Local Supply Chain Case study SAIDAL Industrial Group

Introduction :

The industrial group SAIDAL has a large experience in the production of the pharmaceutical  products and a position of leadership at the national level.  SAIDAL  was restructured in 1998, to become a significant industrial group.  Its capital is about 2 500 000 000 Dinars with a production capacity  of more than  122,5 millions of sales units, turnover of 6,13 billion Dinars and a net profit of about 482 Million Dinars  with cloture of 2003.

SAIDAL group is composed of (03) Production Subsidiaries  and a  Central

commercial Unit ( UCC) under which there is two regional distribution centers, in addition to other direction as shown on Fig1.

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1/ SAIDAL’s Subsidiaries

The theree production units are described below:

  • PHARMAL Subsidiary:

emerged from the restructuring of SAIDAL on February 02 1998. It  has three Production units and  a laboratory of control.

It produces the following products forms:

–          Tablets

–          Capsules

–          Ointments

–          Syrups

–          Solutions

–          Powder & toothpaste

PHARMAL’s organization chart is as shown in Fig2

 Fig2:   PHARMAL’s Organisation Chart

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1/ SAIDAL’s Subsidiaries

The theree production units are described below:

  • PHARMAL Subsidiary:

emerged from the restructuring of SAIDAL on February 02 1998. It  has three Production units and  a laboratory of control.

It produces the following products forms:

–          Tablets

–          Capsules

–          Ointments

–          Syrups

–          Solutions

–          Powder & toothpaste

PHARMAL’s organization chart is as shown in Fig2

 Fig2:   PHARMAL’s Organisation Chart

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  • BIOTIC Subsidiary:

     emerged from the restructuring of SAIDAL on February 02 1998.  It has also

     three Units of production.

BIOTIC makes, in its production units, the following product forms:

–          Massif solution in different packages.

–          Suppositories.

–          Syrups.

–          Tablets.

–          Ampoules (to be taken orally) & Antiseptic solutions

         BIOTIC’s organization chart is presented in the following diagram:

 Fig3:   BIOTIC’s Organization Chart

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  • ANTIBIOTICAL Subsidiary:

    Also resulting from the  restructuring of SAIDAL on February 02, 1998 and has

    one production unit  -Antibiotic factory – situated in the region of Médea.

   ANTIBIOTICAL produces:

–          Penicillinic & Non-Penicilinic finished products.

–          Raw materials in bulk

–          Packages articles

        The products at ANTIBIOTICAL have the following forms:

–          Capsules.

–          Ointments

–          Syrups.

–          Tablets.

–          Injectables.

      2/  Central Commercial Units (UCC) and its  Distribution centers:

The Central Commercial Unit  (UCC) is the main distribution center for SAIDAL group situated in Algiers ( the center of the country). The distribution of SAIDAL’s products in the West and East of the country is performed by the other two regional Distribution Centers namely:

Distribution Center Unit in Oran ( the West of the country) UDO,

and the distribution Center in Batna ( the East of the country) UDE.

The three D.C.s are independent of each other in the commercial issues and with regards to their customers. But they coordinate their work regarding the subsidiary companies. The Humane resources management is centered at UCC.

The distribution of SAIDAL’s products in the South of the country is done by the commercial Unit in ANTIBIOTICAL Subsidiary ( see Table2).

3/ Some Figures of SAIDAL group realization:

A/ Sales repartition in SAIDAL’s Group:

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Table1

B/  20% – 80% rule in SAIDAL:

out of 123 products made by SAIDAL in 2003, 40 products  representing 33%  have a total of 80% of the turnover.

 C/ Sales repartition  by region :

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D/ Sales repartition by client and center:

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(*) EPE: Public Enterprises (Entreprise Public à caractère Economique)

E/ Stocks :

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4/ The strategy of the firm :

The strategy of the group and by the way of the distribution units is based on the realization of following main objectives :

  • To ensure a position of leadership at national and regional level.
  • To capture more than 50% of  the country medicaments market by the year 2011.
  • To export 10% of the Group’s turnover by year 2011, raw materials to the European market and finished products to the African and Arab countries Markets.
  • To manufacture other Laboratories’ products in order to enlarge SAIDAL’s production range and improve the knowhow of the personnel.
  • To develop new production range taking into account the market needs.
  • To continuously improve the image of the group
  • To better save the resources
  • To adapt to the new changes imposed by the environment

These are the major axis of the strategy, undertaken during the last two years, and forming the strategic objectives in a log term perspective (2002-2011) for a better positioning.

