medical device supply chain: an analysis of the supply chain metrics that matter

Embracing Supply Chain

Metrics That Matter

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

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

Cash-to-

Cash Cycle

Revenue per

Employee

Retail Apparel Industry 18%

Apparel Manufacturing Industry 14%

Mass Retail Industry 09%

Beverage Industry 09%

Pharmaceutical Industry 08%

Chemical Industry 08%

Medical Device Industry 06%

Grocery Retail Industry 06%

Consumer Packaged Goods05%

Food Industry 05%

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 +

𝟑𝑺𝒕𝒓𝒆𝒏𝒈𝒕𝒉 𝑭𝒂𝒄𝒕𝒐𝒓 +

𝟑𝑹𝒆𝒔𝒊𝒍𝒊𝒆𝒏𝒄𝒚 𝑭𝒂𝒄𝒕𝒐𝒓

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

-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

Best Scenario

0.24, 8.30

Average (Operating Margin, Inventory Turns)

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: lora.cecere@supplychaininsights.com

• 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)

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