2011 ISPE Presentation-Supply Chain Improvements w Case Study Examples
- 1. Supply Chain Improvements (w/ Case Study Examples)
- 2. Agenda • UPS Industry Segment Marketing Approach • Focus on the Supply Chain (High Tech & Manufacturing) • Creating Business Advantage • High Tech Supply Chain and Its Success • Top Areas of Opportunity • Improved Demand Planning • Improved Supply Chain Visibility • Improved International Trade Management • When to Outsource (Contract Logistics) • Improved Return Logistics • Supply Chain Foundations for Growth
- 3. UPS Market Segment Approach In addition to global Healthcare focus, UPS also possesses expertise, infrastructure, and systems supporting other high growth industries. High tech ▪ Computers & Peripherals ▪ Electronics ▪ Semi-conductors ▪ Telecom Mftg Healthcare ▪ Biotechnology ▪ Clinics and Doctors Offices ▪ Contract Research Organization (CROs) ▪ Distributors and Wholesale ▪ Home Health ▪ Hospitals ▪ Labs ▪ Medical Supplies & Devices ▪ Nursing ▪ Nutraceutical/ Cosmetics ▪ Other Medical Supplies ▪ Payors and Service Providers ▪ Pharmaceutical Manufacturers ▪ Retail Drug ▪ Veterinary Retail ▪ Apparel ▪ Building Materials Hardware, Garden Supply ▪ Consumer Goods ▪ Eating & Drinking ▪ Food Stores ▪ General Merchandise Stores ▪ Home Furniture, Furnishings and Equipment Stores ▪ Mall-based Specialty Retailers ▪ Miscellaneous Retail ▪ Small e-Commerce Retailers Business services ▪ General Services ▪ Hotels and Lodging ▪ Mass Communications ▪ Organizations and Associations ▪ Personal Services ▪ Repair Services ▪ Social Services ▪ Sports, Recreation, and Museums Consumer services Professional services ▪ Advertising and Public Relations ▪ Consulting, Accounting, and Legal ▪ Education ▪ Engineering and Architecture ▪ Finance and Insurance ▪ Real Estate Diversified vehicles/ Industrial manufacturing ▪ Aerospace ▪ Auto Dealers ▪ OEM ▪ Tier 1 - 5 Manufacturing ▪ Tier 1 - 5 Wholesale ▪ Chemicals ▪ Construction ▪ Industrial Assemblies and Machinery ▪ Industrial Components / WIP ▪ Industrial Distributor ▪ Industrial Textile ▪ Oil and Gas ▪ Printing ▪ Publishing ▪ Raw Materials Manufacturing ▪ Transportation and Logistics Diversified vehicles Industrial manufacturing “It’s a patient, not a package.” - UPS
- 4. 9.8% 4.2% 0 2 4 6 8 10 Average Top quartile Total supply chain cost Percentofrevenue • The global supply chain directly impacts, on average, 75% of a business’ operating results. • Corporations with best-in-class freight and logistics competencies benchmark operational costs that are less than half of those of their direct competitors. • They also manifest market cap growth 7%- 26% above industry average. • This will be an increasingly critical market advantage to possess in 2012 and beyond. Creating Business Advantage In each of these industries companies with best in class supply chain management significantly outperform their peer groups.
- 5. Significant gains made in the last two decades 34% reduction in ratio of inventory to sales Yielding an estimated reduction of over $4.6 trillion in total business inventories Order to cash cycle time improved 10% in last 5 years Gains came from: • Information technology investments • Improved information visibility • Adoption of just-in-time processes • Industry deregulation Achievements in High Tech Manufacturing Segments Supply chain enhancements are paying substantial dividends in electronics, telecom, and industrial manufacturing market segments.
- 6. Focus For Manufacturing Segment Supply Chains The annual Change in the Chain survey of high tech sector supply chain executives indicates focus on nine areas of supply chain optimization.
- 7. Supplier Management Information Management Regulatory Compliance Post-Sales Support Customer Compliance International Trade Management Logistics and Distribution Multi-Modal Freight and Transportation Reverse Logistics Inventory Management Order Management Focus On Achieving Higher Service Levels The extended global supply chain is the foundation for customer service delivery, and it is comprised of numerous disparate elements.
- 8. Delays, errors and missed orders Higher costs Slow response to demand variability Poor customer service Inadequate supply chain visibility Higher inventory levels Inefficiency/process redundancy Increased capital investment Focus On Achieving Higher Service Levels Decentralized, disconnected supply chain management produces unintended consequences.
