Hello everyone and welcome back.
This conversation is the first in what we hope will be a series of podcasts focused on the life science supply chain. As such, we've come up with a clever name for it, The State of the Supply Chain.
Aside from asking what the word ZAGENO means...we can get to that in another podcast...we're often asked if we are a life science company.
And the simple answer is that we're not.
At a high level, we're a software company. Drill down a bit deeper, and we're a SaaS (Software as a Service) company. If you go deeper still, we're an eCommerce company. But the answer is that ZAGENO is as diverse and complex as the life science industry that we serve. But at the heart of our business are buyers and sellers.
The things we learned from those relationships form the foundation for this podcast. To help us navigate this topic is James Pavlovich, ZAGENO’s vice president of customer success.
James, welcome back to the podcast.
Greg, thanks for having me.
Now, the idea behind doing this, in the first place, was yours, wasn’t it?
You and I talked about this, but there's a tremendous amount of information that flows through the marketplace every single day. And we are in a great position to leverage that information and be able to share with the community. You know, this industry is...I like to equate it to what my son is really into these days, which is the deep sea.
It's the part of the ocean that no sunlight gets through and there was this opinion, years ago, that there was very little life down there. But as soon as you shine a light on there, there's a tremendous ecosystem that's very vibrant. And so that's what we wanted to do here.
We want to have a fact-based conversation. We want to do this very responsibly. We want to be able to protect the privacy of the companies involved. But we felt it was very important to share these trends and to our knowledge, there's no one else in this position to be able to share this type of information.
And when you combine these facts with the relationships that we have with the research scientists, with the manufacturers, with the suppliers, it makes for really insightful information that a lot of folks can benefit from as they continue down their journey of developing new medicines.
That's true we have a very unique aperture into these relationships. What are you hoping people will get from these conversations?
I think number one is really to just understand the current state of where we are. A lot of people are used to a certain level of service, a certain level of speed and agility and really understanding what the data is telling us about the industry, today and gaining an appreciation of what's actually happening and where the limitations are.
The other thing that I really want people to get out of this is we have some ideas and tips and tricks around how to help navigate this. So, I really hope that some of this insight will help scientists, as well as suppliers, be able to navigate during this difficult time.
That's great. Okay, Let's dive in.
Now in front of us are charts that you've prepared for this discussion, and we will share this in some graphic form in a podcast transcript, which will be found on ZAGENO’s blog, of course.
The first one addresses backorder rates. Now, before you describe what we're looking at, can you define what is meant by a backorder?
Yes. A backorder is when an order is placed and the supplier that you've ordered that product from does not currently have it in stock; it's not physically available on the warehouse shelf, so it's not ready to ship.
And so there's a waiting period between when you place the order to when they can actually ship those products.
Okay. So I'm looking at this data. It begins in Q4 of 2019, and it goes to Q2 of 2021 - so right up to current day. What are we looking at here?
Yeah. So what we're looking at is the percentage of items that have been ordered that are on backorder when the order is placed. In Q4 of 2019, it's a pretty low percentage. Backorders weren't a huge topic - yes, this happens sometimes and it's really frustrating, but it wasn't a hot topic.
As you look at quarter over quarter changes in what that percentage is, we see a really drastic increase in that percentage of backorders. It's really mind-boggling that Q1 of this year was five times the backorder rate of the end of 2019. And in Q2, we're seeing a slight decrease in the backorder percentage, but we're still seeing a lot of the common products that are difficult to find. Things like plasticware and glassware continue to be a challenge, filtered tips, various types of flasks...all of these, of course, have different variants in sizes and specifications. But when you look at those categories, they continue to be a challenge for manufacturers to provide.
Yeah, it speaks to a level of uncertainty there still could be in backorders.
Now there's a second chart, which refers to lead times. As before, can you define lead times and then walk us through this data; what are we seeing here?
The lead time is the period between when the order is confirmed with the supplier that's going to actually ship it and when they actually ship that product.
What we're seeing is, starting in 2019 versus 2021, the lead times have doubled. So yes, the backorder percentages continue to go up but the fact that the lead times are also increasing is not just an impact of the backorders, but also just how busy these warehouses are. It's really difficult to keep up with this demand and so it's taking a lot of these suppliers longer to actually ship these products and get them out the door.
And there is a final piece of data that we're looking at in this conversation. This time about the number of new suppliers ordered from across our customer base.
Now, the chart has a list of customers and beside each are columns with the numbers of orders placed with new suppliers that each has made before and during 2021. So, we have this kind of the before and after, if you will.
