Demand-Assumptions Model and Demand-Sensitivity Analysis
The net present cost (NPC) of each business model was calculated using shipment forecasts by region, as input to the costing
models described earlier. The short-term (less than three years) demand-assumptions model was created based on the number
of clinical trials per phase from a database owned by Genentech's clinical operations group. The database is a repository
of active, approved, and planned clinical trials and studies. The data were distributed across the regions, based on estimated
percentages of planned clinical trials for each region. These numbers were not risk-adjusted for trial failure.
The long-term (three-to-seven years) demand-assumptions model was based on information obtained from the company's product
portfolio management group, which is responsible for providing decisions, guidance, and direction for strategic issues, and
resource allocation for the entire product portfolio. The product portfolio management group provided data on a risk-adjusted
number of projects of molecules by phase. These were converted, by the product operations strategic planning organization,
to shipment forecasts, based on clinical trial duration and shipment assumptions. The project team built a business process
to capture clinical trial shipment demand annually, as part of Genentech's manufacturing network long-range planning activities
Figure 2. Business process model for estimating clinical demand
In addition to generating short- and long-term forecasts by region, Genentech conducted a demand-sensitivity analysis to determine
the cost of each business model if the clinical trial volumes were incrementally decreased to half the forecast volume, or
incrementally increased to three times the forecast volume. The sensitivity analysis provided insight into the clinical trial
volume threshold that would make the total cost of ownership of one business model preferable to another if clinical trial
volumes increased or decreased from forecasts.
Outsourcing as a Short-Term Strategy
Based on the qualitative analysis performed with the decision-criteria matrix and the cost models, the short-term strategy
is to use a pure outsourcing model for Europe, Latin America, and the Middle East. A hybrid of the outsourcing and direct-ship
models is to be used for Asia, whereas the direct-ship model will be applied to Australia and New Zealand.
The main driver for the outsource recommendation is the long implementation time required for a build or acquire strategy.
Additionally, because of Genentech's limited international experience, it would have been challenging, in the short term,
to quickly acquire local clinical-distribution and logistics expertise, particularly about the distribution strategy that
woudl yield the proper ratio of regional depots to country-specific depots. From a total-cost-of-ownership (TCO) perspective,
clinical trial volumes for the next two years made the outsourcing cost model the most desirable among the business models
To implement the new short-term strategy, the company plans to diversify contract clinical distribution organizations (CDOs)
to evaluate performance, with a long-term goal of dual sourcing so that strategic relationships are cemented and volume discounts
are achieved. CDO performance evaluation is critical because CDO quality is not consistent across all regions.