SUPPLY CHAIN RESOURCE COOPERATIVE

A new post discussed the development of a sustainable procurement standard developed by the International Standards Organization.  ISO 20400, Sustainable procurement – Guidance, has just reached a second draft international standard stage, meaning interested parties can submit feedback via their ISO member on the draft before final publication in 2017.

It’s about time that the concept of sustainable procurement has a standard established around it.  There have been many calls for such a standard, but very little has been done that is specifically related to procurement.  Although previous standards for environmental sustainability such as ISO 14000 did have some impact, the role that procurement plays in establishing the environmental and carbon footprint of organizations is significant.

There are many facets to how this can occur, but it is indeed a long time coming, although sustainability has been at the top of many corporate agendas for some time. More and more companies are emphasizing environmental performance as a critical component of business strategy. As such, environmental objectives are often finding their way into the discussion when it comes to setting category strategy objectives. A green category strategy is one that explicitly includes environmental features and actions, including (but not limited to):

  • Redesign of the product
  • Substitutions of environmentally friendly materials
  • Reduction of harmful materials
  • Extension of the product life cycle
  • Support for giving more business to environmentally conscious suppliers

Examples of differences in traditional commodity strategy objectives, and environmental objectives are shown in the table below:

Commodity Goals

  • Reduce cost of purchased commodity by 10 percent in two years
  • Reduce defects of purchased commodity from 10,000 parts per million (PPM) to 1000 PPM in one year.
  • Improve on-time delivery of purchased commodity to 99 percent with a one day window over the next three years.
  • Integrate state-of-the-art components within the next six months.
  • Align our company with the leading edge supplier over the next year.
  • Create a motivation for Supplier X to work with our engineers in new product development.
  • Have suppliers work directly with our customers on specifications.

Environmental Goals

  • Reduce content of harmful substance to zero in all products within six months.
  • Establish dollar savings goal of X for disposal of old parts.
  • Have 10 percent of the supply base ISO 14001 compliant.
  • Ensure that no new parts contain the 57 hazardous substances documented in our policies, and that volumes for existing parts be reduced to X PPM.
  • Ensure that all new product packing materials comply to recycling goals.
  • Ensure that all suppliers are disposing of metal molds for mass production in an environmentally appropriate manner

Moreover, “green” category strategies go beyond “checklists” and rely on environmental management systems that identify procurement specifications, process requirements, and value stream analysis/waste stream impacts. Supplier assessment systems require audits of suppliers’ processes to identify waste streams and environmental practices. Supplier development processes target potential waste areas and create incentives for moving towards a low-waste, mutually beneficial long-term relationship. Government databases are accessed to identify suppliers who have current EPA and government fines, violations, and safety incidents. Finally, environmental objectives are integrated into contractual requirements, raising the environmental performance bar for all new suppliers to meet. This area of supply management will continue to be more important in the future.

the other facet around sustainability has to do with labor and human rights in the supply chain.  The SCRC has developed a set of criteria for evaluating the extent to which companies adhere to their code of conduct in this regard.  The availability of a code of conduct for suppliers is what we consider to be the basis of a good supply chain social program. Many approved codes of conduct exist (e.g., the UN code of Global Compact, the ILO’s convention, and the Global Reporting Initiative). For the basis of our framework we assessed if the code of conduct followed the guidelines specified in these and similar conventions. Since the conventions are very broad we narrowed down in our framework the elements of the various codes of conduct we need to cover.

Having a code of conduct is not sufficient; there should also be a method of ensuring compliance and ramifications for non-compliance. The framework measures the level to which companies ensure that their suppliers comply with the framework, how well suppliers work with the company to fix issues, and exiting relationships if issues persist.

A key mechanism to ensure compliance with the code of conduct is to ensure that it is part of the contract. Companies ideally should modify existing contracts by adding a clause for existing suppliers and update their standard code of conduct for future suppliers.

Having the code of conduct is essential but more important is monitoring companies to ensure that they are indeed adhering to the code of conduct. Most companies put in remediation processes when monitoring exists. A re-auditing process needs to be established to ensure that the remediation measures are working the way they should work. There should also be independent evaluations by reputed monitoring organizations to independently verify the company audits without being biased by results.

Evaluation and monitoring does not add much value unless results are reported. Ideally, detailed results of internal evaluation should be reported on the company’s Intranet. External evaluation should be publicly reported on the company’s website or through a link from the company website to the independent monitoring agencies website. This will provide the transparency stakeholders are looking for.

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We hear the words “innovation” as a source for growth in the economy over and over again.   New ideas on how to manage business processes, digital technologies, ways of delivering value to customers, and supply chain linkages are all areas where we are likely to see new forms of innovation occurring.  But what will be the true source of innovation?  Will it come from big companies in the Fortune 500?

