Creating Supply Chain Excellence

The Tompkins International Blog

Pharmaceutical and Healthcare Supply Chains
How to Maximize a Shrinking Margin in 2016

February 11, 2016

By Brian Hudock Pharmaceutical and Healthcare Supply Chains
Partner, Tompkins International

In 2015 I predicted that the Healthcare industry was finally sharpening its focus on profitability and efficiency. While I was writing this Walgreens moved on Rite-Aid and further consolidated the Retail Pharmacy market, but more importantly strengthened their negotiating leverage on price breaks. If the cost of the supply chain from sourcing to production to distribution was not a priority, it just became critical to profit margins and customer service.

Key Drivers for 2016 Supply Chain Leaders

Like most other industry supply chain leaders, pharmaceutical industry leaders will complete their transition from the department leaders to the executive boardroom, but with the added quality, compliance, and regulatory oversight, across all segments of the healthcare market from medical devices to biotech. The industry leaders who have been there for years fully understand this brings rewards, as well as higher expectations.  

The question is how lean and efficient can you make your organization?

Transformation of the supply chain starts with the understanding of where costs originate. This is closely followed by understanding the true flow of materials from sourcing decisions to customer usage of the product. In healthcare, risk and product security must always be vetted to insure product traceability and integrity at every step. In supply chain, the focus will continue to be on control and key spend areas including:

  • Key Supplier Relationships
  • Inventory Management
  • Transportation
  • Warehousing and Distribution
  • Track & Trace Compliance

In order to achieve this, supply chain leadership will focus on key supplier relationships and improving forecast accuracy, inventory levels from raw materials through finished products in the entire supply chain, reducing expedited shipping to control critical moves, leveraging third party partners for distribution capacity and core competency, as well as leveraging their compliance systems.

  • Key Supplier Relationships: Accurate forecasts drive a high percentage of obsolete API’s and raw materials, historically the value of lost production or missed sales hid this waste. However, as materials become more specialized and more costly and sell margins erode, this makes sourcing a critical part of supply chain management and improvement targets. The supply chain will continue to take control of sourcing, influence forecasting, and in building supplier relationship and owning supplier communications.
  • Inventory Management: Building on key supplier relationships, the improved planning from forecasting and tighter supplier integration will facilitate lower stock levels and more rapid response to changes, also allowing for long-term reduction in finished product levels. In the short term, improved “market level inventory” visibility will become critical to minimize field expiration of product, returns, and overproduction based upon “internal DC only” visibility to global inventory levels.
  • Transportation: Dedicated partners for delivery who can provide secure, time sensitive movement around the globe have been a focus for years. In 2016, mode selection and “expedite” usage will continue to be challenged as forecasting and planning variability is reduced. Again, the ability to leverage improving 3PL partner capabilities will expand in transportation optimization.
  • Warehouse and Distribution: 3PL partners have proven their ability to manage many business functions and meet compliance demands across healthcare segments. In many cases, better and more efficiently than healthcare manufacturers. This trend to outsource non-core competencies will continue, but will better 3PL competition in the market, cost pressures and service demands on 3PLs will increase, and the top 3PLs will step up to meet the industry needs.
  • Track & Trace Compliance: The deadline is looming and the industry is a mix of leaders and laggards. Many will turn to 3PLs to gain the required expertise and systems on the warehouse and distribution side. Full integration with manufacturing and co-manufactures is critical to address. This will be a focus of those lagging in 2016 as the probability of additional extensions is fading.

Even with all the pressures facing the supply chain with cost optimization and compliance issues, the increased use of 3PL partners, and diversity of organizations, supply chain organizations will continue to grow and become core competencies for many organizations.

Challenging times will create stronger supply chains, supply chain leaders, and further prove the value of internal expertise. The ability to balance internal tools, infrastructure, build supplier and customer trust relationships, and leverage external 3PL organizations to build local and global networks that can adapt quickly, will accelerate for everyone this year. What you learn in 2016 and the foundation you establish will likely determine if you plan for change or if you react to daily challenges while moving forward.

