Creating the supply chain of tomorrow IN ASSOCIATION WITH
BAYER
DIGITAL REPORT 2020
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Creating the supply chain of tomorrow WRITTEN BY
WILLIAM GIRLING AND GEORGIA WILSON PRODUCED BY
CHARLOTTE CLARKE
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Bayer’s Head of Supply Chain Management, Michele Palumbo, discusses the transformation of supply chain and how Bayer is driving innovation
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ith over 20 years’ experience within the supply chain and logistics industry, Michele Palumbo is currently the Head of Supply
Chain Management at Bayer S.p.A. (Italy). Palumbo has worked at a number of companies during his career. Prior to joining Bayer in 2010, he worked 04
at SDA Bocconi School of Management, Hoechst Italia S.p.A., Gruppo COMIFAR and various pharmaceutical companies as a consultant in operations and supply chain management. Currently, Palumbo is a member of the Scientific Committee of Il Sole 24 ORE Formazione|Eventi and Adjunct Professor at Università Cattolica del Sacro Cuore in Milan. With his broad range of experience within the industry, Palumbo is well placed to discuss the evolution of supply chain and logistics, and the impact that Coronavirus (COVID-19) is having on the industry. He also has an acute understanding of the technologies – such as cloud computing, advanced radio-frequency identification (RFID), and more – that have both contributed to Bayer’s own digital transformation journey, and are driving the supply chain of the future. He joined us to discuss both areas.
“ It is possible to streamline processes and to project systems that are able to resist predictable events, not black swans” — Michele Palumbo, Head of Supply Chain Management Italy 05
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“ In the future, customers and all the actors involved in the supply chain processes will be interested in having full visibility on the distribution processes” — Michele Palumbo, Head of Supply Chain Management Italy
PRE-COVID-19: OLD PERSPECTIVES Palumbo describes the transformation of the industry as a Copernican revolution that we are in the middle of. However, he believes that the onset of the global pandemic is only accelerating the effects of this revolution. He says: “The impact on industries we are seeing today, I believe, were already rooted a long time ago in the first economical crisis back in the 1930s. Many have previously tried to explain and provide solutions for this revolution, from
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economists and politicians, through to tycoons, ideologists and more, each one putting profit, capital, the workers or the environment at the centre of this economic universe. However, none had a comprehensive perspective. “Deming and Juran, for example, tried to put the customer at the centre of the system, but found an audience only in the post second world war Japan,” he reflects. “This disruptive culture reached its peak in the 1980s, with the development of new computing power and the emerging internet allowing the world to connect and forever diminishing the boundaries between countries. Companies that
E X E C U T I V E P R OF IL E :
Michele Palumbo Title: Head of Supply Chain Management Italy Location: Milano, Lombardy, Italy Palumbo has been Head of Supply Chain Management Italy in Bayer S.p.A. since 2017. He started working for Bayer in 2010 to source logistics and distributive services for the group in Italy, implementing important strategic and more operational projects in the ambit of the life science industry. Palumbo is a Summa graduate from Bocconi with a research empirical thesis on circular economy and majored at Polytechnics of Milan in industrial management. He joined the SDA Bocconi faculty where he designed and coordinated managerial logistics training for the technology and production department. After collaborating with some management consulting companies, he took on the role of innovation and logistics manager in the business services department of the pharma-chemical group, Hoechst, in Italy. Then he was responsible for central logistics services in one of the leading pharma wholesalers in Italy, Comifar-Phoenix Group. Palumbo is an Adjunct Professor in Operations and Supply Chain Management at the Catholic University of Milan and faculty member of Il Sole 24 Ore Business School. A serial innovator, as a manager and academic, he offers a multifaceted perspective and is able to create value in different contexts thanks to technologically advanced, sustainable and efficient solutions. Empathic and altruistic, intellectually curious and a visionary, he has a large family and is involved in caritative initiatives. He is a board member of the Italian Food Aid Foundation and of the Observatory on Transport Compliance Rating.
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started to connect at that point began
reduced to certifications, audits and
to compete to gather the best core
procedures designed to mitigate the
competences.
main risks. The spirit of progressing
Palumbo explains that growing pres-
towards zero defects became the spirit
sure on margins as a result of global
of greater ‘resilience’. However, I believe
competition was problematic for the
it is possible to streamline processes
long-term sustainability of the entire
and to project systems that are able
system. As a result, the perspective
to resist predictable events, not ‘black
became increasingly short term and
swans’. And, we have to admit that the
short sighted, based around a quarterly
more over-structured the systems are,
ROI. “The new rules were fixed to com-
the more fragile they reveal to be.”
pete, survive and prosper,” he states.