Hardly.  In a recent e-book I co-wrote with IBM, we argue that the real source of innovation in the global economy will be fostered and developed by small to medium sized suppliers.  If small companies are the source of innovation, we argue, then it makes sense to establish a process for companies to think about how they will nurture and develop these ideas into a commercial success.   The e-book provides a 5 step approach that is based on countless interviews I’ve conducted with executives, dating back to an NSF study we conducted  back in 1999 and which we wrote a book on.

Supply chain innovation can occur in multiple forms:

  • New and improved products, including features, technology, or open new markets applications that can provide significant ground-breaking market penetration
  • Service innovation, including market facing innovation services, bundling of services and products, and services that enable the business to be leaner, faster, or lower cost.
  • Supply chain process innovation, spanning new third or fourth party logistics capabilities, order fulfillment, risk management, or other forms that are innovative and create supply chain value.

As organizations look to their suppliers to jumpstart product and process innovation, having the right information on unmet customer needs, emerging supplier technologies and capabilities that fill these gaps, and information on the capability of suppliers to execute on innovation projects is becoming key. In effect, procurement data on supply market technologies serves as the catalyst that drives the innovation process.   This occurs through a five step process:

  1.  Defining the customer need.  Procurement and supply chain must work with the new product and service portfolio team to team to identify the gap in the current product or process portfolio and the specific set of customer outcomes. It may also involve identifying future technology developments that have a potential application in the current product or service offering.
  2. Seek the right suppliers for the innovation project. This involves identifying current suppliers in the portfolio through Supplier Life Cycle Management tools, as well as potential future suppliers that are not in the portfolio that may have emerging technologies or capabilities.
  3. Assess and validate the capabilities of those suppliers you want to work with.  This is a systematic approach for ascertaining the capability of suppliers that are likely candidates. This may include data mining, conducting detailed research, including supplier life cycle management data, conducting in-depth performance reviews, and other approaches.  Once a supplier has been highlighted as a potential innovation partner, there is a need to discuss specifics around the project. These discussions are often challenged by a lack of trust on the part of both parties, with many unanswered questions related to ownership of IP, economics around the new product, ability to meet timelines, and other factors.
  4. Engage and collaborate with suppliers on technology development. This stage involves having more in-depth discussions with suppliers to explore the opportunity in more detail, and discover the likelihood of creating a strategic partnership once capabilities have been established. Co-development activities require a high degree of trust and communication to be successful, and this stage of the process involves often delicate positioning and exploration of the landscape of opportunities, scenario development, and building the foundation for a successful project.
  5.  Guide the relationship to a successful outcome, paying attention to the “soft” elements.  As the innovation development project is kicked off, careful project management and monitoring of KPI’s, project targets, deliverables, and milestones is key to managing a successful outcome.   Regular communication and updates are key to keeping the project moving in the right direction, as well as post-commercialization relationship management.   It is important that companies think clearly about their motivation for working with the supplier, and be able to envision the type of relationship they desire and the level of access required early in the process. In many cases, buying companies have a single approach mandating exclusive access to all of the supplier’s potential insights, and this heavy-handed approach may not always produce effective outcomes.

The e-book provides a concise approach, based on my interaction with a number of automotive, manufacturing, and service industry companies that have been down this road.

A key ingredient for success is a change in culture in buying behaviors.  The figure below shows the key characteristics of buying companies that suppliers are looking for when they seek partners to help commercialize their innovation.

Supplier Innovation copy

Procurement has been focused for so long on cost reduction as the major form of value that they have often overlooked innovation as a capability that is involves its key constituents: internal stakeholders, suppliers and customer. New forms of value creation (includes end to end cost savings) will require looking beyond traditional approaches of strategic sourcing, and requires an orientation of supplier engagement to drive revenue generating opportunities. Examples of such opportunities include improved demand management, product segmentation and expansion, new technologies, exploiting the digitization of products and flows, and working capital savings. To generate such forms of value creation, procurement will need to tap into a key source of new ideas and creativity: their suppliers.  Especially in a flat economy, which we are likely to continue to see for the foreseeable future….

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It is that time of year again, and the SCRC team is getting ready to prepare for a new semester starting the week of August 15th!  As always, we have a great set of new projects that we are teeing up for this semester, which provide an interesting set of “real-time” challenges for our students.  As in past years, we have been collecting these projects from our partner companies, and they reflect the on-going set of strategic challenges faced by these organizations as they work on building their supply chain capabilities.  Here is a sample of the projects we will be kicking off with our students this coming semester for the American Red Cross, Merck, Hyster-Yale, MetLife, and RJ Reynolds.

Benchmarking Supply Management salaries:  Understand what the ‘going rate’ is for key roles in Supply Management, so it can better develop its ‘employee value proposition’ to more effectively attract, develop and retain key staff.  This project presents an opportunity to benchmark salaries (base salary, incentive compensation and equity/stock grants, etc. = total annual cash compensation) for key roles like Category Manager, Director, and Senior Director of Supply Management.