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The Importance of Network Design
to Consumer Packaged Goods (CPG) Company Supply Chains

February 4, 2016

By Bruce Tompkinsconsumer packaged goods (CPG)
Partner, Tompkins International

It is important to recognize that a Consumer Packed Goods (CPG) company’s network determines its supply chain efficiency and customer satisfaction. Designing an optimal supply chain network means the network must be able to meet the long‐term strategic objectives of the company. Most business units or functional areas within a company are impacted by network design efforts therefore the involvement of key stakeholders is imperative.

When designing a supply chain the following steps must be followed:

  1. Define the business objectives
  2. The scope must be defined
  3. The form of analyses to be done must be determined
  4. Determine what tools will be used
  5. Finally, work completion and the best design

Once the path forward is determined and the design approach has been completed correctly, the business will reap many significant benefits.

Business and operations strategy—the formulation of strategies that drive investment, operations, and competitive positioning—is where all value begins. There are five strategic questions that need to be answered:

  1. What business is the CPG company in and why?
  2. How should value be added to the business?
  3. What are the target markets?
  4. What are the products and why will customers buy from the CPG company?
  5. What capabilities are needed to assure that the company adds value and differentiates?

Most CPG companies develop strategies for target markets and products 3 and 4. Some at least consider 1 and 2. Few companies resolve 5 effectively. This is generally because operations strategies are not developed or implemented with the same scenario plan or rigor that is given to the more often seemingly interesting issues of markets and products. The alignment of business and operations strategies is often weak or non-existent. Mission and vision statements, plans, goals, objectives, and performance measures while important for driving execution, most often do not ensure that capabilities will be built for scenarios from the business strategies.

Companies do not always have carefully developed alternatives for customer demand, new channels, competition, supply risks, and product development. Achieving clear and sustained alignment between operations execution and the plans derived from business strategies is challenging. Leadership understands the complexities involved, but are concerned that 90% of business strategies are not implemented as intended. Leadership is beginning to understand that supply chains are about more than logistics regarding the buying and selling of goods, supply chains are about competitive differentiation and profitable business growth.

Leadership is concerned with alignment and how execution can best be used as an enabler of business strategies rather than an inhibitor.

Strategy Before Structure: Smart companies are realizing that the first step to any network design is to develop the right operations strategy that supports the business strategy. There is no substitute or shortcut. The operations strategy specifies how operations will meet the service needs of target markets, which capabilities distinguish the business, and delivers the operational requirements of the defined value proposition. The operations strategy defines the network capabilities that are necessary to realize the business strategy. The capabilities are the operational elements of infrastructure, business processes, organization, technologies, and solutions that can deliver the specified services. The operations strategy is the starting place.

CPG companies are focusing their efforts on network design like never before to raise the bar of their supply chain performance and ability to support the flexibility needed in the business. Few other supply chain initiatives offer the kind of improvement potential that a network effort can bring. More supply chain leaders in CPG companies are intent on optimizing their network. The necessity of having a supply chain strategy to help frame the network design is becoming understood and executed by a growing number of CPG companies.

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Capturing Business Value While Meeting Regulatory Requirements

January 28, 2016

By Don AndersonCapturing Business Value While Meeting Regulatory Requirements
Vice President Transportation Services, Tompkins International

An enterprise-wide global trade strategy increases supply chain cost and service performance for all trading partners and enables importers and exporters to comply with mandatory trade and security regulations. Companies that prioritize best-in-class global supply chain trade practices, maintain effective global transport / trade organizations and employ enabling technologies are the best positioned to capture the economic and brand benefits available in growing and changing global markets.