Reflecting on this, he muses:
“But, at the end of 1990s, the concept
“Compare this financial short-sighted
of continuous improvement was mainly
perspective with the ones of Cristoforo w w w.c o mpa ny w wewbsite. w.b a yer. com it
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Colombo, Leonardo da Vinci, Galileo
exposed to natural threads struggles
Galilei, and many other visionaries who
to develop antibodies that become part
changed the world with their long-term
of its survival assets. Resilience stands
perspectives. Or, consider those who
to immunity like a snail to a seed – a
built cathedrals without knowing if
snail relies on his shell to cope with
they could have seen them completed
threads. A seed falls to the ground and
or not. In my experience, we have a
is immediately attacked by microor-
great opportunity today to change our
ganisms that try to eat it. But, in doing
perspective very easily. If we change
that they free the vital energy impris-
it to immunity, we can switch to a more
oned in the rind and life starts rooting
natural and sustainable concept:
and, as a paradox, eating the same
threads, after all, are opportunities.
microorganisms. Life takes advantage
We are meant for that, every organism
of threads.�
account the concept of ‘Personal, Automate, Local (PAL)’, as described by transformation expert S.A. Culey. “Personalisation and customer centricity is increasingly important. Amazon calls it ‘customer obsession’, and it’s something that we have all experienced – it’s set the modern benchmark,” he explains. “Working in the pharmaceutical industry, where customers are often patients and drugs are called ethical products, it is not difficult to get the concept.” Automation, he notes, is driving collaboration and visibility. “It is the end of invisible supply chains where no news means good news,” he explains. “In the
PERSONAL, AUTOMATE, LOCAL
future, customers and all the actors
Reflecting on challenges and opportu-
involved in the supply chain processes
nities in more general terms, Palumbo
will be interested in having full visibility
considers the impact of the global
on the distribution processes.” Finally,
COVID-19 pandemic. It is, he says,
Plaumbo notes, the idea of Local is
“only the latest disruptive event that is
driven by the concept of density of
accelerating the evolution of supply
value. In terms of volumes, in the last
chains towards collaborative ecosys-
30 years the miniaturisation of elec-
tems able to cope with big challenges
tronic components has enabled both
and take advantage of them by improv-
a noticeable technological enrichment
ing their response capabilities.”
and a reduction in size or dimensions
Supply chains in the future, says Palumbo, will have to take into
of products. This would immediately drive a higher density of value, if it were w w w.b a yer. it
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not for the more than proportional cost decrease of the technological developments. “The final result is counterintuitive, a general decrease of the density of value,” says Palumbo. “In logistics, this is one of the most basic but important elements to consider in the engineering of a distributive network: decreasing density of value allows higher stocks to be distributed and an increase of the service level possible for the customers. This is exactly what 12
we are experiencing with ecommerce during the current lockdown situation.”
THE IMPACT OF COVID-19 ON THE PHARMACEUTICAL SUPPLY CHAIN AND LOGISTICS INDUSTRY Considering the current state of supply chain and logistics amidst the COVID-19 pandemic, Palumbo is impressed by the response of the industry. “COVID19 emerged in late February with the first three cases of coronavirus in Lodi, where our LSP Silvano Chiapparoli Logistica principal warehouse is located. We immediately engaged the second warehouse, located in the center of the country, to switch roles in the
distributive network and minimise the impact of quarantined areas, where it was difficult to enter or get out. Special medical assistance was immediately settled, and a specific COVID-19 protocol was implemented to grant safety conditions for the active workers. Redundancy in the distributive network and distributed stock in two warehouses allowed an exceptional result. “It is impressive,” he continues. “I have to say how reactive the supply chain has been in particular to cope with this disease, certainly in relation to transporting the medical supplies that are required worldwide, as well as the level of collaboration between colleagues from all around the world. I would have never imagined having meetings in the middle of the night, 24-hours a day, seven days a week. That’s really impressive and something that we’ll never forget.” Palumbo, who believes that the future for supply chains will change as a result of the virus, explains that “the logistic system will become extremely local and decentralised as a result of COVID-19, which will be a huge challenge for the future for organisations w w w.b a yer. it
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“ The logistic system will become extremely local and decentralised as a result of COVID-19, which will be a huge challenge for the future for organisations to compete with a completely different shift in approach” — Michele Palumbo, Head of Supply Chain Management Italy
to compete with a completely different shift in approach. As I mentioned before, COVID-19 is accelerating the trends of the Personalised, Automated and Local approach. From my perspective, it’s very important that in the future there will be local abilities to serve the customers in an extremely agile, reactive and proactive approach. It will be a fundamental change.”
