Supply Chain Disruption Risk
Pre‐publication draft
Operational Strategies for Managing Supply Chain Disruption Risk1
Brian Tomlin Tuck School of Business at Dartmouth, Hanover, NH 03755 Yimin Wang W.P. Carey School of Business, Arizona State University, Tempe, AZ 85287 1. Introduction On June 16 2009, Genzyme Corporation announced that it had discovered the virus Vesivirus 2117 in one of the bioreactors at its plant in Allston, Massachusetts.2 While the virus strain is not thought to be harmful to humans, it does interfere with production efficiency. Genzyme made the decision to shut down production of the three drugs ‐ Cerezyme, Fabrazyme and Myozyme ‐ produced in the plant. In FY2008, Cerezyme and Fabrazyme (used for the treatment of Gaucher and Fabry diseases) accounted for $1.7 billion of the company’s $4.6 billion in revenue. Genzyme anticipated that the Allston plant would be back up and running by the end of July. However, because of the long processing lead time associated with biopharmaceuticals, production launched in August would not yield product until later in the year. At the time of the disruption, Genzyme was in the late stages of constructing a second facility in Framingham, Massachusetts for the production of Cerezyme and Fabrazyme. While the Framingham plant would provide an added layer of protection against any future interruptions in the production of Cerezyme and Fabrazyme, Genzyme’s only protection in June 2009 was its existing inventories of these two drugs. Unfortunately, the company’s stockpile was not large enough to fully absorb the production loss. Genzyme’s July 22 press release stated that: “Cerezyme and Fabrazyme inventories are not sufficient to avoid shortages during the period of suspended production and recovery. Genzyme is working closely with treating physicians, other health care providers,
Operational Strategies for Managing Supply Chain Disruption Risk1
Brian Tomlin Tuck School of Business at Dartmouth, Hanover, NH 03755 Yimin Wang W.P. Carey School of Business, Arizona State University, Tempe, AZ 85287 1. Introduction On June 16 2009, Genzyme Corporation announced that it had discovered the virus Vesivirus 2117 in one of the bioreactors at its plant in Allston, Massachusetts.2 While the virus strain is not thought to be harmful to humans, it does interfere with production efficiency. Genzyme made the decision to shut down production of the three drugs ‐ Cerezyme, Fabrazyme and Myozyme ‐ produced in the plant. In FY2008, Cerezyme and Fabrazyme (used for the treatment of Gaucher and Fabry diseases) accounted for $1.7 billion of the company’s $4.6 billion in revenue. Genzyme anticipated that the Allston plant would be back up and running by the end of July. However, because of the long processing lead time associated with biopharmaceuticals, production launched in August would not yield product until later in the year. At the time of the disruption, Genzyme was in the late stages of constructing a second facility in Framingham, Massachusetts for the production of Cerezyme and Fabrazyme. While the Framingham plant would provide an added layer of protection against any future interruptions in the production of Cerezyme and Fabrazyme, Genzyme’s only protection in June 2009 was its existing inventories of these two drugs. Unfortunately, the company’s stockpile was not large enough to fully absorb the production loss. Genzyme’s July 22 press release stated that: “Cerezyme and Fabrazyme inventories are not sufficient to avoid shortages during the period of suspended production and recovery. Genzyme is working closely with treating physicians, other health care providers,