Supplier Contract Development:  Develop a Supply Agreement for outside services that 1) is based on best-in-class industrial agreements, and 2) is build around a supplier’s Master Supply Agreement Template. This is to be accompanied with a process which clearly identifies the strategic needs and key deliverables, clearly related to specific language within the Agreement.

Criticality matrix and supplier development priorities for lower level spend supply base.  This project will include learning and understanding a method of grading and prioritizing supplier development needs. Various financial, performance, and geopolitical data and information must be gathered, analyzed, and plotted by non-core supplier ( those that the buyer spends less than $500k with ).  Specifically will involve gathering required financial / performance / geopolitical data inputs and complete grading and plotting the non-core supply base. Then summarize what specific areas of development are needed for those suppliers who fall within the upper quartiles of the criticality matrix.

SCRC Supply Chain Maturity Model.  Conduct in-depth interviews and complete an assessment of the SCRC Supply Chain Maturity Model and provide recommendations/analysis.  This approach is based on best-in-class supply management profiles developed on years of research conducted at the Supply Chain Resource Cooperative.  Comparison to “best in class” maturity ratings of the Fortune 500, collected through Machine Based Learning methodologies developed by SCRC.

Supplier Risk Management Assessment  Previous SCRC project proposed several risk management best practices for managing supplier risk. This project will take learning from previous team and execute risk assessment of current major suppliers. The team will review portfolio of suppliers and develop method segmenting suppliers or specific items into risk categories.

Contract Management Process Documentation & Knowledge Sharing  Currently, contract management group processes are not well defined or documented. There is an opportunity to simplify and standardize the processes further through the documentation process. Additionally, the creation of a website will allow for the processes to be more transparent to enable more efficient interactions with our global procurement colleagues.  The team on this project will be interviewing contract management team members to document contracting processes. The team would then work to organize and summarize the process documentation for inclusion on the internal contract management website whose primary audience is global procurement.

Commodity/Category sourcing profiles within Research and Development (R&D).  Develop sourcing strategies for R&D commodity categories (play books).  Collaborate with buying staff, evaluate categories, define strategy & verify data sources.  Review existing examples, complete additional play books and collaborate and learn best practices.

These projects are all very well scoped out, and represent activities that can be completed in a 15 week semester.  The students completing the projects will be getting a “hands-on” experience on managing a real project, and will be under the supervision of our capable faculty advisors, including Bill Collins, Betty Minton, Walter DeGrange and our newest advisor to the group, John Zapko.  There are also another bunch of projects assigned for our undergraduate supply chain practicum class (14 projects in BUS479) and our other MBA practicum class (8 projects in MBA 549).  We will be assigning MBA student teams to these projects, which will be run through the semester, culminating in a one day “Gallery Walk” presentation of the results to other students, SCRC partners, and faculty on November 30, 2016.  Can’t wait for the gun to go off!

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The idea that large organizations can create a “federated” network, by integrating smaller firms into their network and drive a common purpose is a concept that is emerging as key to global competition. Federation implies common operating procedures, established standards, driving aligned supply chain processes and tacit understanding of how things work. The idea of federated supply chains have actually been around for awhile, and Peter Drucker first descried the idea.

Any organization requires both strong parts and a strong center. The term “Decentralization” is actually misleading—though far too common by now to be discarded. Federal decentralization requires strong guidance from the center through the setting of clear, meaningful and high objectives for the whole. The objectives must demand both a high degree of business performance and a high standard of conduct throughout the enterprise.”[1]

Suppliers that work for a larger company in a federated supply chain are generally pretty happy. The suppliers I’ve interviewed at federated supply chains like Honda, John Deere, Intel, and Flex don’t want to leave, as they feel like they are treated as equals, and assured a steady revenue, and also understand that they are in it for the long haul. Over time, suppliers’ loyalty towards the dominant firm grows. That is one reason why companies like Honda have begun using the term “Supplier for Life”, which suggests a strong, paternal relationship that is governed by high performance expectations, fair product price negotiations, and deep understanding of long-term technology and customer roadmaps.

An interview I had with Jeff Ng, Chief Procurement Officer at Steelcase, provides some clues on how how global collaboration is key to building a federated supply chain system.

This need to understand many different points of view is the central theme of collaboration. It requires that you be able to understand who people are, and what they do. It also requires that you understand how work happens today, and be willing to allow some variation in processes, up to a point.

The idea of aligning people around data and a common process for decision-making makes sense.  But what we are seeing now is something beyond collaboration:   the idea of federation.  There has always been a need for organizations to establish standards of performance embodied in policies and procedures, but in a our study of global  logistics providers[2], we discovered that top performing organizations developed a form of supply chain governance that build in some level of flexibility to adapt to local requirements, by design. For instance, organizations would develop a global process for delivering an outcome in the form of a “maturity framework”, but which allowed people in the global network to achieve the outcome in the appropriate manner that was aligned with their local cultural norms.

