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As CSL Ltd. grew through acquisitions, one of the inevitable consequences was redundant capabilities at various facilities.
To increase efficiencies, the company's CSL Behring L.L.C. operation adopted a “centers of excellence” model following CSL's 2004 acquisition of Aventis Behring, focusing production of certain classes of products at individual facilities.
While the moves achieved efficiency, eliminating that redundancy introduced disruption-related risks.
In response, John J. Marren, director, global risk and insurance management at CSL Behring in King of Prussia, Pa., and its Parkville, Australia-based parent, CSL Ltd., sought a way to quantify the exposures and manage the risk.
“One of the things that goes along with having this centers of excellence model for CSL Behring—where you've got different locations that are the key locations for making certain classes of products—is that while you're managing an efficient business in structuring it that way, there's clearly risk exposure in not having duplicative production capability in other facilities for some of the products,” Mr. Marren said.
“Now, that's not done without knowledge and transparency that that's a natural consequence of employing a model like that,” he said. “But you want to do it prudently. You want to do it understanding going in what those risks may be; and in that understanding, you can better manage that exposure, but at the same time you need to know what that exposure is.”
Under the centers of excellence model, each of the three CSL Behring manufacturing facilities in Kankakee, Ill., Bern, Switzerland, and Marburg, Germany, focused on a particular category of product.
“Marburg is our center of excellence for what we call coagulant products, Bern is our center of excellence for immunoglobulin products, and Kankakee is our center of excellence for respiratory products,” Mr. Marren said.
While each plant has its specialty, all three have the capability of doing basic fractionation of plasma, though each plant has its limits. “We need to process several million liters of plasma a year, but no one plant can do it all. So we split it up among the three; and through that, there's a link,” the risk manager said. “That step of the process serves all three facilities.”
“Along with that, clearly there's a value chain where those facilities are linked,” he said. But “it proved difficult to identify what that value chain represented in dollars to the company.”
The vital question was, if there was an interruption at one site, what would that mean to the group and to the other sites?
“Depending on what the nature of that could be and where it would happen, it could mean anything from a dollar perspective, from a duration perspective in impact to the company. So we set out to try to figure out what is our true condition, what is our true exposure and quantify that,” Mr. Marren said.
The only way to achieve the desired quantification, according to Mr. Marren, was to have a comprehensive understanding of the supply chain, something that was lacking at the time.
In 2009, however, the company was moving toward adopting a globalized supply chain function. “So we then set forth to map our supply chain,” Mr. Marren said. “Simultaneous with that, we launched a project to build what we call a value stream model.”
In building that model, the primary focus was on quantifying business interruption exposures, identifying strategic points in the value chain from supplier to customer, and quantifying those and the contribution each step makes to CSL's bottom line.
The multiyear project involved contributions from across CSL's operations, considering risks at each plant and the upstream and downstream implications of any disruptions. With the help of forensic accountants, the supply chain was mapped in a way that examined the movement of all products from raw materials through manufacturing to finished product, capturing the economic impact added at each stage.
Completed in 2009, the resulting value stream map is a powerful tool that identifies potential supply chain weaknesses, areas requiring risk mitigation or investment, and the extent of exposures.
“We now have a model that we can run scenarios or conditions through that will help us identify what the result might be financially, who might be impacted, and can ultimately be used for potentially helping us in contingency planning, business continuity planning because we now have a picture of what the supply chain looks like from not only a supply perspective but also a financial perspective and an impact perspective,” Mr. Marren said.
Now, five different value stream maps represent the supply chains of CSL Behring U.S., CSL Behring Europe, the company's plasma collection business, the plasma portion of the business of CSL Biotherapies in Australia and the nonplasma operations of CSL Biotherapies in Australia.
“It's all based on what products we're making at the end of the day, how much of them we're selling, where we're selling them and what are the different impact points where things could happen that could interrupt the supply chain,” Mr. Marren said.
The maps allow the company to model various scenarios that help determine the best ways to address vulnerabilities through such methods as contingency planning, identifying new suppliers or building new facilities.
“It is a way to understand where the true areas are that we need to concentrate on. Where are the risks that need to be mitigated?” said Ted H. Kanigowski III, senior director of finance, commercial operations at CSL Behring and global risk coordinator for commercial operations at the company.
The value stream maps also help CSL buy insurance.
“If we ever were to have a loss...if we ever had to validate a business interruption claim, this tool would go a long way in helping us do that,” Mr. Marren said.
“It really put CSL in a position of control (with underwriters). Knowledge is power here,” said Jack Bodden, managing director, global risk management at Marsh Inc. in Philadelphia. “I know it's reflected in their insurance program today.”
The company completed an update of the original value stream map with current forecasts, volumes, financial data and more this year.
“That whole exercise was a great project,” Mr. Bodden said. “We learned the ins and outs of the company.” The process also served to create “a road map for future acquisitions or new product lines,” he said.
“Clearly it paints a picture of who we are and what we do, but it also shows where we do it and to what length, to what degree, and what's the value of every step,” Mr. Marren said.
The overriding risk management philosophy at CSL Ltd. and CSL Behring L.L.C. is operational risk management, and executing the philosophy involves a decentralized approach passing risk management responsibility to the managers of the companies' various operations.