- 9. The approach to achieve business competitiveness Rationalize both agendas to create a balanced supply chain strategy Efficiency Pursue money-cost and time-cost improvement initiatives Effectiveness Enable service execution and growth: differentiate through value-added execution Advantage Requires Effectiveness and Efficiency Many have focused solely on the cost side of the equation. It is equally important to grow value through enhanced coverage and capabilities.
- 10. • MRP (Materials Resource Planning) ─ Integrates demand forecast, current inventory and planned supply into an easy to use web page to facilitate supplier replenishments. ─ Works best with high degree of forecasting ability • Lean Replenishment ─ Highly scalable electronic “kanban” that minimizes inventory on hand by managing the “Virtual-On-Hand” inventory. ─ Able to compensate where limited forecasting is available Improved Demand Planning There are two models that have created value for manufacturing industries in allocating resources:
- 11. Lean Replenishment InventoryInventory 200 200 Available Inventory 500 300 Virtual On Hand 50450200100SKU 2 -253255545SKU 1 VOH-ROPTarget (ROP) Inventory in Transit Planned Shipments 200 200 Available Inventory 500 300 Virtual On Hand 50450200100SKU 2 -253255545SKU 1 VOH-ROPTarget (ROP) Inventory in Transit Planned Shipments 5. Replenishment Signal 4. Material Shipments 4. Material Shipments 3. Demand Pull 3. Demand Pull GAP $$ Vendors(s) 1. Demand Forecast (for capacity planning only) 2. Target Inventory (ROP) (Determined by Demand, Variability, and Supplier Lead Time) 6. Pull-based Replenishment 6. Pull-based Replenishment ASNASN Planned Shipments Planned Shipments
- 12. Orthopedic Medical Device Mfg Case Study Challenge: • An “Orthopedic Medical Device Mfg” was having difficulty managing compliance regulations involved with linking raw materials, virtual on-hand inventory, on-site inventory, and field stocking inventory. Potential increase to “pedigree” of medical devices thru to destination provider (possibly to patient level) also served as a concern. Solution: • Build a solution allowing raw materials providers to virtually read inventory levels and fulfill based on agreed upon forecasting models, RFID inbounding into on-site inventory, shipment manifest/ tracking information/ delivery information linked to custom system by partnering with transportation provider, mobile device (cell phone) scanning of inventory upon receipt by field agents, mobile device scanning of inventory by field agents upon release to provider. Results: • Able to obtain a chain of custody from sourcing to consumer • Potential avoidance of regulatory fines. • Increased visibility eliminated $10M in inventory write off. • Increased visibility tripled inventory turns.
- 13. Administrative Support Cost Center Control Bill Reconciliation A/R Customer Invoicing Claims Processing Inbound Logistics Returns Receiving Inventory Receiving Operations Production Outbound Logistics Warehouse Shipment Processing International Shipment Processing Sales & Marketing Order Entry Service Order Inquiry Returns Processing Procurement Cost Center Control A/P Supplier Invoicing Bill Reconciliation POD Processing Primary Functions POD Processing Visibility Improved Supply Chain Visibility Leading manufacturers have created business advantage by holistically managing the flow of information with the flows of goods and funds.
- 14. DME Manufacturer & Distributor Case Study Challenge: • “DME Manufacturer & Distributor” was having difficulty managing FDA compliance regulations concerning validation and storage of origin, shipment detail, and delivery confirmation data. Recent FDA audit resulting in significant fines, and potential future fines. Solution: • Build a compliant and validated solution providing proof of delivery and reimbursement for tax credit, delivery image track/ trace of shipments, record retention per legal timeframes, and the ability to query and provide audit data as needed. Results: • Could have avoided $50K fine • Potential avoidance of future fines. • Eliminated resources allocated to storage, tracking, and tracing of compliance metrics. • Focus on core competencies.
- 15. Harmonized Code Management Denied Party Screening Export License Management Shipment Management Landed Cost Calculation Trade Documents And Forms Trade Forms and Documents Shipment Visibility Import Compliance Filings P.O. and Supplier Management Landed Cost Calculation Harmonized Code Management International Trade Management The increased globalization of manufacturing has necessitated systematized management of international trade functions.
- 16. Pathology Lab Case Study Challenge: • “Pathology Lab” was having difficulty managing IATA compliance regulations in regard to correct harmonized tariff code classification. In addition, the trans-Atlantic travel of shipments made cold-chain moves difficult to facilitate without incurring spoilage. Solution: • Integrate advanced third-party applications to aid in electronic tariff code classification and 24/7 monitoring of transportation moves. Monitoring engine isolates any jeopardizing incidents (a shipment not receiving an expected/ mapped out scan). 24/7 monitoring team takes action to isolate shipment, refrigerate or re-pack with Dry Ice, and advance to destination while mitigating spoilage opportunity. Results: • Reduced customs holds by 80%. • Reduce spoilage rates by increasing reliability of shipment arrival within time of life-cycle range or extending life-cycle thru cold-chain solutions. • Reduces resources allocated to tracking, tracing, and customer service efforts. • Focus on core competencies.