As an example, many of the leading organizations we interviewed have recognized that logistics requirements vary from region to region, and as such have moved to a regional logistics design, governed by a centralized supply chain council. The governing council establishes overall guidelines and structures for regional work to operate at a world-class level. Typically such councils have developed standards consisting of three components: process, policy, and playbooks. First, the standards define the processes that must be in place (e.g. customer order promising, transportation planning, order fulfillment). Second, they define the policies that must be followed (e.g. finalizing orders, allocation, scheduling). Finally the standards come with “playbooks” that act almost as a user guide on how to think through the process requirements and get them done!

In cases when there are major tradeoffs or conflicts that occur between regional requirements, organizations have adopted a global sales and operations planning function to optimize global requirements across regional requirements, especially around global product lines. Once established, however, top executives realize that these plans will be interpreted and acted on differently at a regional level. The outcome – a federated supply chain – is the desired outcome when this approach is utilized.

Federation is based on the simple thesis that supply chain leaders cannot standardize the entire world, and need processes that will be a solution in 80% of the cases, allowing for local adoption for the remaining 20% of cases, (so long as the outcome meets the process playbook). This requires a clearly defined organization, with clear roles, and responsibilities, so that people can speak to the same processes, with the same toolboxes. This ensures that all parties are “speaking the same language” and are using comparable metrics and plans. At the same time, differences should be highlighted. Leaders should be aware of the challenges and successes of regions, what they struggle with, and what they are proud of. Leaders should also be prepared to accept a different point of view on what is working locally and what is not, and be prepared to adapt the process to fit the right local requirement. And this means that interactive communication is required to ensure that when decisions are made, everyone is aware of it and is kept informed. Because it is the interaction that creates intelligence, in a cyclical view of new ideas, feedback, and response that forms the interactivity that drives new knowledge. Technology is the game changer that allows this to happen more quickly – but trust is the essential ingredient that allows data to cross boundaries, and forms the glue for federation.

[1] Drucker, Peter, The Practice of Management, 1956, p. 214.

[2] Handfield, Robert, Straube, Frank, Pfohl, Hans-Christian, and Wieland, Andreas.  Trends and Strategies in Logistics and Supply Chain Management, BVL International, Berlin, 2013.

 

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Globalization and supply chains have been tied at the hip over the course of history. Supply chains naturally take advantage of efficiency and cost advantages and over the centuries, as transportation methods, technology and global knowledge improved, there has been a drive to take advantage of each and every step. Trade between countries and continents has been occurring for thousands of years, using the silk road as an example. Silk was produced in China, and then traded across India, Persia, Arabia and Rome where it was considered a luxury good, dating as far back as the 1st century BC.

Fast forward to 2016, where we live in a highly connected and globalized world where the Panama Canal can now cater for vessels that can carry up to 13,000 TEU (previous maximum size was 5,000 TEU). Raw materials are sourced from one country, products are manufactured in another country, and the final goods are transported to customers all over the world. There are complex webs of free trade agreements, trade barriers, international movement of labor and economic blocs like the European community.

As long as there has been globalization, there has been an element of anti-globalization. A primary concern is job losses in specific geographic areas as companies align their supply chains and business models to the most globally economical strategy. As borders open up, labor moves between countries, and as hot spots of conflict occur, there are, at times, mass movement of refuges. These concerns have grown dramatically recently, creating what some call the fragmentation of globalization.

We have heard of the most recent examples of fragmentation, however let me recap while avoiding the political and emotional arguments. The decision by the majority of voters in the UK to leave the EU (Brexit) was primarily based on concerns around globalization including immigration and free labor movement. The recent election in Australia could result in a hung parliament and the return of Pauline Hanson to the senate. Ms. Hanson is the leader of the right wing “One Nation” party – a strong supporter of anti-multiculturalism, anti-immigration and anti-Islam policies. And then we have the public debate in the US, led by the presumptive Republican presidential nominee Donald Trump who has articulated strong views on anti-globalization – including very tight border controls – restricting Muslims from entering the US and calling for the renegotiation of NAFTA (North American Free Trade Agreement) and the rejection of the Trans-Pacific Partnership (TPP).

These are only some examples of a stronger public voice against globalization. Brexit is a perfect example of fragmented globalization. There are still many unknowns on how the UK will partner with the EU going forward, or even if the UK will remain unified with Scotland and Northern Ireland perhaps seeking their own referendum to separate from the UK. These concerns are critical for supply chain leaders as they struggle to understand how the global trade game will change, and how to restructure their supply chains based on the vast number of changing pieces. Fundamental trade elements are currently unknown, i.e., will there be free trade between the UK and the EU, will UK citizens still be able to work in the EU, and vice versa? Will the trade agreements between the EU and other nations still include the UK?

As we look outside the EU and Brexit, we start asking other questions, what happens if the TPP is not signed (refer to my previous blog for a review on this question)? What happens if NAFTA is renegotiated? And if NAFTA can be renegotiated, does that open the door for every other free-trade agreement (FTA) to be reviewed?

