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A Tour of Healthcare Supply Chain Innovation in Action

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According to a 2015 survey of hospital executives commissioned by Cardinal Health, services reimbursement followed closely by the increasingly higher costs of supplies are two of the biggest challenges facing these executives. Financial issues, drug shortages and efficiency of the overall organization follow as major concerns.

One can notice a common theme among hospital executives that are often directly related to lack of supply chain efficiencies.

A 2015 white paper, 10 Barriers to Effective Inventory Management, points to the continued need for addressing barriers to effective supply chain and inventory management in hospital settings.  This is especially important in operating room or cardiac catheterization settings where medical devices are expensive and inventory management policies often stem from individual physician or surgeon relationships with individual device manufacturers. Cardinal’s white paper cites one report as indicating that supply chain inefficiency, waste and lack of visibility result in a $5 billion in inefficiencies each year in the implantable device market alone.

In operating room settings, surgeons, scrub technicians, resource nurses or operating room managers assume responsibility for maintaining relationships with manufacturers of implantable devices. They do so to insure access to the latest technology and patient safety innovations as well as surgeon preferences for certain devices. In emergency surgery situations, adequate inventory takes on an all-important life and death dimension, one that must be supported by accurate data related to demand incidence.

These complex relationships often extend to rendering orders and managing inventory. The result can often lead to lack of visibility of existing inventory in terms of expired, obsolete or recalled devices. There are also miscommunications and emotion among clinicians and hospital procurement professionals as to inventory exposure and cost. This is an area that has long been fertile for improvements in inventory management, particularly in advanced methods of item-level tracking.

As a major healthcare products distributor for hospitals and health care providers, Cardinal Health is working with hospitals in availability of more innovative inventory management practices in this area.

In November, this author had the opportunity to visit the Cardinal Health Healthcare Supply Chain Innovation Lab located in Concord Massachusetts.  This is essentially an R&D facility dedicated to reducing waste in the health care supply chain for implantable devices utilizing an Internet of Things (IoT) item-level technology approach. The lab serves as a hub to explore innovative technology approaches such as smart sensors and near-field communications (NFC) in addressing healthcare supply chain product demand and supply inefficiencies.

At the conclusion of the tour and a comprehensive briefing from Jean-Claude Saghbini, Cardinal Vice President and GM for Inventory Management Solutions, this author was impressed.

My impressions stemmed not only from the leveraging of advanced technology to challenging healthcare focused inventory management process needs, but in the notion that healthcare supply chains as a whole, and we as healthcare consumers, can greatly benefit from the application of such technology.

Cardinal’s approach to inventory management is described as product agnostic and can include devices not distributed by Cardinal.  The initial focus on medical, orthopedic and implantable device inventory is obvious, in that this inventory is expensive and as noted above, there has been a long history of process inefficiency. While surgeons strive to be up-to-date with the latest in medical technology, their concerns should not be inventory and supply chain management.  That is the purview of hospital administration.

We observed RFID enabled storage cabinets where inventory is RFID tagged by either suppliers or hospital teams. Storage cabinets constantly monitor item-level inventory including serialized devices.  An operating room nurse or physician removes an item from the cabinet and inventory status is immediately adjusted. Within the OR setting, a nurse scans a bar code affixed to the patient and the inventory transaction is  RFID Smart Cabinets for Hospitals automatically updated to include association with a patient.  If the item withdrawn is not accompanied by a patient scan, an inventory alert is generated.

Cabinets monitor and report inventory balances at prescribed intervals and can automatically generate replenishment orders when inventories drop to prescribed levels. If one particular hospital does not have a particular implantable device on-hand, a quick search of other networked cabinets quickly indicates which nearby or healthcare network hospitals have the specific device. The process works similarly for consignment inventory placed adjacent to operating rooms, helping hospital administration to control premium inventory costs.

Analytics associated with this automated process that are available to hospital administrators include open and completed inventory withdrawals, device consumption patterns to calculate replenishment thresholds, inventory nearing shelf-life expiration, inventory subject to product recall, or data needed to ascertain opportunities for specific device standardization.   RFID tag 250-87

Physicians and care givers can also take advantage of embedded analytics in searching for specific devices implanted in patients by serial number, or in queries related to historic procedures, or proper item stocking levels based on actual consumption data.