BAYER: DIGITAL TRANSFORMATION AND PREPAREDNESS Bayer has, for the past 156 years, used science and technology to provide a better life for all. Innovation, as a consequence, lies at the heart of the organisation. With that in mind, it should come as little surprise that Palumbo recounts a more than positive response to the COVID-19 crisis. To understand that response, and the wider ambition for technological innovation in the company, he explained in more detail Bayer’s transformation journey. “Today the competitive advantage has changed to competing as ‘systems’ rather than as companies. Technology provides the industry with the ability to escalate, therefore companies need to w w w.b a yer. it
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be interconnected with their systems.
“It spends more than €5bn on R&D every
At Bayer we have implemented multiple
year, meaning that we can experiment
technologies to escalate our operations
freely and treat any failures as simply
over the years, including RFID trackers
the necessary steps towards success.”
across the supply chain to monitor the
This creatively fertile atmosphere has
flow of goods and Blockchain in the
allowed Palumbo to develop a range
near future to increase accessibility,
of different ideas and projects over
traceability and reliability.” he concludes.
the past 10 years. Serving over 17,000
Bayer is no stranger to frontier-
customers across Italy, Bayer S.p.A.
pushing innovation; its research team
maintains a complex flow of supply
discovered and later distributed
channels, yet the company is able to bal-
Prontosil, the world’s first prominent
ance the myriad elements within it with
antibiotic, which won the 1939 Nobel
transparency, traceability, efficiency and
Prize in Medicine and went on to save
flexibility. The origins of the system that
countless lives. The company’s pres-
make this possible, Palumbo says, can
ence in Italy consists of three divisions:
be traced back to 2010.
Bayer S.p.A. (human and animal), Bayer CropScience (botanical) and Bayer Healthcare Manufacturing (production, packaging and distribution). With a regional revenue of €1.02bn, three state-of-the-art production sites and approximately 2,000 local collaborators, the company is representative of the professionalism, dedication and transformational creativity that has defined Bayer for over a century. Palumbo tells us that it is this spirit that first drew him to the company. “Bayer is really pursuing research and development,” he explains.
BUILDING A COLLABORATIVE ECOSYSTEM
Palumbo. Doing so was no easy task,
At that time, Bayer had the vision for
as marrying old systems with new
a digital transformation that would
software proved to be highly challeng-
see the inception of a ‘collaborative
ing. However, he continues, pursuing
ecosystem’, combining TMS (transpor-
100% automation in these aspects
tation management systems), cloud
was a practical necessity, not just
and advanced analytics capabilities.
because it increased the efficiency
This was to be a ‘from the ground up’
of transport costs but also to ensure
journey, starting with system automa-
business continuity in an increasingly
tion via the integration of software
complex environment. “Bayer moved
with legacy technical structures and
to a cloud platform, a pilot project for
then progressing onto more qualita-
the company worldwide. We were the
tive developments. “Phase one was
first to move outside the boundaries
to move from the focus on processes,
of Bayer’s IT system and use a new,
such as pre invoicing, contract man-
unique platform in order to monitor and
agement and so on,” elaborates
track deliveries.”
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“ We were the first to move outside the boundaries of Bayer’s IT system and use a new, unique platform in order to monitor and track deliveries” — Michele Palumbo, Head of Supply Chain Management Italy
company also required a way to leverage this new resource in a method that would allow the supply chain to continually adapt and stay ahead of trends. This is where data analytics and simulation software come in: “They are very important when re-engineering the distributive network in a country,” says Palumbo. “With this software, I have the ability to redesign it and find out the exact consequences of doing so. I can project; I can have a clear understanding of the effects on cost and service level of the new distributive asset.” Added to this is the usage of RFID (radio-frequency identification) in a way which Palumbo calls “unique within the pharmaceuticals industry”. RFID is a
TECHNOLOGY TRANSFORMATION
form of identification technology that can
A shift towards cloud computing edged
enable the unique identification of large
Bayer towards the overall goal for its
volumes of products, assets, people,
transformation: increased collabora-
animals and much more. For a relatively
tive capability. Now with a centralised
low cost, special RFID labels can be
platform from which to share and
added to items or logistics supports
store information, various elements
(e.g. cartons, pallets, etc,) which give
of the supply chain (warehouses, car-
off a readable signal. Each tag has an
riers, agents and customer service
extensive operational lifetime and emits
representatives) could pool strands of
a unique identifier that can be transmit-
information in a flexible manner. Even so,
ted over a long distance at a very fast
with new data streams now open, the
rate, enabling massive and simultaneous w w w.c o mpa ny w wewbsite. w.b a yer. com it
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readings that provide a huge increase
its diverse applicability, from Brand
in accuracy, speed and productivity
Protection to production control
compared to barcode readings.