As I conducted the research for my upcoming book on the Trans-Pacific Partnership, called “A Naked View of the Trans-Pacific Partnership – An unbiased informational review in plain English”, I was surprised at how smaller and developing countries are very positive about globalization. In a survey conducted by Pew Research Centre, a nonpartisan fact tank, across 44 countries globally, 81% said trade is good and 54% agreed that trade creates jobs. However, when a similar survey was conducted on American citizens, only 47% said that trade was good (43% saying it’s bad) and 17% said global trade created jobs (46% said it leads to job losses).

So how do global supply chain executives plan for the future? As globalization becomes more fragmented, key developed countries like the UK, US and Australia are questioning the benefits of globalization. How do we plan our supply chains out 5-10 years, and how do all these changing chess pieces impact our ability to maximize efficiency and cost management?

As with any decision that needs to be made without all the critical information, it’s better to be directionally correct than exactly wrong. It is critical that leaders identify which parts of their supply chain can be flexible, so that contingency plans are in place. An example would be raw material suppliers where a vendor plan would be created that will allow easy switching between suppliers from different geographies. For those areas that are less flexible, such as manufacturing plants, alternatives can be reviewed, such as setting up redundancy across different geographies, moving to contract manufacturing or any other risk mitigating change.

Most importantly, in today’s increasingly fragmented global environment, it’s absolutely critical that supply chain leaders understand what is changing globally, and how it will affect their global movement of products and services. As Brexit showed us, anything is possible, and the only protection against uncertainty is knowledge and flexibility.

Timothy Barnes is the President of Asia Pacific Consulting, based in Chapel Hill, NC and author of an upcoming book on the TPP – “A Naked View of the Trans-Pacific Partnership – An unbiased informational review in plain English.

Email: tbarnes@apac-nc.com

Facebook: https://www.facebook.com/asiapacificnc/

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A recent visit to a mid-sized hospital in the Northeast United States provided a number of important insights into how is great a problem material handing data integrity is in the daily life of those people who work in operating rooms across the country. The nurses, buyers, surgical techs, operating room specialists, and physicians who work on the front lines of hospitals, are having to deal with massive forces of friction that are reducing their ability to provide top tier patient care. The scenario described in this case study is being repeated in 95% of hospitals across the country. The operating room (OR) is also the primary source of revenue for hospitals, as 80% of all revenues taken in occur through OR activities. These facts alone provide ample evidence of the need for massive change in the way that hospitals manage their supply chain data.

The Parkdale (fictional name) hospital is like many others you’ll find across the country. This one has about 450 beds, with its own warehouse that stocks items at a separate location. The hospital relies on Group Purchasing Organizations to order many of the thousands of items it carries in its different wards, as well as the drugs and biologics it must keep in its pharmacy.

Purchasing at Parkdale

The purchasing function at Parkdale consists of about 9 people, who are primarily involved in transactional activities. One person orders supplies for the OR, another does non-medical supplies and services, and others who manage the catheter lab, interventional radiology, and stock items. Stock items are those that are used on a repetitive basis. Another person manages IT supplies, and another hospital renovation services. Like many purchasing functions at hospitals, these individuals are often paid by the hour, due to strict budgeting in a world where purchasing is considered primarily a transactional activity with low value added. Their role is to “get stuff that physicians need, and don’t run out!”

The Operating Room purchasing staff has people who buy cardiac and non-cardiac parts, heart and vascular products, and the Physician Preference Items (PPI). The latter category consists of products that are custom ordered by physicians, especially OR surgeons, based on their specific preference. Many such items are selected based by physicians based on different criteria, including:

  • They used the products in medical school, got used to them, and insist on using them in the OR,
  • Sales representatives convinced the physician it was a superior product and they should switch to it,
  • Physicians read about the item in a journal article or medical report, and are trying it out as they believe it is superior to the old alternative, or
  • The physician is being courted by a medical products company through perks or benefits which is leading them to choose the product.

In some cases, purchasing works through the local Group Purchasing Organization (GPO), which operates under the theory that buying in bulk will render lower prices. By combining volumes from multiple hospitals, the theory continues, GPO’s can pass on the savings to hospitals, and collect a fee of 5%, leaving hospitals with a savings over what they would pay otherwise. However, “lower prices” is contingent on something called “contract compliance”, a term that is often poorly understood and not well defined for hospitals by GPO’s. Although GPO’s state that you can “choose to opt in or opt out” for any product, the reality is that compliance to the terms of the contract often fail to fully disclose that GPO’s make much of their money on rebates with the manufacturers or medical products, much more than the 5% they charge the hospitals. This renders the entire manufacturer-GPO-hospital relationship opaque and difficult to truly sort out whether savings are real or not.