Research analytics and business trends centering on global supply chain management consistently point to the value of effective global trade planning and execution. In a recent study by Gartner and Amber Road of US importers and exporters improved import compliance was found to reduce US customs entry-related costs as much as 30%, more robust supply chain visibility improved speed to cash by 4-5 days, fully leveraging available free trade agreements reduced the cost of goods sold by up to 2% – 3%, and more effective management of global transportation and logistics functions resulted in savings of 5% or more. Individual client supply chain cost / performance improvement engagements confirm these types of business values alongside an ever increasing regulatory focus on the security of import flow of goods. High performing global supply chains typically exhibit many common traits, most notably:

Employ smart-sourcing practices and strategies. Taking into account total landed costs of goods, allowing for sourcing flexibility, and leveraging available trading bloc agreements and emerging market sources expands the options an importer has in terms of supply partners and the associated relationship of cost / quality / availability of goods. Leading supply chain practitioners consider global sourcing options as early as product design and specification stages to achieve the highest quality at the lowest landed cost including selection of the most trade-advantageous countries of origin, managing transportation and trade related costs in the import valuation of goods, and consideration of the applicability of strategic programs such as when and where goods are finished and first imported into the country of sale.

Utilize technology to optimize trade planning and execution. The prominence of global trade technology pacts in 2015 reinforces the critical role these technologies play in managing worldwide supply chain performance; the acquisition of ecVision by Amber Road, Descartes’ acquisitions of MK Data and CustomsInfo (the latter in 2014), and Infor’s purchase of GTNexus all attest to the growing demand by global enterprises for technologies and tools that help achieve more seamless flows of goods among trading partners, across borders, and through import / export countries’ regulatory agencies. In a recent study by Tompkins Supply Chain Consortium 52% of responding companies implemented trade software and tools in order to better control total landed costs while 67% of respondents employ global trade and logistics software and tools to improve the coordination of enterprise transportation, customer service, and operations planning with enterprise trade management. Complying with US and global trade agency security requirements was the most-cited reason (74% of respondents) for utilizing supply chain trade technologies to meet regulatory requirements and protect brand and company reputation.

Surpass the basics of regulatory compliance. Leading global supply chain owners understand the importance of protecting their right to easily move goods across international borders and they likewise understand the commercial value that is inherently part of compliance excellence. This is especially true today as new instances of global political instability and changing trade alliances drive US and other regulatory agencies to more closely monitor trade compliance. High on the list of must-have proficiencies within a global supply chain trade strategy are accurate commodity HS classifications and product valuations, adherence to mandatory import / export security filing protocols, broad use of import / export administrative efficiency improvement programs available in most top tier trading countries, and optimal use of available preferential trade programs. In addition to preserving import / export rights, those companies who excel in meeting regulatory requirements capture parallel commercial value in reduced duties, lower regulatory agency / entry costs, and improved end to end transportation performance.

In the coming business quarters expect to see increased focus on trade security and more rigorous regulatory compliance by commercial trading partners as well as at global regulatory enforcement agencies. Both in terms of effectively managing global supply chain transportation / trade costs and meeting regulatory demands, the visionary global traders will re-double efforts and initiatives to strengthen their global trade strategy thereby maintaining high levels of trading partner and customer satisfaction. Strengthened strategies will include smart sourcing policies and practices, the use of needs-based technologies to improve strategic and tactical decision-making, and heightened adherence to regulatory demands that will together yield new benefits to all parties along the global supply chain.

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The Titan Challenge

January 25, 2016

By Jim TompkinsOmnichannel, Customer Centricity & Crossborder
CEO, Tompkins International

We’ve discussed the Titans in terms of the individual categories of Omnichannel, Customer Centricity and Cross Border Commerce. Now it is time to bring it all together in a list we call “The Titan Challenge” – combined performance in all three categories.

The opportunity in crossborder commerce changed dramatically with little notice when Alibaba initiated Tmall Global in 2014, after the Chinese government established free trade zones late the previous year to ease the importation of individually addressed packages such as common in eCommerce. One well known success story is that of Costco who launched on Tmall in 2014 and were shocked when Singles Day revenue hit $3.5 million.

