SECTION A [40 MARKS] Read the case study below and answer ALL the questions that follow. An analysis and mitigation of Demand Variability on External Supply Chains In the pharmaceutical industry, increasing product complexity, shifts towards specialty medicine and growth in emerging markets have resulted in increased forecast variation and manufacturing complexity for new products. In the past six years, AstraZeneca has outperformed its peers in research and development productivity, increasing the number and speed of product launches. The resulting demand variability and shifting operational environment have led to financial and nonfinancial impacts, such as poor inventory performance and strained supplier relationships. The research illustrates that the end-to-end manufacturing and supply chain operation is experiencing significant bullwhip effects for new products. The primary sources of financial impacts are the policy stock requirements tied to monthly demand and segmentation of the supply chain causing different forecasts to be used for certain stages. Non-financial impacts include loss of trust with suppliers, manually managed complexity and limited communication resulting in the bullwhip effect. The short-term and long-term recommendations focus on increased operational transparency and scenario-based forecast planning to mitigate the impact of demand variability on the system. The industry and company analysis showed that Global External Sourcing (GES) and the supply base have been experiencing a period of intense change since 2012 resulting from a fundamental shift in the supply chain risks profile. This shift was instigated by the increased productivity of the Research and Development (R&D) organization and a company strategy focused on scientific leadership and returning to growth. The result was a significant increase in the number of products and new markets launched annually and more extensive lifecycle management programs. This extends the New Product Introduction (NPI) phase of a product which is compounded by these products being technically complex and expensive. The operational model of GES was not developed to handle these types of challenges in an efficient and costeffective manner. The impact of demand variability can be summarized as the bullwhip effect manifesting in the supply chains of brands, which results in poor inventory performance. The current state analysis highlighted internal policies associated with business continuity plans and supply chain segmentation that directly increased the variation in forecast demand experienced by suppliers compared to the final product demand. Limited communication around forecast assumptions and the translation process, segmentation of the supply chain and lack of standard work exacerbate the bullwhip effect increasing the impact of demand variability within AstraZeneca. The simulation tool utilizes a two-stage supply chain model and forecast translation process to be able to assess how supply chain design and forecast variation parameters impact inventory performance at the intermediate and Active Pharmaceutical Ingredient (API) stock pocket locations. This tool was successfully utilized to assess potential commercial arrangements and measure the inventory impact of certain supply chain design strategies. This is the first tool that allows GES to directly connect the long term forecast to inventory performance, allowing for more informed supply chain design and capacity investment decision making. GES has stabilized its internal operations to be able to manage the level of change and has standardized some of its processes. The organization is poised to make strategic adjustments to their operational model and supply chain design philosophy to support the vision of becoming a world class pharmaceutical supply chain organization by 2025. This research highlights the two key strategic areas to focus on initially to take the first steps towards the ideal future state and rebuild trust in the supply base to achieve this goal. Operational transparency and scenario based forecast planning are two concepts that, if implemented effectively, have the power to establish a transparent, connected, flexible and agile supply chain within the next five years. These changes are necessary to meet the changing needs of the product pipeline and ultimately provide lifesaving treatments to patients in a more cost-efficient and timely manner, while still providing the outstanding level of product quality and patient service experienced today Global External Sourcing (GES).

QUESTION 1 (40 Marks)

Use the relevant literature and information in the above case study to analyse the factors leading to demand variability and the bullwhip effect in the pharmaceutical industrys Supply Chain.