The Parkdale purchasing officer notes that “We have an on-site person who works for the GPO under a consulting agreement. They are in charge of helping us with PPI items as well as purchased services. We are working with a new GPO , and they are supposed to help us identify how we can convert our items over and get compliance and lower prices for the OR and also for orthopedics.”

“We struggle even with simple items to get agreement. For a simple tourniquet product, it took us two years to get physicians to agree on a single product. We thought it would be easy to negotiated based on the simplicity of the items, but this was not the case. We tried to negotiate with a book of business based on forecasted usage, but there are always new items coming up, so we have to negotiate with them to give us the same pricing on new products unless they are revolutionary. And we have to trust that they won’t sneak behind our backs and raise prices.”

The Head OR Nurse’s Perspective

A meeting with the head nurse from the OR provided a glimpse into some of the many challenges that occur in this environment.

“We are constantly challenged with trying to get part numbers for the parts and products that are coming into the OR, as every part has to be entered into the computer during the surgery. We had made a decision not to add new vendor parts for pins, plates, and screws for implants, but could not get all the surgeons to agree on the list. To get agreement requires getting the department of surgery involved, and this gets complicated.”

During a surgery, we often find that there is no description for an item, because there is a 30 character limit in the system in the description field. So for instance we might be using a 15mm screw in the surgery, and the nurse is at the computer during the surgery trying to record this into the patient log. But maybe she can only find a 13mm screw, so she puts that into the record instead. Or perhaps she just enters MISC and adds a note to the record saying that this is missing in the catalog. Or maybe she just writes it down on a piece of paper and hands it over to the recording nurse, Judy. This can occur for multiple parts and items.

For every surgery, there is something called the PPI card. This card is supposed to contain all of the PPI items for a particular surgery, that have been pulled out of the surgery stockroom by the people prepping the OR cart for the surgery. Every cart has the items loaded onto it, based on the PPI card. But we still find that the items on the PPI card can’t be found in the system.

The sheet of parts comes from the OR and has to be sent over to the Cost and Budget department. But I spend an hour a day just cleaning up the part numbers on the systems. We have a person who does nothing but work through the part sheets correcting the part numbers. We have had to learn how to do this ourselves, as there was no IT support, no documentation on how to fix it, and no information on how to convert data from one system to another.”

Despite being a multi-million dollar revenue source, the operating room is dependent on multiple people having to fix it. In the words of one physician, “this is a $2 trillion dollar cottage industry.” And even though IT departments are 20 times the size they were 10 years ago, the support for physicians and nurses is less than it ever was.

The Head OR Nurse expressed this challenge:  “I feel very frustrated, because I went into nursing because I wanted to help physicians and patients. However, I am spending more time on the computer searching for items than I am working with patients. Many of our nurses are becoming equally frustrated, and we are seeing many of them quitting because they say they can’t stand working at this job any more, as there is too much computer time spent searching for items in the catalogue.”

 

These types of data integration issues are fundamental to addressing the many shortfalls in our healthcare system.  This is an activity that the SCRC will be dedicated to improve in the coming years.

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The vote by the British population to leave the European Union (“Brexit”) was greeted with massive volatility by financial markets worldwide. It also raised a number of concerns regarding the stability of the overall disposition of populations to the growth of globalization and linked economics between countries all over the world. According to a USA TODAY poll (July 1, 2016), Americans agree that the United Kingdom’s vote to leave the European Union was a sign of anger and dissatisfaction that can be seen in other countries, including the USA. Many also believe that it is an indication of a broader feeling among people around the world, as the polls suggest that many of the “Leave” voter population were from rural areas, lower education, and elderly, while many in the “Remain” voter population were from the financial community, larger cities and young people.

Regardless of the reasons, the Brexit vote will have lasting repercussions, and may threaten the stability that has existed in global markets for some time. While the majority of leaders (Obama, Cameron, and others) have pushed for greater free trade, the fear of open borders and increased immigration, particularly from those regions such as the Middle East, is pushing voters towards fear of open borders and more towards closed markets.

In the financial markets, equities dropped precipitously the day after the vote, but have returned to their normal levels. Yields on the benchmark 10 year and 30 years Treasury notes in the US and the UK fell to their lowest levels ever. This indicates a flight to safety, as equities are viewed as much more volatile.

In the short term, it seems that there is no major impact on stability of operating conditions in the supply chain. In a recent ISM press release, a “quick poll” of purchasing executives suggests that they were most concerned about financial market uncertainty and currency movements. Secondly they were concerned about global growth overall. Supply chain executives were least concerned about their firm’s trade links with the UK and the EU.

In the longer term, the Brexit vote could have political and economic repercussions that are much more serious however.  Some of the issues that executives should consider as they enter into strategic planning meetings are the following:

  • What is the likely future for the UK and the EU economic scenario given Brexit?
  • What is the impact on financial markets?
  • What is the impact on US elections and government trade talks?
  • What is the impact on the Trans Pacific Partnership Talks?
  • What areas of the supply chain will be impacted by these changes?
  • What areas of global supply and demand will be impacted?
  • Will this lead to the eventual fragmentation of the EU as other countries such as Spain, France, Portugal, the Netherlands, and others begin to debate whether they should remain?