and Industry 4.0 applications, asset
Using this relatively cheap method,
management, hospital processes
billions of items can be accurately
optimisation and many others. However,
tracked during all parts of the logistics
despite the fantastic opportunities that
process, thus granting customers
RFID technology presents to supply
peace of mind through enhanced trans-
chains, very few industries have been
parency which illustrates every step
proactive in integrating it; Palumbo
of their distributive journey throughout
notes that retail, airlines and conveni-
LSP warehouses, carriers’ hubs and
ence stores could all benefit from the
subsidiaries, up to destination.
cost-saving and enhanced stock
Moreover, RFID technology can provide value to companies thanks to
control implications, yet single-digit percentages of companies opt to do so.
“ We’ve collectively realised how fragile our supply chains are; as a result of coronavirus, it’s become clear how important it is to have reliable digital systems that show us the reality of the whole supply chain” — Michele Palumbo, Head of Supply Chain Management Italy
handling unit arrangement, shipping, receiving and inventory, with an average of 10 to 15 readings per box. All this data generates added value through real-time information and a dedicated BI web dashboard that provides full supply chain visibility, detailed and accurate traceability, perfect recall capability and operational KPI monitoring. “Increasing the level of service means a general improvement not only in operational efficiency,” Palumbo clarifies, “but also an improvement in turnover. The benefit that we expect from this project is an increase in our ability to review errors, customer complaints
In Bayer Italy’s deployment, every
and returns. Bayer will be able to have a
single box of product and every
real-time visibility throughout the entire
GreenPallet is uniquely identified by
supply chain.” This will go hand-in-hand
an RFID label and tracked individually
with a significantly increased rate of
throughout the whole supply chain,
productivity and logistical accuracy
starting from LSP facilities up to final
from a relatively small investment in
delivery to customers. More than 30
RFID technology. “In the future, all of
facilities of Bayer’s LSP and transporta-
this shipping information could be certi-
tion partners are equipped with RFID
fied by each and every single actor on a
readers and stations, managed by
shared blockchain,” he continues. “We
middleware that collects and sends all
will also be able to trace information like
data to a remote server. Products and
ambient temperature with embedded
GreenPallets are read during relevant
temperature sensors in order to get
processes such as picking, palletised
data from a cold-chain perspective.” w w w.b a yer. it
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THE SUPPLY CHAIN OF THE FUTURE Bayer’s developments and vision for the supply chain’s future are truly futuristic and the company’s focus on solutions for contemporary problems doesn’t stop at RFID. Increasing the level of sustainability in the company’s operations has been over 20 years
1863
Year founded
$43mn+ Revenue in US dollars
in the making, starting with the 1997 ‘Ronchi Decree’, which redefined corporate waste as anything a company discards, intends or is required to throw away, and is consequently taxed 22
for. This has given way to ‘circular eco-
107,824 Number of employees
nomic’ thinking, wherein a company seeks to reduce production ‘inputs’ and reuse materials in a cost-effective
the waste. As a result we have saved,
and environmentally friendly manner.
more or less, €1mn per year.”
It was this restructuring of priorities
The effective evolution of Bayer’s
that resulted in Bayer’s ‘GreenPallet’.
supply chain is a model example
Realising that 75,000 new wooden pal-
of why innovative and bold thinking
lets were being produced every year,
aren’t just ornaments for successful
the company realised that it could save
companies, they are the reasons for
large amounts of money by manufac-
that success.
turing reusable pallets from (recycled)
Referring back to those challenges
plastic. “Instead of being wasted, the
outlined previously, Palumbo claims
pallets return to the warehouse,” says
that the company’s attitude towards
Palumbo. “This has allowed us to avoid
investment in R&D could be more
a huge amount of wasted wooden
valuable now than ever before.
packaging, as well as tax payments for
“We’ve collectively realised how fragile
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our supply chains are; as a result of
“As I have previously stated, threats
coronavirus, it’s become clear how
like coronavirus will make us stronger,
important it is to have reliable digital
because our supply chain will be able
systems that show us the reality of the
to meet the challenge,” Palumbo con-
whole supply chain. Imagine a world
cludes. “This is the story of the supply
where you can really trust in your
chain of tomorrow, where everything is
partners because of the tools that
interconnected, everything is feasible
you have enabled, which provide
and a digital ecosystem is able to cope
information in real time via different
with threats that we can’t predict today.”
platforms.” It is through these systems that a new standard of best-practice for customer service in the industry can be reached, and it is this that Bayer is working towards. w w w.b a yer. it
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