Medical Device Supply Chain: An Analysis of the Supply Chain Metrics That Matter

Embracing Supply Chain

Metrics That Matter

Supply Chain Insights LLC Copyright © 2016, p. 2

Disclaimer: I am a Skeptic


A Social Scientist


A Fortune-teller of Sorts….


I Write for the Supply Chain Leader


Delivering Open Content To The Market

Today’s Supply Chain Is

Stuck


Descriptors Used by Leaders


Today, the healthcare supply chain is focused on

efficient sickness. With a focus on affordable care,

there is a movement towards health and wellness.

Who is the customer? Physician? Patient?

Current State


Long Term View

Industry Snapshots (2006-2013)

Industry

Year –over-

Year Revenue

Growth

Operating

Margin

Inventory

Turns

Cash-to-

Cash Cycle

Revenue per

Employee

(K$)

SG&A

Ratio

Retail Apparel Industry 18%

39%

0.39

27%

05

05%

68

26%

325

18%

27%

05%

Apparel Manufacturing Industry 14%

82%

0.12

32%

05

68%

150

08%

400

355%

27%

63%

Mass Retail Industry 09%

50%

0.06

20%

06

06%

03

148%

350

48%

23%

6%

Beverage Industry 09%

61%

0.19

16%

02

04%

53

46%

512

NC

24%

16%

Pharmaceutical Industry 08%

47%

0.23

29%

03

16%

155

47%

572

32%

27%

08%

Chemical Industry 08%

45%

0.10

10%

06

04%

87

23%

557

23%

14%

27%

Medical Device Industry 06%

38%

0.14

32%

02

13%

206

16%

351

12%

34%

04%

Grocery Retail Industry 06%

31%

0.03

37%

17

01%

10

50%

405

54%

14%

06%

Consumer Packaged Goods05%

25%

0.14

73%

08

482%

72

17%

333

14%

26%

09%

Food Industry 05%

55%

0.10

19%

07

17%

40

04%

534

55%

20%

18%

Source: Supply Chain Insights LLC, Corporate Annual Reports 2006-2013

Industry Average comprised of public companies (combined food & beverage industry: NAICS 3112% where % is any number from 0-9, 311320, 311520, 311821,

311941 & 312111), (chemical: NAICS 325188 & 325998), (consumer packaged goods: NAICS 3256% where % is any number from 0-9), (medical device

industry: NAICS 339112), (pharmaceutical industry: NAICS 325412) reporting in One Source with 20123annual sales greater than $1billion

NC=no change


Today’s Supply Chain Is Stuck


What Is a Supply Chain?

Drivers of Change


State of Healthcare


Within the Hospital


Supply Chain Risk

5 Fallacies


Fallacy #1 : Organizations Can Align

Supply Chain as a Function


Focus on Total Supply Chain Costs


Manage the Costs Like a Decathlete


Fallacy #2: A Project-based Focus


Fallacy #3: The Efficient Supply Chain is the Most

Effective


Bullwhip Effect


Fallacy #4: We Have Best Practices


Fallacy #5: Integration is the Answer Beyond the

Firewall


Confidence in ERP to Build Business Networks


Gaps in Supply Chain Visibility


Collaboration: The Right Stuff

Improving the Metrics

That Matter


What We Expected


A Supply Chain

is a Complex System

with Complex

Processes

with Increasing

Complexity

What We Learned….


The Supply Chain Effective Frontier


Correlations to Market Capitalization


Orbit Chart: Wal-Mart(Inventory Turns and Operating Margin)


Orbit Chart: Apple (Inventory Turns and Operating Margin)


Orbit Charts: Dow Chemical Company


Measuring Supply Chain Improvement

Overall Ranking per Company

• Balance: Return on Invested Capital & Revenue Growth Vector Trajectory (30%)

• Strength: Inventory Turns & Operating Margin Vector Trajectory (30% of score)

• Resiliency: Inventory Turns & Operating Margin Mean Distance (30%)