- 17. Insourcing Upsourcing Downsourcing Outsourcing Sourcing Options in the 2000’s Effective Supply Chain Solution Sourcing For leading manufacturers the question is no longer ‘Should we outsource?’ It is now ‘Which strategic sourcing combinations will create the most business value?’
- 18. Benefits of Outsourcing • Outsourcing provides… • …an integrated supply chain with enhanced visibility and flexibility, • …increased intellectual capital and access to broad supply chain expertise, • … greater geographic coverage and scalability, • … process optimization, operational benchmarking and monitoring, • … a powerful relationship with multiple carriers that can result in lower costs options and priority service, • … an opportunity to focus internal efforts and resources on strategic areas of expertise rather than tactical problem solving, and • … reduced working capital by leveraging shared infrastructure including facilities, technology, and employees.
- 19. When to Outsource? • If the supply chain is not an area of expertise and competitive advantage. Outsource. • If building or buying a solution that is a competitive advantage is an expense that cannot be supported. Outsource. • If existing supply chain IT systems are inadequate or the cost of maintaining them is prohibitive. Outsource. • If supply chain operations lack synchronization, integration, or connectivity. Outsource. • If scalability within existing markets and expansion to new geographies is a requirement. Outsource. • If flexibility in the utilization of assets and labor are necessary. Outsource. • If the cost of supply chain operations is simply too high. Outsource.
- 20. Qiagen Pharmaceuticals Case Study Challenge: • Qiagen estimates had them growing 15-20% YOY for the next 5 years. Qiagen made multiple acquisitions in the last three years, with plans for more in the near future. Qiagen had two manufacturing and distribution facilities in Maryland. Space was needed to increase manufacturing capacity. Solution: • Build a global distribution network via the outsourcing of warehousing, distribution and transportation. Results: • Avoided a $50M capital expenditure and moved distribution to a partner that built a repeatable solution designed for their business model. • Eliminated distribution operations, excessive resources and expanded manufacturing operations. • Focused on core competencies such as research, development and manufacturing allowing distribution partner to focus on logistics. • Extended operating hours, enhanced TNT, improved customer satisfaction due to strategic geographic locations.
- 21. The Importance of Reverse Logistics Manangement • Best-in-class companies recognize $1.8 million in year-over-year savings from improved velocity of returns - Aberdeen Group • U.S. companies spend $100 billion on returns – Reverse Logistics magazine
- 22. Reverse Logistics Best Practices To get the most return from returns: • Treat returns like a business in terms of staffing and resource allocation • Perform supply chain mapping exercise • Consider outsourcing to leverage third-party assets and expertise Think backward and act forward
- 23. High Tech Company Case Study Challenge: • A High Tech device company in TX sales devices that have a 6 month life-cycle to end-consumers. Once the old device becomes in-operative, the company has the product returned for refurbishment and resale. Often times, the product is a consumer health necessity, so a working device must be shipped as soon as the old device becomes in-operative. In many cases, the in-operative device is not returned in a timely fashion or not at all. These devices are valued at $25,000 apiece. Solution: • Integrate a returns scenario wherein the courier network arrives at the consumer location with return packaging, accepts the in- operative device, packages, and then only releases the new device after receiving the in-operative device. Second, tie the outbound and inbound tracking details together. In essence, a fully integrated returns exchange program. Results: • Mitigation of loss or fraud of high value/ time sensitive goods. • Enablement of post-sales support and warranty programs. • Dramatically reduced cost of customer service, lost goods, operation man hours, etc.
- 24. Increase Economic Profit Increase Economic Profit Reduce Supply Chain Costs Improve Service Levels/Revenue Reduce Capital Needs Reduce Supply Chain Costs Improve Service Levels/Revenue Reduce Capital Needs Reduce Transportation Costs Improve Supply Chain Processes Increase Forecast Accuracy Improve IT Capabilities Distribution Network Optimization Reduce Inventory Levels Reduce Transportation Costs Improve Supply Chain Processes Increase Forecast Accuracy Improve IT Capabilities Distribution Network Optimization Reduce Inventory Levels Supply Chain Foundations for Growth Optimization of the supply chain in 6 key areas has been the key to business improvement in manufacturing industries.
- 25. Thank You Please visit the tables in the back for UPS Solution Collateral Charles Trammell UPS Healthcare 214.549.2497, ctrammell@ups.com