Regarding the consumer, the managers of the UCC, have emphasized that they are always trying to fulfill the needs and demands of the consumer, the most important strength of the SAIDAL within the medicament market is its ability to offer the consumer a good product, according to the international standards, with an acceptable and competitive price in the market. Following this logic,  the group has set up in October 1999 the distribution center of BATNA and another new one is in phase of realization in the South,  in order to enlarge their distribution network and to be closer to their client and to the consumers all over the country.

By looking at the trend of sales on Table1, we can see the fast increase in sales. In less than ten years ( 1993 to 2003) the sales have increased by more than 100,7% which  indicates the expansion and  dominance market strategies:

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SAIDAL’s Supply Chain’s Components:

SAIDAL’s Supply Chain is composed , as shown on Fig4, of the  suppliers, national and from abroad,  for the production units, the  deliveries from the production units to Distribution centers ( UCC, UDE, and UDO) and to some specific wholesalers, and finally the deliveries from the DC’s to the wholesalers, which in their turn deliver the product to the pharmacies to reach the consumer.

Fig5 :  The components of the Supply Chain for SAIDAL

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Current situation: Supply and distribution within SAIDAL:

1/ Supply and Inventory of raw materials:

At each subsidiary level, the raw materials ( in addition to packaging materials) are ordered, supplied and stocked according to the subsidiary’s annual production programme. The raw materials supply process is followed up by supply fuctions which include include:

  • Purchasing orders handling
  • Looking for potential suppliers, undertaking consulting operations, invitation to tender and request for quote.
  • Selection, evaluation and the follow-up of suppliers.
  • Diagnosis, evaluation and follow-up of  prices, quantity and quality conformities of the ordered supplies.
  • Follow up and  control of the delivered supplies and the introduction of new

     products

  • follow-up of suppliers payment.
  • Develop and maintain commercial relations with suppliers.

The raw materials supply process for each subsidiary is independent from the other subsidiaries. each subsidiary select and manage its local and foreign suppliers’ relationships as shown in Fig6, just a controle of the subsidiaries purchassing engagement is performed at the Biotic commercial level  in addition to some  operational activities performed by the subfunction TRANSIT.

Fig6Raw Materials Suppliers-SAIDAL Subsidiaries relationship 

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2/ BIOTIC’s Commercial Direction:

The commercial functions withing SAIDAL’s subsidiaries has been always an operational activity except for the BIOTIC Commercial Direction that was created in July 2003, with a role of  setting  up a commercial policy that will be in coherence with the SAIDAL commercial Policy. This commercial direction has also some duties towards all the other subsidiaries and structures of the groupe like the activities related to the subfuction  “TRANSIT” . The following Chart describes all the activities performed either for Biotic subsidiary or for the other subsidiaries in particular regarding the control of SAIDAL’s subsidiaries’ purchassing engagement transit peocesses.

Fig5: Biotic’s Commercial Activities

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3/   Commercialization and the processes used within the DCs( UCC, UDO and UDE).

In order to get a closer look at how the Distribution Centers function (and by the way how distribution is performed within SAIDAL since the DCs Distributed 81.43% of 2003 sales),  lets take the UCC as example ( UCC distributed  52.36% of the three DCs’ sales) and see the processes used to perform SAIDAL’s supply chain’s down stream processes namely: information, inventory, transportation and location.

A/ Information

      We can summarize the information processes in the following points:

  • Within each of the DCs, an information network is in the installation phase in order to facilitate the management of inventory and the human resources.
  • The daily sales are tracked and a list of products available is prepared every day.
  • To inform the wholesalers about the Products available at the UCC, 6 administrative agents are responsible to do that with a Precise list of clients. They contact them by  phone inform them about the inventory by faxing them the available products list and keep track of their daily needs.
  • Regarding the flow of information between the DCs and the production Units, the DCs prepare their yearly purchasing previsions based on the sales previsions and submit them to the Production Units to plan the raw materials procurement accordingly. But to adjust the yearly orders (yearly purchasing previsions), periodical meetings (AOD Adéquation de l’offre à la demande)  are held once every two months. The participants in the AOD’s are the managers of the Production Units and the DCs managers, in order to be able to respond to the market fluctuations.
  • The DC’s hopes to establish a kind of partnership with their clients as they have already succeeded (UCC case)  to achieve that level of relationship with a handful of active wholesalers. In this few cases the DC is allowed to know the inventory state of the client, which help to act towards the Product Units accordingly and improve the responsiveness.

B/ inventory

As mentioned earlier, the inventory state is tracked daily in order to prepare the AOD two-monthly meetings, inform the clients and respond to the market demands.