  1. Amazon – The online retailer, marketplace and 3PL services provider rides its first place ranking in customer centricity and second place in crossborder commerce to lead the Titan Challenge. We expect within the next few years Amazon to acquire a distressed major retailer at a bargain basement price and you will see them climbing the ranks of omnichannel retailers too.
  2. Alibaba – The behemoth of the largest eCommerce market in the world finishes second on the strength of their clear dominance in crossborder commerce. Expect more evidence of Alibaba’s global ambitions in 2016 and 2017.
  3. Costco – In a mild upset the popular warehouse club leverages its healthy omnichannel profit margins, great customer relationships and success on Tmall to edge out one of the Titans.
  4. Walmart – The retail giant is also a Titan for good reason. However, 2015 holiday results show they are not immune to the challenges facing all retailers in this “tech” industry.
  5. Apple – The most consistent performer in all out rankings.
  6. Nordstrom – Another consistent performer in our rankings and a number two finish in Customer Centricity.
  7. Starbucks – Earned this position with high ranking in Omnichannel and Customer Centricity, combined with a clear understanding that retail is now a “tech” industry.
  8. Sephora – Strong omnichannel execution and technology and now emphasizing Crossborder Commerce utilizing Borderfree.
  9. L. Bean – The hiring in 2015 of a Yihaodian executive as the new CEO demonstrates the firms commitment to the crossborder opportunity and the famous customer centric ethos cinches their position in the Titan Challenge.
  10. REI – A great app and the customer focus to execute their omnichannel strategy garners the final spot in the Titan Challenge.

Now it is time for you to “Respond to the Titans”. You need to be customer centric. You need a clear and executable omnichannel strategy. And you need to take advantage of the huge opportunity in crossborder commerce. I discuss the reasons why in my video “The Titans: Alibaba, Amazon & Walmart: Game Changing Strategies: Time For YOU To Respond”.

Omnichannel, Customer Centricity and Crossborder Commerce are not 3 distinct areas, but rather, parts of an integrated strategy addressing the opportunities and threats in the tech era of retail, as well as CPG, manufacturing, distributors and wholesalers, and logistics and transportation service providers. A NextGen supply chain will provide the infrastructure to help tie it all together.

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China’s Supply Chain

January 21, 2016

By Jim SerstadChina Supply Chain
Managing Director Asia, Tompkins International

The demand for increased efficiency in China distribution is driving some incremental improvements in supply chain. Growth is on the rise for domestic transportation, localized supply chain IT solutions are experiencing revenue growth, and the amount of automation installed in new facilities is on the rise. Changes are also happening in real estate and there is an increase amongst importing and exporting.

Change is very slow in domestic transportation, largely driven by the fact that the industry is so fragmented, meaning that there are no players with the mass required to enact widespread change. This is beginning to change as Alibaba becomes more active in logistics. The properties that Alibaba purchased before its IPO are now operating as warehouses and the investments they made in supply chain technology are being used with much of the traffic on TMall, the largest eCommerce platform

Locally developed IT solutions are becoming increasingly sophisticated and well-suited to China’s logistics market. Solutions have been developed, which in some cases rival the technologies available in more developed markets because of the need for tracking, temperature monitoring, etc.

Cold supply chain logistics continue to experience steady growth due to ongoing food safety concerns. With the new traceability regulations, companies find themselves having to provide evidence of measures being taken to monitor their food supply chain. The regulations are still not clear, so actual investment is minimal, but still presents opportunities for technologies which promise greater supply chain visibility.

The devaluation of the RMB in August of 2015 had an effect of encouraging investment in real estate in China. There is ample warehousing space, the overall industrial property market is somewhat soft due to weakness in manufacturing. However, logistics space in particular is still seeing rental increases and consistent uptake of newly developed properties.

As of 2015, the ASEAN Free Trade Agreement tariff rate has dropped to zero, meaning that China can import with no tariffs from eight other Southeast Asian countries. Now even goods sourced for local consumption are increasingly being sourced from Southeast Asia. Tariffs with Korea, due to the China-Korea free trade agreement, will begin dropping and will go to zero by 2025.

Due to changes taking place in China with logistics, real estate, and import & export, we will see a steady change in the supply chain. With the implementation of technology, increased warehousing space, and Free Trade Agreements increased efficiencies in supply chains are taking place

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  • All of the information in this blog is the result of Tompkins International's research of public information. There is no information presented that comes from any proprietary source. Tompkins International does not discuss information about their clients unless that information has been published.