The Client and Its Challenge
With its focus on reducing costs, the supply chain organization of a major life sciences company made strategic changes that streamlined its supply chain operations, increased its cost efficiency, and reduced its asset intensity. The resulting supply chain delivered products faster, better, and cheaper to customers. Although the company's financial measures showed significant improvement, it was unclear how supply chain changes affected the company's risk exposure.

Although the company's risk management organization understood that the supply chain was providing benefits to the bottom line, it was concerned that the company may also have become more vulnerable to business interruptions that might adversely affect its reputation, brand equity, and revenue stream. As the company investigated, it became clear that the changes implemented within the supply chain were analyzed based upon cost and service improvement benefits without an assessment of how they might affect the company's risk profile and resulting exposures.

Additionally, the company's operations organization did not have an understanding or appreciation of how vulnerable the business had become, how to best assess and deploy resources to manage areas of highest concern, or where supply-chain resiliency programs should be investigated and implemented to reduce their overall exposure.

As a result, the director of risk management engaged the Risk Consulting Practice of Marsh to work with a newly formed cross-functional team to identify, quantify, assess, and develop mitigation strategies to reduce the risks that threatened the company's operations and revenue-stream stability.

The Risk Consulting Solution
Marsh found that the company’s dependencies on sole-sourced relationships and unique manufacturing facilities with a fragile and aging infrastructure posed a major threat to a significant portion of this business unit's revenues. In fact, many of the changes actually eliminated the make-up capability that once existed in the system. Without that make-up capability, the financial losses associated with an interruption were greater than executive management could accept.

Working closely with members of the cross-functional team, Marsh consultants applied Marsh's proprietary revenue-continuity methodology and execution toolkit to explicitly identify and quantify key risk areas, recommending changes that would better protect the business unit's revenue stream and establish recovery processes to minimize downtimes and financial losses in the event of a business interruption. Such measures were especially important because the business unit offered blockbuster drugs. In addition, the team helped establish crisis-management policies and procedures.

Marsh's work with this client's project team to develop and prioritize critical recommendations helped establish an appropriate balance between cost, service, and risk within the company's operations—essential for protecting the company's revenues while still meeting the company's financial performance objectives.

Results
The company changed its approach to assessing, approving, and implementing strategic change within its supply chain operations. Instead of optimizing a solution entirely based on cost and service-level considerations, the company now explicitly includes risk measures in its evaluation process.

In addition, the company is independently applying the techniques and risk assessment approach that it learned to other business units within the company—realizing similar results and benefits.