Once upon a time there was a global, medical products company that was very unhappy with the way it was treating its customers in Asia. The company’s main customers are hospitals that use its products in emergency room surgeries. Not surprisingly, its customers wanted a high level of product availability. But this was a problem because the company’s factories are primarily located in North America and Europe, even though Asia (excluding Japan) is its fastest growing region, growing more than tenfold over the past decade. Furthermore, the company’s goal is to triple the size of its business by 2015. But how could it achieve a high product availability rate without flooding the supply chain with inventory?
Here is what the company did:
- It established a Supply Chain Centre of Excellence in India to handle sales and operations planning (S&OP) and supply chain strategy for Asia. The goal was to staff this Center of Excellence with talented supply chain managers. The team’s talent was demonstrated by its use of network modeling tools, which requires very skilled practitioners, to recommend a new supply chain network. The network design gurus showed that the company could reduce inventories and write-offs by 25 percent if it had a regional distribution center in Singapore with the capability to replenish actual demand within 24 hours (order to border) to nearby countries. Actually, the fact that the company established its Center of Excellence in India surprised me. There are big tax advantages to setting up centralized supply chain operations in Singapore. I wrote a detailed article on this topic for Supply Chain Management Review earlier this year (see “The Tax Efficient Supply Chain”). However, there is very good talent available, at a much lower price, in India.
- The company worked with Oliver Wight to establish an effective S&OP process across the region. It also used OPUS, an online sales analysis tool from Oliver Wight to analyze sales data (actual and forecast) across hierarchies (products, geography, customers and time periods). While I consider Oliver Wight the premier consulting organization for aiding companies with S&OP, I am not particularly impressed with OPUS, at least not in comparison to demand management solutions from vendors such as i2 Technologies, Oracle, and JDA (i2 and Oracle are ARC clients). The company, however, is using a best-of-breed supply chain planning solution for global manufacturing planning. Then again, who am I to make editorial comments? The company believes OPUS was of great aid, particularly in allowing it to compare the plan to the forward financial forecast, thereby ensuring business alignment.
- In parts of its business, the company has implemented consignment and vendor managed inventory (VMI) solutions by using EDI with the hospitals. In Hong Kong, for instance, hospital orders are triggered electronically when a nurse in the operation theatre scans one of the company’s products. Depending on the inventory levels in the hospital’s warehouse and the agreed upon min/max levels, this becomes a signal to send more inventory to the hospital.
- Moving forward, the company intends to adopt “perfect order” as its prime supply chain performance metric by 2011. Its version of the perfect order metric is defined as on-time, in-full deliveries of quality product with accurate invoicing to customers.
What has the company achieved so far? Product availability has improved by 15 percent, forecast accuracy by 40 percent, and inventory turns by 16 percent. So, the company is living happily ever after—at least until 2015 when it will see if its goals for revenue growth in the region have been met.