Download Agenda - MIT CTL

Improving Supply Chain
Agility of a Medical Device
Manufacturer
Authors: Xinye Bai and Yaniv Rosenberg
Advisor: Dr. Daniel Steeneck
MIT SCM Research Fest
May 21, 2015
Agenda
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Introduction
Motivation
Instruments Supply Chain
Analysis findings
Results - What hinders the Agility?
Recommendations
The Sponsor Company
• Johnson & Johnson (J&J)
– Global healthcare company divided into three
sectors: Consumer Products, Pharmaceutical
and Medical Devices & Diagnostics
– 2014 Annual sales of $74.3b
• Depuy Orthopaedics, Inc., a franchise of
J&J, manufactures orthopedic surgical
implants.
Consumer,
$14.5
MD&D,
$27.5
Pharmaceuticals,
$32.3
Motivation
Surgical instrument SKU proliferation – 12,000
Long lead time from suppliers – 10 weeks
Short Lead Time to distributors – 48 hours
Inaccurate forecast – MAPE = 65%
High inventory levels, Costs – 5 times the annual cycle
$$$
Supplier Strategies
Distribution Strategies
Inventory Strategies
Agile Supply Chain
Short Lead Times
Low inventory
Fast Response
Agility – Definition
The ability to quickly respond to customers’ dynamic
demand while keeping inventory levels and cost low.
Virtual
Demand
Sensitive
Agile
Supply
Chain
Network
Based
Process
Integration
Instrument Supply Chain
Information Flow
Material Flow
Problem / Opportunity Statement
Current Situations
Lead time
Inventory
Cost
Symptoms
Goal
Average 8-12
weeks
$250 Million
65% SKUs >one
year of inventory
8,000
7,000
6,000
Backorders
17% of slow mover
34% of fast mover
5,000
34
4,000
3,000
2,000
1,000
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Slow Moving SKUs
Fast Moving SKUs
7
Instrument Supply Chain
Manufacturing Stage
8
Key Findings: Long Lead Time on Manufacturing process
10 Components
……
Order
Schedule
Setup
1 Day -5 Week
Assemble
Manufacture
1 Day -10 Week
• Capacity constraints
• SKU manufacturing knowledge barrier
• Minimum of quantity (MOQ) requirements
9
Finding: Ordering
Discrete Purchase Order: Orders are
based on need. Lead time not in
contract.
Vendor Management Inventory (VMI)
(70% of SKUs): Annual order. Forecast
and current inventory levels are shared.
• DePuy don’t know when they receive the products.
• Suppliers don’t have commitment from DePuy on future
orders, can’t plan allocate capacity .
10
Instrument Supply Chain
Planning Stage
11
Finding: Order Management
PO and VMI are not Well Managed:
VMI conditions not enforced. Order strategy is not aligned with SKU
demand.
Monthly Orders
450
400
350
300
250
200
150
100
50
0
0-5
5-10
10-20
VMI Order
20-50
Discrete PO
50-100
100-200
Finding: Inaccurate Forecast
250,000
Actual vs. Forecast
200,000
Over forecasting
150,000
100,000
Sum of Actual
Sum of Forecast
50,000
-
4/1/2014
5/1/2014
6/1/2014
MIT SCM ResearchFest
7/1/2014
May 22, 2014
8/1/2014
13
Finding: Data Barrier
No history data: New Products
accounts for 50% budget
2015 INSTRUMENTS BUDGET
Legacy
15%
Others(cust
om)
1%
New
Product
47%
Converssio
n
19%
Full Set
Orders
18%
Hard to Predict: 77% of 12,000
SKUs are legacy products.
77% SKUs
Findings – Ordering Practices
Back Order
8,000
17%
7,000
6,000
• Reuse of existing POs – cannot capture lead time.
• Delay of orders to reach MOQ/discount thresholds.
5,000
4,000
34%
3,000
2,000
1,000
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Slow
Moving
SKUs
MIT SCM ResearchFest
May 22, 2014
Fast
Moving
SKUs
15
Instrument Supply Chain
Demand Stage
16
Finding: High demand variation
High share of slow movers: 59% of
SKUs are <5 units per month
Orders pattern
uncertainty: orders flow in a
volatile manner
Information Barrier: No Communications between Distributors;
No visibility to inventory at distributors’ warehouses.
Instrument Supply Chain
Inventory and Delivery Stage
18
Finding: Drivers of High Levels of Inventory
65% of the SKUs are with more than a
year worth of supply
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Inaccurate forecast
Minimum Order Quantity (MOQ)required by suppliers
Lack of transshipment between distributors
Lack of visibility across the supply chain
Long lead time
19
Results – What Hinders Agility?
Information
Barriers
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No visibility across partners
•
No standard inventory management
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Communications
Virtual
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No sales feedback
•
Inaccurate forecast
Agile
Supply
Chain
Demand
Sensitive
Process
Integration
•
Volatile order flow
•
VMI not managed
Network
Based
•
No knowledge sharing
•
No inventory sharing
Material Flow
Barriers
Recommendations
Distribution Channel
DePuy Practices
Suppliers Management
Recommendations
Distribution Channel
DePuy Practices
Suppliers Management
Recommendations
Distribution Channel
DePuy Practices
Suppliers Management
A. Build a Database of inventory at Distributors
D1
D2
D3
D4
?