The value-proposition of Cardinal’s approach is that technology allows care givers more opportunities to better concentrate on patient care and patient outcomes, removing the administrative burden of inventory management. Hospital administrators and procurement team’s in-turn gain valuable efficiencies and inventory knowledge to help in improving overall efficiencies.

This author remains convinced that healthcare product suppliers, product distributors, hospitals and caregivers must continue to come together to collaboratively address the chronic inefficiencies of today’s healthcare supply chains. The visit to Cardinal’s Healthcare Supply Chain Innovation Lab and the exchange of ideas with staff convinces me that today’s advanced supply chain item-level and IoT focused technology can and will provide significant strides in overcoming such inefficiencies.

As our blog nameplate connotes, supply chains do matter in many industry settings and in healthcare supply chains, the opportunities for increased efficiencies and process innovation are vast.

Bob Ferrari


JDA Software Announces Next Step in its Collaboration with Google

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This past April, this Editor attended JDA Software’s annual Focus customer conference.  Among the notable impressions we walked away with was the announcement of a new partnership with Google and the Google Cloud Platform as a cloud services platform to leverage technology innovation.

Today, as a prelude to next week’s National Retail Federation (NRF) annual conference, JDA announced another step in its relationship and collaboration with Google, one that should capture the interest of retailers.

My takeaway from Focus 2015 held in April was that JDA was investing heavily in “true cloud” technology, something one could not report from previous Focus events. I walked away with a distinct impression that the Google partnership had the potential to lead to exciting new applications of information discovery and leveraged use of more predictive analytics across the end-to-end supply chain.

Google’s strengths are in the indexing of large volumes of data and information, in large scale parallel processing and in infinite scale computing.  One could consider Google to be a late entrant to the cloud platform environment with the likes of Amazon Web Services (AWS), IBM, Microsoft and Oracle already having a market presence.  But then again, late entrants have the benefit of learning from others and have the zeal to want to make a market statement, which Google has never shied away from.  To this author’s knowledge, this is also Google’s first presence in retail and supply chain business process needs.

Today’s announcement is that JDA’s retail planning application “Retail me” will be the first application jointly developed by JDA Labs and Google. Initial functionality is focused in retail assortment planning across all selling channels.  JDA’s describes the data design principle as more focused on product and customer as contrasted with a traditional planning focus on individual stores.

Retail assortment planning has often been anchored in the principle that the retailer plans and decides on the specific merchandise that consumers will buy, while merchandising and supply chain teams insure that inventory is populated at the right stores.  Omni-channel fulfillment changes this planning approach dramatically since the consumer interacts with a retailer from multiple channels and in multiple ways, and the primary information is online.

Leveraging Google’s data algorithms has the potential to analyze significant volumes of point-of-sale (POS) transactional data as well as product search query data to determine specific customer profile and buying patterns. Leveraging data on where and when the customer interacts with the retailer coupled with customer profile data adds more meaningful customer-centric predictive intelligence. The leveraging of JDA’s application knowledge and experience accumulated across its various Retail and supply chain management applications adds the other dimension to this new approach.

Later this year, more applications functionality is planned for Retail.me in areas of merchandise financial planning, promotion management, inventory placement and other forms of distribution and supply chain planning.

It is an interesting approach that brings together strengths in data analysis and predictive technologies with expertise in retail and supply chain management, surely one that retailers should pay attention to over the coming weeks.

Bob Ferrari

Disclosure: JDA Software is one of other sponsors of the Supply Chain Matters blog.


Report That Apple Has Scaled Back Component Orders for iPhones

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This week, The Wall Street Journal validated what those in Apple supply chain ecosystem had already suspected, that the global consumer electronics icon has scaled back supply chain requirements for iPhones.

Citing three informed sources familiar with the Apple supply chain, the report indicates that order forecasts to iPhone suppliers have been pared back in the past several months. According to this report (Paid subscription required): “Component suppliers that rode the iPhone’s boom are now bracing for lower sales.”

Further noted was that iPhone factories had some idle capacity in the final two months of the calendar year when they typically would be all-out.  That situation surprised this author since Apple has consistently been good at product demand forecasting.

Major contract manufacturer Foxconn Technology reportedly began dismissing some employees earlier than usual from its Zhengzhou China facility that employs upwards of 200,000 workers. The Provincial government reportedly promised Foxconn $12 million in subsidies to minimize layoffs.

