Bayer June 2020

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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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