industries – Part 2 and Supply Chains in different Industries – Part 3 Electronics industry supply chain examples will be given. The Mapping APO Functionalities to Different Supply Chains blog rounds off with APO functionalities that are typically put to use in these Supply Chains.


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