Performance Excellence Ltd

1. Joint Service AgreementsRon Basuweb: www.rbcon.co.uk The 2005 JCF SeminarContact- Collaboration- Co-ordinationLondon, 13 July 2005 L Performance Excellence Ltd E P

2. Agenda • Industry drivers for outsourcing and partnering • Advantages and disadvantages of standard contract supply agreements • Joint Service Agreements • JSA case example • JSA for partnerships - incentives and penalties - tools and processes • Supplier-Partnering Hierarchy L Performance Excellence Ltd E P

3. e- Supply Chain Integration through e-business Physical Flow Sourcing and Supply ERP Demand Management Purchasing Scheduling MPS Information Flow Integration through e-business

4. Shift Of Performance Criteria Shift towards collaborative e-Business culture

5. Main benefits of IT outsourcing 56 Access to a wide range of IT skills Measurable cost savings 52 Improvement in service level 45 Able to use IT more strategically 44 Access to more innovative capabilities 38 More rapid response to business change 35 Other 5 Don’t know 8 L Source: PMP Research 2004 Performance Excellence Ltd E P

6. Industry drivers for outsourcing • Increasing costs of goods • Global manufacturing capability at lower cost • E-supply chain and collaborative economy • Relaxed regulatory control – trade, branding, GMP • Faster product transfer from R&D to manufacturing • Transfer pricing and tax benefits • Growth in generic products’ market share • Release of key resources to focus in key initiativesWe want to optimise cost,capacity,flexibility and cycle time L Performance Excellence Ltd E P

7. Risks and concerns for outsourcing • Danger of giving away ‘family silver’ (manufacturing advantage) • Issues of project management, communications and quality • Possible delay in regulatory approval • Political issues of ‘globalisation/exploitation’ • Loss of label (e.g. ‘made in UK’) • We don’t want to throw the baby out with the bathwater L Performance Excellence Ltd E P

8. Outsourcing strategy criteria • Core competence should be kept in house • No compromise with quality, on-time delivery and price • Communication issues (e.g. time zones, languages) must be resolved • IT systems should be integrated (web enabled) • Service agreements must be in place • Rigorous project management approach • Regular review and follow-upThe rule is to be world class L Performance Excellence Ltd E P

9. A global sourcing model H Contract Partnership Own Manufacture VOLUME Own Global Network Divest/ Third Party L H L PATENT LIFE Retain competitive advantage of new products L Performance Excellence Ltd E P

10. A Product Life-cycle model Volume Growth Launch Decline Maturity Own Global Network Own Manufacture Contract Partnership Divest/ Third Party Time Align sourcing strategy with product life cycle L Performance Excellence Ltd E P

11. Partnership by service level agreements PharmaCO PharmaCO Product Market Product Market Standard SLA Supplier Supplier In-house CoManCO PharmaCO Product Market Joint SLA Supplier CoManCO L Performance Excellence Ltd E P

12. Standard Service Agreement:Key Features • Quality - specification control - regulatory approval - GMP and validation • Supply Chain - forecasting, ordering and delivery - service levels • Total Cost of Acquisition - cost plus x% - fixed delivered price • General - payment terms - confidentiality - termination L Performance Excellence Ltd P E P

13. Standard Service Agreement:Customer Perspective • Advantages - well defined terms and conditions - low risk of deviation in quality and cost standards • Disadvantages - little opportunity for continuous improvement - less flexibility and responsiveness - limited knowledge of supplier strengths and weaknesses L Performance Excellence Ltd P E P

14. Strategies of Collaborative Partnership • Partnership by Joint Service Agreements • Strategy of learning organisation • Dual project management in technology transfer • Interfacing ICT systems • Participation in Sales and Operations Planning • Participation in ERP/TQM/Six Sigma L Performance Excellence Ltd P E P

15. Joint Service Agreement:Key Features • Quality - similar to Standard Service Agreement - joint review and audit • Supply Chain- sharing of forecasting and planning - combined continuous improvement initiatives - collaborative KPIs and incentives • Total Cost of Acquisition - cost incentives • General - similar to Standard Service Agreement - partnership and flexibility L Performance Excellence Ltd P E P

16. Joint Service Agreement:Customer Perspective • Advantages - higher and more adaptive customer service - higher quality assurance - lower total cost of acquisition - competitive advantage of flexibility and responsiveness - sustainable partnership with fewer suppliers • Disadvantages - more time and resources to manage? - possible know-how risk? L Performance Excellence Ltd P E P

17. Case Example: ZYBANValue Chain Strategy Primary Manufacture Secondary Manufacture Secondary Packaging Markets USA Zebulon Canada Catalytica Boronia Asia Pacific Zebulon CEE Poznan Technochem EU Aranda Africa, ME Latin America Mexico L Performance Excellence Ltd P E P

18. Case Example: ZYBAN • PRIMARY MANUFACTURE- Drug substance: Bupropion Hydrochloride - Two stage process and a final crystallisation - Bupropion is manufactured under licence by Catalytica Inc. USA • STRATEGY - Retain Catalytica Inc. - Include Technochemie GMBH as an alternative source L Performance Excellence Ltd P E P

19. Case Example: ZYBAN • Joint Service Agreement process with Catalytica Inc. - FMEA and risk assessment carried out - Capacity analysis showed no bottleneck - Regulatory requirements accomplished including FDA approval - Regular review as part of Global Demand & operations Planning process - Designated supplier in Global Supply Chain project (Manugistics) - Joint Service Agreement formalised L Performance Excellence Ltd P E P

20. JSA for partnerships:incentives and penalties (1) • Key Performance Indicators - customer compensates for better actual than target - supplier compensates for worse actual than target • Vendor Managed Inventory - customer gives access to forecast and MPS - supplier maintains the agreed inventory level L Performance Excellence Ltd P E P

21. JSA for partnerships: incentives and penalties (2) • Primary Manufacture - customer owns the IP of API - higher added value of API to suppliers • Technology Transfer - dual project management - sharing of resources, technical and regulatory expertise • Interfacing ICT systems - Interfacing SCM/CRM and remote access to ERP -Extranet link to KM and e-Procurement L Performance Excellence Ltd P E P

22. JSA for partnerships:Financial Incentives Earned Value curve Customer gain Earnings Pay curve Supplier gain Guaranteed minimum 0 25 50 75 100 125 150 175 Performance L Performance Excellence Ltd P E P

23. JSA for partnerships:Tools and Processes • ERP/SCM/CRM • ECM: Enterprise Contract Management • Balanced Scorecard • Sales & Operations Planning • Six Sigma programme

24. ECM: Enterprise Contract Management • ‘80% of all business transactions are based on contracts’ (Accenture) • ECM stores contracts in a repository to track actual revenue against contracted revenue • Integrate ERP and ECM - gap in ERP - single set of data - visibility and reliability • I-many system can handle 100,000 + contracts

25. The Supplier-Partnering Hierarchy Conduct joint improvement activities Share information intensively but selectively Develop suppliers’ technical capabilities Supervise your suppliers Turn supplier rivalry into opportunity Understand how your suppliers work Source: Liker & Choi, HBR, Dec 04 L Performance Excellence Ltd P E P

26. EXCHANGE IDEAS IN JSAs • If you have a cent and I have a cent and we exchange cents, you will still have one cent and I still have one cent. • But if you have an idea and I have an idea and we exchange ideas, you now have two ideas and I now have two ideas. L Performance Excellence Ltd P E P

27. THANK YOURon Basuemail: BasuRN@aol.com L Performance Excellence Ltd P E P