These and other questions are important parameters for supply chain executives to consider.  I will continue to update this blog as new information comes to my attention!

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Transition at the SCRC

July 1, 2016
by: canteen
categories: Supply Chain Management

Today’s guest post is from Dana Magliola, the new director of the Supply Chain Resource Cooperative here at NC State who shares some thoughts on transition at the SCRC.


The supply chain is an ecosystem where constant change is the norm and time is currency. Transitions are ubiquitous, yet to thrive any organization must become an animal of innovation. The Supply Chain Resource Cooperative at NC State is no different. To keep our curriculum, research, and student engagement relevant, the SCRC has developed and refined its unique supply chain management curriculum. With constant care, the organization’s leadership has led the SCRC with distinction and a steady hand. In the final days of June this year, the SCRC celebrated the service of outgoing SCRC director, Clyde Crider, and welcomed in a new director. For everyone involved with the SCRC it is a bittersweet, but exciting transition.

The SCRC of today, and the practicum-based learning model, maximizes student exposure to real industry environments and pairs them with talented and engaged project sponsors from SCRC Partner companies. Together students, advisors, faculty and sponsors truly think and do together to develop innovative solutions to actual business challenges. This unique model attracts prospective students, researchers, and industry leaders to NC State to see the impressive things going on in Raleigh. From its founding in 2000, the SCRC has benefitted from not simply the vision and hard work of its leaders, but from the value it has delivered to industry, community, students, and the University.

Since joining the organization in 2010, Clyde Crider’s leadership carried the SCRC through headwinds of economic recession early in his tenure and built it into the stable and growing entity it is today. His commitment to the “Voice of the Customer” and dedication to his vision of the SCRC as a “Solutions Provider” are evident in the strong relationships and friendships developed under Clyde’s stewardship. Today, NC State also boasts a fellowship of student leaders and alumni fellows in the SCRC Supply Chain Scholars program which began during Clyde’s tenure and reflect his belief in the importance of growing young leaders. The SCRC organization could not have a more passionate advocate for the type of pragmatic education experience students have at NC State. Clyde also speaks the language of business; his awareness and experience in industry helped him bring a unique perspective to teaching, project management, and leadership. I often hear great things said about Clyde from executives and students alike. Challenging his second attempt at retirement, we aim to keep him engaged as an ambassador for the SCRC. His “lessons learned and tribal knowledge” alone is a part of the SCRC fabric.

In this theme of transitions, I am honored to assume the role of SCRC director. I believe strongly in the vision of the SCRC to be a solutions provider, as well, and its ability to make a significant impact on student’s career potential and outcomes. I will strive to amplify the impact and connectivity of the SCRC. Our industry is changing rapidly; student dynamics are shifting, and the SCRC will, as always, adapt. It is good to have ideas – and I look forward to sharing mine with the broader SCRC network – but right now I’m doing a lot of listening. In my ongoing conversations with faculty and leadership at the Poole College of Management, as well as across NC State University, I am finding much goodwill and interest in collaboration. I’m also enjoying the opportunity to get to know each of our Partner companies better, and I have been learning a lot from the conversations I’ve had (and continue to have) with our sponsors and project managers. Our students and alumni also have a viewpoint, and hearing from them has been inspiring, informative. It is exciting to learn about the positive impact of the SCRC from so many different audiences and stakeholders.

So true to our supply chain roots, we are embracing the transition at the SCRC, and are excited about the opportunities it presents. Yet, we also have functional deadlines to meet. For our Partner companies and organizations, our project submission window is now open, and we are receiving the projects that will engage our students this fall. Our effort to grow our partnership is ongoing, as well. Continuing into the summer and on to the fall semester, we have some great events and activities scheduled for our students and Partner companies, as well as broader supply chain industry and community audiences. Stay tuned for information in the coming weeks.

I look forward to updating you soon with good news and stories of our shared successes along the way.

– Dana Magliola, director, SCRC

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I had the opportunity to attend the Procurement Leaders in San Francisco forum two weeks ago, followed by attending the ISM Carolinas-Virginia meeting in Winston Salem last week.  Procurement analytics was discussed at length at both sessions. Several key takeaways emerged from the discussion with executives, which represented a wide array of companies including AARP, Roche-Genentech, Silex, RJR, Flex, Google, Northrupp Grummon, GE, and others.  Here are some of the comments I heard in speaking with different individuals.