𝑺𝒖𝒑𝒑𝒍𝒚 𝑪𝒉𝒂𝒊𝒏 𝑰𝒏𝒅𝒆𝒙 =𝟏

𝟑𝑩𝒂𝒍𝒂𝒏𝒄𝒆 𝑭𝒂𝒄𝒕𝒐𝒓 +

𝟏

𝟑𝑺𝒕𝒓𝒆𝒏𝒈𝒕𝒉 𝑭𝒂𝒄𝒕𝒐𝒓 +

𝟏

𝟑𝑹𝒆𝒔𝒊𝒍𝒊𝒆𝒏𝒄𝒚 𝑭𝒂𝒄𝒕𝒐𝒓


Source: Supply Chain Insights LLC, Corporate Annual Reports 2006-2014

2006

4.0

5.0

6.0

7.0

8.0

9.0

10.0

-0.10 0.00 0.10 0.20 0.30 0.40 0.50 0.60

Operating Margin

Eli Lilly and Company Novo Nordisk

2014NVO

0.31, 6.48

2014

2006

Best Scenario

LLY

0.24, 8.30

Average (Operating Margin, Inventory Turns)

Inven

tory

Tu

rns

Novo Nordisk Making Progress


Path of Medical Device Supply Chains


Pharmaceutical


Medical Device


Supply Chains to Admire Methodology

PerformanceBeats the industry

average for operating

margin, inventory turns

and ROIC for 2006-

2014 and 2009-2014

ImprovementRanks above peer

group average on

The Supply Chain

Index for 2006-

2014 or 2009-2014

+


Supply Chains to Admire


Change the Metrics Focus


• Which metrics matter?

– Growth, operating margin, inventory turns, ROIC, customer

service (in the eyes of the customer)

• How do we get unstuck?

– Focus cross-functionally on a balanced portfolio. Bonus

employees against the portfolio.

– Augment with functional metrics focused on improving

RELIABILITY.

• What are the functional reliability metrics?

– Examples include: Forecasting, first pass yield, OEE, on-time

delivery, orders shipped complete, hands-free orders, schedule

attainment, safety metrics, employee turnover

Insights


Our Insights


About Lora Cecere

• Founder of Supply Chain Insights

• “LinkedIn Influencer”

• Guest blog for Forbes

• Author of 4 books: Bricks Matter (2012), Shaman’s Journal (2014),

Supply Chain Metrics That Matter (2014), Shaman’s Journal (2015)

• Partner at Altimeter Group (leader in open research)

• 7 years of Management Experience leading Analyst Teams at Gartner

and AMR Research

• 8 years Experience in Marketing and Selling Supply Chain Software at

Descartes Systems Group and Manugistics (now JDA)

• 15 Years Leading teams in Manufacturing and Distribution operations for

Clorox, Kraft/General Foods, Nestle/Dreyers Grand Ice Cream and

Procter & Gamble.

Contact Information: • Email: [email protected]

• Blog: www.supplychainshaman.com (15,000 pageviews/month)

• Forbes: www.forbes.com/sites/loracecere

• Twitter: twitter.com/lcecere (6,800 followers)

• LinkedIn: www.linkedin.com/in/loracecere (76,724 followers)

• LinkedIn Influencer: www.linkedin.com/today/author/446631


Definition:

Metric Equations

Source: Supply Chain Insights LLC, Corporate Annual Reports (2000-2014)

Metric EquationsCash-to-Cash Cycles = (Avg. Inventory/COGS + Avg. Accounts Receivable/Sales - Avg. Accounts

Payable/Purchases)*91.5

Days of Inventory = (Average Inventory/COGS)*91.5

Days of Payables = (Average Accounts Payables/Purchases)*91.5

Days of Receivables = (Average Accounts Receivable/Sales)*91.5

Inventory Turns = (Cost of Sales/Average Inventory)

Operating Margin = (Operating Income/Revenue)

Return on Invested Capital = (Net Income/Invested Capital)

Return on Net Assets = (Trailing 12 Month Net Income/Total Assets from the most recent quarter)

Revenue Growth = (Quarterly Revenuei/Quarterly Revenuei-4 -1)

Revenue per Employees = (Revenue/Average Annual Employee)

Medical Device Supply Chain: An Analysis of the Supply Chain Metrics That Matter

Healthcare

Transcript of Medical Device Supply Chain: An Analysis of the Supply Chain Metrics That Matter