The products (medicaments) are taken as functional products and the supply chain process applied is the Physically Efficient Process  based on the inventory . However the DCs  are trying to decrease the amount of finished products in their stock. It was mentioned in the annual report that the stocks have been reduced of 2 millions units of sales comparing to the year 2000 because of the good performance of the distribution process in 2001. But it has increased again during the year 2003 to reach 30 Million sale units after being 26 Million sale units for the whole SAIDAL group.

C/ Transportation

D.C.s do not have their own transport system, they subcontract private transporters or the client uses his own. Regarding the deliveries to the DCs , they are all performed by  private subcontractors in addition to small quantities that are delivered by the production Units’ trucks.

D/ Location

Loyal to it strategy of expansion to cover the whole country , SAIDAL is setting up a new distribution center in the South of the country in addition to the other three in East, West and the Center. We must not forget that the Subsidiaries of SAIDAL also distribute  a small part of their products as shown in Table3  which enlarge the distribution system.

A summary chart :

Taking into account the above described processes, raw materials supply and the distribution processes, we can now draw a summary chart  of the supply chain of SAIDAL from the suppliers to the customers (wholesalers since they represent more than 78% of sales)

 Fig6: Summary Chart

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(*) AOD: ( Adéquation de l’Offre à la Demande)

                   adequacy of supply & demand

SAIDAL’s view to the current situation :

As holder of  leadership position in designing, producing and distributing pharmaceutical products at the national level, SAIDAL group managers , does not want to keep this position, only; but to improve it in order to face the changing market environment, especially the entrance to the national market of many international pharmaceutical companies.

To cope with this new environment ( liberalisation of the market, presence of highly experienced international companies, ..) SAIDAL group is forced to improve its way of managing the business internally and with its partners.

The way choose by SAIDAL’s managers to make the business management improvement happen is to improve the information flows within the group ( between subsidiaries, units, departments, …) and between the nodes of internal supply chain and the partners up and down stream.

All the nodes of SAIDAL group  internal chain ( the production units –subsidiaries-  PHARMAL, BIOTIC, ANTIBIOTICAL and the commercial units –distribution centers DCs- UCC, UDE, UDO in addition to the top management level of the group) are not connected to each other –in terms of information flow- by any new technology tools the only   means used are  the phone and fax. Some units do have an internal network but it is hardly used effectively.

The objective:  “ New information System implementation”

The objective of SAIDAL top managers is the implementation of an information system to integrate all the management and functional processes within the group.

The most important part of the planned project is the implementation of an Enterprise Resource Planning (ERP) software. Which will, hopefully , result in  integrating the  supply chain of the group, helping the managers making the right decisions at the right time, improve the performance of the supply chain ( production, transportation, inventory, distribution, sales, …)  and the results expected from the new systen are:

  • An integrated financial and customer order information;
  • A standard and faster manufacturing processes;
  • A reduced inventory;
  • And a standard human resources information.

 The Expected results of the planned Information system:

 The implementation of the new system has to have a positive effect on cooperation whether internally or externally (towards the partners).

The improved cooperation internally  can be between  units and subsidiaries ( see Fig 7) or within the unit itself (see Fig8).

 Fig 7: information flows between different subsidiaries and units to improve cooperation

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Fig 8: information flows within the same Unit ( Distribution Centre UCC )

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If the above two diagrams will be implemented, the internal cooperation will be improved, an environment of trust will characterise the relationships and a global  supply chain’s vision will be the focus  of attention of the Unit’s managers.

The new information system and the ERP software will enable the managers at different functions and stages:

  • To make decisions that maximizes the total supply chain profits.
  • To join their Units’ forces to better serve the customer, for example the cooperation between the three Distribution Centres will enable one the DCs  to avoid stock out if one of the two others does specified product.
  • To avoid or, at least, minimise the bullwhip effect, which results in:
    •  more accurate forecasting, based on the market demand and customer expectations.
    • Minimize lead time all over the supply chain whether on the  DCs – Customers side  or Production Units – DCs side (see Fig 9). The goal is to improve the actual response time of the production unit to market fluctuation  to less than the current one, which is about 3 to 4 months.  knowing that the  most part of the lead time is wasted in the procurement of the raw material from abroad for the production units, the information system will ease the way to effective cooperation between SAIDAL and its suppliers that will, hopefully results in decreasing the lead time. Regarding the DCs – Customers perspective , if the lead time for the DCs’ inventory replenishment is improved, then it will be easy for the DCs to better manage their stock , minimise the inventory level, minimise the holding cost and fulfil the customer orders faster.

Fig 9:       The global supply chain for SAIDAL, where the weakest link in terms of order   fulfilment appears.