  • The large procurement providers, such as Ariba, Zycus, Brave, Coupa, and others are making good strides into the market. Ariba has the advantage of being able to be linked into SAP systems, while Coupa has not been able to achieve this integration, which has been problematic.
  • Most companies discussed the fact that they do not have a lot of “good” data. Most are still focused on spend analytics.  Procurement analytics is fairly new as an area, and I did not see a lot of major inroads using cognitive analytics or combination of different data sets to produce insights.
  • Maturity in analytics is a progression from Descriptive (Historic) to Predictive to Prescriptive to Cognitive. Most companies are just getting past the descriptive stage, which is just about being about being able to describe and get in touch with reality. Predictive is about understanding the future. A key observation was that “analytics are useless if the customer can’t make sense of and use the data.”
  • Analytics is still seen as an emerging discipline. There are a few companies that are in advanced stages of being able to drive spend analytics, risk analytics, and others, but this has been at great expense. Even so, many are not doing sophisticated analytics, but are still primarily focused on spend analytics. For example, one company is still working on use of shopping carts and purchase orders – was the PO coded directly?
  • Spend analytics is indeed the primary focus of most companies. Executives note that spend is the foundation for many other forms of procurement analytics, but is not an end unto itself. The primary outcomes from spend analysis is the ability to identify multiple instances of a product under four different SKU’s. For instance, one company gave an example of a valve with four different SKU numbers, multiple prices, and multiple names across their facilities, and pointed out that spend analysis allowed them to build a business case around driving down complexity of their spend.
  • Not all decisions require real-time data to be useful.  There seems to be a real need to digest and create visual aids, and to find ways to speed up analysis of information. How data that is used to highlight exceptions in a real-time environment, it must be highly consistent however.
  • Procurement is increasingly taking on the role of being able to become the “source of truth” for data – and enabling other functions with data. This is occurring because they have the most to gain, but also can serve other stakeholders in this role and get their buy-in, particularly when there is an enterprise focus on analytics. Procurement should step up and lead these roles when possible. Procurement should also be at the table when system design is occurring with the IT function, and not wait for IT to tell them what they need. They need to be an active participant in designing systems.
  • A common problem faced by companies is how to structure the front-end data entry process to enable improvement of data quality. So many users are prone to enter information incorrectly into the PO and the system, which degrades data quality significantly. Examples include the use of “Other”, “Miscellaneous”, or random product codes in category fields when entering requisitions. To address this problem, companies shared best practices that included limiting the number of users who have access to the system, to only those who have been trained and have the discipline to use it in a compliant manner. A second approach is to limit the number of PO categories, to ensure they are used correctly. Finally, a best practice was to use “drop down windows” to ensure that the purchase is mapped into the proper General Ledger account. Even Google notes that we “Automated wherever we could. It was very complicated – we had to write about 10,000 lines of code to get it to where people could enter the right element.”

 

I found the discussions to be very compelling, as we continue to chart the path ahead in the CAPS study that our team is engaged on!

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I had the opportunity to speak with a Nike executive about how the company has moved into the world of mass-customization.  Many people have heard about their partnership with Flex to build mass-customized shoes in Mexico, which is a big shift for the company from it’s largely Asia Pacific supplier network.  Although it is certainly not abandoning Asia, Nike is moving towards more near-shoring due to the need to mass-customize and meet many of the requirements for VELOCITY that we have discussed in this blog recently.

Nike went about creating a three-tiered customized supply chain for their shoes. Shoes are a relatively complex assembly, and are hand-made for the most part in China. In fact, Nike hired a manager to go over and begin production of shoes in a Nike-owned Chinese factory, run by one of their employees. They approached the employee about buying the factory from them, as they made the move to a complete off-shore provider.

As Nike moved into an e-commerce strategy, they decided to offer three levels of customization. The first was their Core Customized shoe, which had 15-20 choices. The price point was around $200, but with the customization, “some customers designed some really ugly shoes. A midpoint was a simpler, faster model with 4-6 choices, that could be made in 2 weeks or less. The third was a more standard shoe that they called the “Sub-7”, which is one where they take an order, the product is customized onshore or near shore with some stock inventory and light customization and personalization. This is 7 days from click to delivery. Nike also realized their expertise wasn’t in doing quick turn manufacturing in country, so they have made an agreement with Flex around what they call their “Manufacturing Revolution” – which is focused on mass production of slightly customized shoes and manufacturing them near shore, which in this case is Mexico.

The Sub-7 body of work involves taking finished goods and component inventory, and pulling it together with some personalization. For example, one was the elite sock, where a printer is run over a tube sock, which prints a number, initials, colors and in 5 minutes is shipped in a box to a consumer. A sock that sells for $20 now goes for $35. These proof of concepts turned into a broader scaled up project with Flex.

This is considered the “bottom of the pyramid” as it appeals to the broadest population, and is the lowest cost. There are a limited number of people for the mid-tier and the pyramid peak which is the core customized product. Most people can’t decide around 20 choices, and were designing really ugly products! By creating it more easily, with fewer options, teams can now buy shoes with names and numbers on them, hats, shirts, socks, all through Nike.com and outfit an entire team relatively cheaply. And it is selling exceptionally well.

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