?
?
?
DePuy
Recommendations
Distribution Channel
DePuy Practices
Suppliers Management
A. Build a Database of inventory at Distributors
Benefits
A. Close monitor of real time usage.
B. Advice Distributors on inventory management – orchestrate the supply chain.
C. Validate orders
D1
D2
D3
D4
Suppliers
 Extend the visibility to all players
DePuy
Recommendations
Distribution Channel
DePuy Practices
Suppliers Management
A. Build a Database of inventory at Distributors
B. Transshipment – Replenishments between distributors
I.
One network vs. independent warehouses.
Benefits:
1. Second source of supply
D1
D2
D3
D4
2. Reduced safety stock
3. Fast response, high LOS
4. Less inventory
DePuy
Yale T. Herer, Michal Tzur, Enver Yucesan (2002)
Recommendations
Distribution Channel
DePuy Practices
Suppliers Management
A. Build a Database of inventory at Distributors
B. Transshipment – Replenishments between distributors
C. Slow movers managed by DePuy
Benefit:
D1
1.
D2
D3
No need for 37 safety stocks
of 7,000 instruments.
DePuy
D4
Recommendations
Distribution Channel
DePuy Practices
Suppliers Management
A. Build
Build aaDatabase
Databaseofofinventory
inventory at Distributors
B. Transshipment
Replenishments between
B.
– Replenishments between distributors
distributors
C. Slow movers managed by DePuy
C. Slow movers managed by
Benefit:
DePuy
1.
D1
D2
D3
No need for 37 safety stocks
of 7,000 instruments.
DePuy
D4
Recommendations
Distribution Channel
DePuy Practices
A. Build a Database of inventory
B. Replenishments between
distributors
C. Slow movers managed by
DePuy
D1
D2
D3
DePuy
D4
Suppliers Management
A. Order instruments in
product families
•
Suppliers to identify
families to minimize setup
times
Benefit:
I.
Reducing MOQ, will be
applied at the group level
II. Better forecast
III. Lower inventory levels
Recommendations
Distribution Channel
DePuy Practices
A. Build a Database of inventory
B. Replenishments between
distributors
C. Slow movers managed by
DePuy
D1
D2
D3
DePuy
D4
Suppliers Management
A. Order instruments in
product families
Recommendations
Distribution Channel
DePuy Practices
A. Build a Database of inventory
B. Replenishments between
distributors
C. Slow movers managed by
A. Order instruments in
product families
B. Dedicated capacity
Benefits:
I.
Gain back in-house flexibilities
II. Reduced lead time
•
DePuy
D1
Suppliers Management
III.
D2
D3
DePuy
D4
No capacity competition
Lower unit cost
How?
I.
Commitment on minimum
order
II. Smooth ordering flow
Recommendations
Distribution Channel
DePuy Practices
A. Build a Database of inventory
B. Replenishments between
distributors
C. Slow movers managed by
DePuy
D1
D2
D3
DePuy
D4
Suppliers Management
A. Order instruments in
product families
B. Dedicated capacity
C. Work with suppliers to
eliminate/reduce MOQ
D. Avoid working with one
instrument suppliers
Recommendations
Distribution Channel
DePuy Practices
A. Build a Database of inventory
B. Replenishments between
distributors
C. Slow movers managed by
DePuy
D1
D2
D3
DePuy
D4
Suppliers Management
A.
instruments
A. Order
Order instruments
in in
product families
product families
B. Dedicated capacity
B.
Dedicated capacity
Benefits:
I.
Gain back in-house
flexibilities
C. Eliminate/Reduce
MOQ
II. Reduced lead time
capacity competition
D. •AvoidNoworking
with one
III. Lower unit cost (15%)
instrument supplier
How?
I.
Commitment on minimum
order
II. Smooth ordering flow
Recommendations
Distribution Channel
DePuy Practices
A. Build a Database of inventory
B. Replenishments between
C. Slow movers managed by
DePuy
D2
D3
DePuy
•
D4
A. Order instruments in
12,000 SKUs only in joint
reconstruction. 14,000 in spine.
distributors
D1
A. SKU Rationalization
Suppliers Management
Benefits:
I.
Reduced complexity
II. Improved forecast
III. Lower inventory
How?
I.
Incentivize designers for
fewer new instruments.
II. End of life process – charge
for ‘exotic’ instruments
product families
B. Dedicated capacity
C.
Eliminate/Reduce MOQ
D. Avoid working with one
instrument supplier
Recommendations
Distribution Channel
DePuy Practices
A. Build a Database of inventory
A. SKU Rationalization
B. Replenishments between
B. Better management of
distributors
C. Slow movers managed by
C.
DePuy
D2
D3
D4
Consider relaxing LOS when
C.
servicing distributors
D. Avoid working with one
Manage legacy and base
instruments differently
DePuy
product families
B. Dedicated capacity
opening PO
E.
A. Order instruments in
instruments under VMI
D. Simplify the process of
D1
Suppliers Management
Eliminate/Reduce MOQ
instrument supplier
Questions?
MIT SCM ResearchFest
May 21, 2015
35