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  • To reduce cycle time, as seen on Fig 9, if the information flows from the upstream end to the down stream end will be faster it will be possible to schedule in an exact manner the transportation whether inbound or outbound, make the order processes faster and use  the frequent replenishment. Which, will be translated in reduced cycle time in the DCs’ warehouses.

SAIDAL’s information system perspective and the Intelligent Supply Chain concept (iSC):

SAIDAL’s managers responsible for designing and implementing the new information system, want to make the transition from a traditional supply chain (current situation) to what it can be called e-supply chain. Fig10 summarize all the steps and objectives of the new system implementation regarding the supply chain improvement.

Fig 10:  The expected SAIDALS’s supply chain ( inspired from the intelligent supply chain article “ accenture”)

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Expected contribution from student

Students exposed to this case study are expected to answer the following questions:

1-      which supply chain Process is used by SAIDAL.

2-      Identify SAIDAL’s supply chain strategy.

3-      Does the Raw Materials supply and Distribution processes within  SAIDAL  allow a high supply chain’s performance  (in terms of information flow, the same function performed by independent units, …), identify the problems and weaknesses of SAIDAL’s supply chain.

4-      Taking into acount the following Key Performance indicators

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Assess SAIDAL’s supply chain’s performance.

 1-      After reading the short article in Appendix1, what would you suggets as SAIDAL’s drivers for supply chain improvements qnd where should SAIDAL’s efforts likely to be focused

2-      Give a suggestion for the reengineering of raw materials and distribution processes and what are the preconditions to make a successful transition from business as usual to E-business

3-       Summarize the steps to implement an e-sourcing and e-procurement solution for SAIDAL in order to integrate the supply process either for the DC’s or the subsidiaries.  

          Teaching steps:

The case study document will be hand over to students before the class in order to read it carefully and think about it

At class:

  • Presentation of the case 30 min.
  • Group work 60 min.
  • Reporting back  of group work and discussion: 30min.

References

1/ Implementing Supply Chain Management Systems in Large Enterprises. By Scott Stephens.

2/ “The intelligent supply chain management “ Logistic Europe February 2002

3/ Supply Cain Management Course- MEDFORIST PROJECT

APPENDIX 1

Implementing Supply Chain Improvement:

One of the major difficulties facing the eterprises’ supply chain initiatives is setting the right priorities. The problem is that many mangers are continuing  trying to rationalize their business from an internal point of view as opposed to that of the customer. Though most of executives agree that the supply chain is becoming critical to profitability and corporate competitiveness, few of them have been able to transform this certainty into real processescovering :

–          The strategic level

–          The tactical level

–          The measures tools

Nevertheless, the annual growth rate of supply chain management and related softwares  , which is about 40%, proves that the businesses are implementing the supply chain initiatives to be more competitive and more efficient  on the ever changing market.

Fig A Reported status of SCM Information Management Systems Projects 

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However many implementations efforts have failed to reach the planed objectives, at least in one of the dimenssions:

–          Time: tend to be late

–          Budget: Over budget

–          Expectations: Corporate expectations are not met when the project is declared complete

As shown in FigA   more than half of all the projects in about 500 companies surveyed were not completed as planned. Regarding the SCM projects, aiming at improving the performance, almost half of them :

–          exeeded the planned budget

–          exeeded the time scale planned

–          or failed to meet the expectations

the main cause of these failures that was pointed at in the different responses of organisations that have attempted to implement SCM improvements, is the disconnects between business objectives and the implementation activities.

Major Drivers for SCM Improvements Implementation:

Fig B:

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As shown in Figb most enterprises have mentioned the major drivers for an SCM improvements project start as:

–          Customer satisfaction

–          Cost reduction

–          Improved profits

–          Improved product quality

–          And increased sales

These same drivers are connected in different ways to major balance sheet line items. For instance :

–          Customer satisfaction, Product quality and time to market are critical factors in the sales volume determination

–          Growth and Market share are key indicators of the company’s performance.

While other drivers like sales, costs and profits are easily calculated and associated with major balance sheet line items.

 In the opposite of all what have been said about the drivers for an SCM improvements,when asked about which  SCM efforts to be deployed in order to produce the  greatest benefits. As shown in FigC

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Managers valued the traditional logistics activities, namely: purchasing, inventory management, transportation and warehousing, as high value areas for focus in order to bring off the results they expected.

  Also, we can see on the FigC that demand forcasting has been rated very highly in order to implement the SCM improvements successfully

  A comparison between Figb and Figc showed us an absence of coherence between what is considered as main drivers of an SCM improvements implementation and areas where the efforts were likely to be focused by the businesses.

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