TCO: Unveiling hidden costs empowers value-driving decisions
In today ' s competitive business landscape, identifying and quantifying all direct and indirect costs associated with procurement, handling, and use of materials through their lifecycle is critical to defining the total cost of ownership( TCO) in the supply chain.
Unlike material costs, process and supply chain costs are well within an organisation’ s power to contain and control. It’ s easy to assume that the costs of cGMP chemicals stop at the order sheet; however, hidden ancillary costs from seemingly simple raw material selection and supply chain decisions can impact an organisation’ s ability to mitigate risk and operate efficiently.
They can add up quickly and include a wide range of factors such as storage requirements, cost of poor quality, freight expenses, unpredictable lead times, payment terms, inventory carrying costs, and poor on-time in-full( OTIF) performance. They also pose risks in the form of costly non-compliant deliveries, resourceintensive activities and the health and safety risks associated with them, excessive individual supplier shipments, and high costs for raw material handling.
A fact-based assessment of processes can assist in the development or improvement of chemical-inclusive workflows that can help companies realise significant savings and effciencies and accelerate their ability to bring vital products to market. Conducting a meaningful analysis requires compiling comprehensive data points related to the management of multiple vendors, material quality, order traceability and logistics transparency. It also requires accurately interpreting that data to gain a clear picture of where there’ s opportunity for significant gains.
The complex and time-consuming process of arriving at TCO can be made easier by applying Lean Six Sigma * methods or another process framework to the totality of a company’ s supply chain. However, this can be tedious for biologics developers and manufacturers who lack the resources or expertise to effectively complete that evaluation.
Collaborating with a trusted, highly experienced service provider that can conduct a Gemba Walk to map the chemical supply chain can relieve that burden and result in substantial progress toward achieving a company’ s specific goals.
For example, site leadership at a mid-sized CDMO engaged with lean specialists from Thermo Fisher Scientific to better understand the operational impact of building a new 15,00 ft 2( 1,400 m 2) warehouse to meet massive customer demand. They recommended combination of cGMP and GDP-compliant storage and inventory management from Thermo Scientific.
The Production Chemicals & Services business enabled the CDMO to reduce their capital requirement for inventory and warehouse expansion, significantly reduced the need for on-site warehouse capacity, cut material lead times, and improved OTIF performance to > 99.5 %. Those changes resulted in
$ 2.5 million savings in one-time capital expenses by avoiding the cost of a new warehouse and enabling savings of $ 359,000 / year in warehouse operating expenses, $ 120,000 / year in inventory carrying costs and $ 120,000 / year from eliminating expedite fees.
Supply chain issues have real, quantifiable impacts on biomanufacturers( who face a host of challenges to making new, life-saving therapies and vaccines a reality), as well as chemical users in other industries. Accurate management of TCO, achievable by conducting thorough evaluations, can help companies uncover hidden costs associated with risks, operational inefficiencies and financial burdens, and make more informed direct and indirect decisions that drive long-term value.
“ Thermo Fisher Scientific prioritises our customers’ TCO by offering strategic outsourcing solutions that streamline their supply chain and quality release processes,” says Dion Aviki, senior director and general manager of Production Chemicals & Services.“ Our tailored services help to deliver measurable value by lowering the overall cost and complexity associated with in-house operations, enabling our customers to focus on their core business and help accelerate time-to-market.”
* Lean Six Sigma is a trademark of Lean Six Sigma LLC
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