I'm seeing significant increases in the percentage of orders being placed with new suppliers in 2021. Can you walk us through this chart and tell us what it's telling you?
This is one of my favorite pieces of data because it really shows how unique this industry is. Being that we're in research and development there's a lot of new innovative medicines, there's a lot of new innovative products being developed. So, there's going to be a natural evolution of the suppliers that organizations use. Just the nature of what types of science they are directed at as well as new and novel medicines that need new products.
...an organization may switch over their suppliers 40-50%, year-over-year...depending on how big an organization is, it's very expensive to support this.
What we're seeing with this data is an organization may switch over their suppliers 40-50%, year-over-year. This is actually a pretty big percentage of their supplier base. So, depending on how big an organization is, it's very expensive to support this.
Organizations, especially in finance and procurement really want to make sure that they have the right tools and the right systems in place to enable the scientists to order from various, different suppliers, especially now where backorders and lead times are such a problem.
If they're able to find a new and innovative supplier that they want to order from, or have a smaller manufacturer that can produce an alternative product for what they're looking for there isn't the barrier for the scientists to actually place that order.
It's a very difficult problem to manage from a business perspective, but extremely valuable to the scientists themselves, to be able to order from an unlimited amount of suppliers as they start working towards their milestones.
Now you had explained to me earlier that there was one such case that a customer had an availability issue with their normal glassware and investigated another option, an alternative. Tell us what happened there.
Yeah, so this is a really great success story for the scientists and a small manufacturer, as well.
We were speaking with one of our customers and they had explained to us that the brand that they typically order from was on backorder - it was going to take a really long time. So, it was recommended to them to try an alternative brand and the product arrived much faster and when the scientists used it, they were really happy. They were like, wow, this is actually better than the brand I normally order.
So now, going forward, they've switched brands with this other product, but just their willingness to try it, their willingness to set up a relationship with this new supplier really benefited them in the end. So it's a really fantastic story when scientists are really just looking for the best products in a timely manner and the organization was able to support them with that.
Yeah, it's like that rare, unintended consequence, where the market wins, which is fascinating. So let me summarize what I'm hearing here.
ZAGENO data shows that backorders are on the rise, lead times for supplies are getting longer, and to navigate these obstacles, buyers are willing to order from more, new suppliers as in the case you just described.
So based on this, what advice are you providing the ZAGENO community?
Yeah, Greg, that was a great summary.
There's a couple of things that we've been sharing with our customer base.
Number one is scientists need to plan ahead. The data just tells us that it's taking longer to ship and deliver these products. So, plan ahead, order earlier than you normally would, and just understand the challenges that exist today.
Number two is if you have the space order bulk quantities. If you can get three or four months' worth of supply of certain consumables that are not at risk of expiring order in large amounts and reserve that quantity more than what you typically do.
If you have room, convert an old office into a storage room; store things wherever you can. We found that a lot of customers will order from multiple, different suppliers. They understand it's going to take a while, but they're ordering a bulk amount.
Now contrary to that recommendation, if you don't have the physical storage space for it, order in very small quantities. Another customer told us about a scenario where they order multiple orders and keep it at quantities that are relatively small. And even though it creates more transactions and it's more ordering suppliers, as they are able to get that one or two products in stock, ship them right away and not wait until they get six months of supply to actually ship an order.
So that's an alternative approach that organizations can try.
From a procurement and finance operations standpoint, make sure scientists have that flexibility to order from multiple suppliers. Have a way to add suppliers quickly, place orders to new suppliers, and be able to support the business.
And then finally, one of the most important data points that a scientist will ask for when placing an order is when will it ship; when will it get here? So, from a supplier perspective, be transparent and over-communicate around delays and what the new expectation is. The suppliers that do that will differentiate themselves in the market.
This is really interesting, James and it just demonstrates the complexity that we referred to earlier there is no set playbook for all companies.
Every company has to customize their approach to this based on the footprint of their facilities, the research that they have planned, or the quality of the supply that they require; so many things to consider and having a sense for the way the industry is moving in terms of backorders, lead times and the emergence of new suppliers is really useful information.
So, thank you so much for suggesting we do this. I think it's really valuable information for our community and I look forward to our next conversation.
Yes. I'm excited to share these insights with our community, as well. Anything that we can do to help to continue to support our common goal of improving outcomes is all for the benefit of the patients. So, we're really happy to be sharing this and happy to continue to provide these insights.