Supply Chain Brain

Cost vs. Waste: Which
Should You Reduce?

Eliminating waste is much more likely to free up

working capital that is so difficult to come by in a

recession, says Joseph DeSantis, senior director of

supply chain at Office Depot.

The pressure to watch expenses is enormous right now, DeSantis acknowledges, but he warns that cost-cutting your way to extra cash can have disastrous effects. In the event you do starting whacking away at costs, you must first understand the impact that will have on your customers.

Supplies are a perfect example, says DeSantis. Attacking the expense of your packaging may make sense on one level, but reducing the proper corrugate strength of your products, say, can have terribly negative effects in the form of damaged goods, lost sales and irritated customers.

“What’s the value-add [of your cost cutting] in the eyes of your consumers?” asks De Santis, who clearly thinks you need to attack waste. He says you need to pay attention to the so-called seven deadly supply chain wastes: transportation, overproduction, motion, inventory, space, errors and delay. They are fat with wasted money and need to be slimmed down.

He says an orderly assessment and plan of attack is advised. Consider this 7-step problem solving technique: define and identify the problem; analyze it; identify possible solutions; select the best solutions; evaluate them; develop an action plan; then implement the solution.

None of this happens overnight or even relatively quickly, he says. It requires a a culture change among all associates in one’s organization. It’s process-based and built on kaizen events.

“There is no home run to fix everything now,” De Santis says. “It’s small and incremental.”

Moreover, the job is never done. The cliché is that it’s a journey without a destination. “You want to pursue perfection knowing it’s unattainable.”

So, how do you know you’ve succeeded? A happy customer is a pretty good clue.

To view this video interview in its entirety, visit www.SupplyChainBrain.com.

Consolidations, Regulations
Impact Pharma Supply Chain

Consolidations in the pharmaceutical industry in

recent years, both at the manufacturer and

wholesale levels, have led to changes in the distri-

bution of drugs and other medical products, says

Bob Douglass, director of contract manufactur-

ing and logistics at Abbott Laboratories.

“The pharmaceutical distribution model basically changed in late 1980s and early

1990s in that most large pharma companies started selling their products through the three major drug wholesalers— Cardinal Health Inc.,

McKesson Corp. and

AmerisourceBergen,”

Douglass says. “This took daily volume of 16,000 to 18,000 orders from individual pharmacies down to a significantly lower number from the three major wholesalers, but with a much broader base. The wholesalers essentially took over the distribution to those local pharmacies.” Today, 70 percent to 80 percent of orders to pharmaceutical manufacturers are from the three wholesalers, Douglass estimates, with the remainder being from hospitals and some smaller pharmacies.

Consolidations also have changed the landscape of pharmaceutical manufacturers. Douglass experienced the effects of this first-hand when his former company, Kos Pharmaceuticals, was acquired by Abbott Labs in 2006. Kos had outsourced its distribution to a third-party logistics provider but Abbott managed its distribution internally. “When our supply chains were merged we also transitioned from a 3PL model to an internal model, which was a major change for us,” Douglass says. The company realized economies of scale by merging the supply chains, he notes.

Before the merger, Kos had piloted a product serialization program with Cardinal Health using radio frequency identification. While this and other pilots have provided useful information, Douglass says the industry is still struggling with the question of RFID adoption. “I think that RFID will be adopted eventually, but the lack of standardization of regulations is probably the biggest impediment.”