In late June-early July, the WSJ indicated that Apple was planning for a larger initial production run of the next iteration of iPhones, requesting suppliers to support between 85 million and 95 million iPhones for the all-important end-of-year holiday buying season. In 2014, Apple planned its supply chain output for a range of 70-80 million phones, and actually shipped 74.5 million smartphones during the holiday quarter. What was unusual for the forecast numbers related to iPhone6S models were the lack of any significant hardware changes it its release, thus the larger numbers would have indicated expectations for increased global demand or additional customer upgrades this past holiday season. In October, Digitimes reported that integrated circuit suppliers were indicating concern for iPhone chip orders.

Based on this latest WSJ report, we logically assumed that Apple’s supply chain planners and Sales and Operations team members are dynamically managing product demand and supply alignment.  As readers participating in S&OP process know quite well, sometimes sales and marketing can have rather exuberant expectations regarding product sales volumes for a key quarter, only to change such expectations when actual order volume patterns are known.

With so many global investor eyes on Apple, and with so many supplier fortunes pegged to business volume concerning Apple, the stakes are obviously high and far reaching. This is especially pertinent to newer iPhone suppliers brought in to diversify supply sources and balance supply risk. As we have concluded in many prior Supply Chain Matters commentaries, there are few supply chains that garner wide visibility as that of Apple.  So much so that information leaks are actively nutured.

Apple’s upcoming report of financial results related to this past holiday quarter are therefore a rather important indication of the consequences of iPhone focused supply chain activity in the first-half of 2016.

Bob Ferrari


Thanksgiving and Black Friday Shopping Volumes Indicate Consumers Favoring Online Fulfillment

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As we pen this Supply Chain Matters commentary on Cyber Monday, there is building evidence that retail shoppers have made a strong preference for online vs. physical store shopping this past weekend. The implication is that B2C focused logistics and parcel carriers will indeed experience increased volumes of activity during the current 2015 holiday surge.

Data from multiple sources reinforce consumer’s increased preference for online shopping leading up to and including the Thanksgiving and Black Friday shopping events. Adobe Systems indicated that consumers spent an estimated $4.45 billion in online activity for both the Thanksgiving and Black Friday period, an increase of 14 percent from the comparable 2014 period. Adobe’s database includes tracking across 4500 U.S. sites. Adobe further indicated that more than half of the Black Friday online activity originated in mobile devices. The trend toward more mobile based devices was reinforced by IBM, which reported that mobile devices accounted for 57 percent of online activity.

Global media analytics company comScore Inc. reported desktop origin online sales the for the holiday season-to-date, as $23.4 billion, a 5 percent increase from the comparable 2014 period. Desktop online sales during Thanksgiving were reported as slightly over $1 billion, a 9 percent increase, while online sales for Black Friday were noted as $1.65 billion, a 10 percent increase over 2014. Shopper-Trak, which utilizes cameras to monitor physical shopping activity, indicated that U.S. shoppers spent an estimated $12.1 billion at brick and mortar stores during the two holidays, a decline from last year’s activity.

A National Retail Federation (NRF) survey conducted yesterday (Sunday) reinforced that an estimated 103 million shoppers elected online shopping while 102 million elected shopping in physical stores.

The trend thus far should not be a surprise since many retailers have influenced their merchandise promotions to favor online activity. As an example, Wal-Mart reportedly posted a majority of its door buster promotions online, before offering them in physical stores.  Similarly, other traditional retailers placed more emphasis on online promotions, offering pick-up in-store or direct free shipping options to consumers. Retailers demonstrated aggressive promotions as-well and offered them towards the beginning of last week.

The open question is obviously how online volumes transpire for the remaining holiday period in December, and whether total holiday purchase activity exceeds that of last year.  As we indicated in an earlier commentary, shopper sentiment survey data this year indicated that consumers would elect to perform the bulk of their holiday purchases by this weekend. The will be more headlines in the days to come and supply chain teams need to exercise diligence in the assumptions and time period of reported data. The final analysis obviously comes at the conclusion of this year’s surge.

In most cases, supply chain teams should now have fresh data indicating where consumer demand and specific hot categories reside. Inventory adjustments can likely be predicated toward more emphasis on online channel fulfillment.

On the logistics front, parcel delivery networks are now surged to their maximum point as last weekend’s and todays online purchases make their way to consumers. We anticipate that next week, data from FedEx, UPS and other providers should reinforce the increased shift toward online shopping.


The Eve of Thanksgiving and the Official Kickoff of the Holidays

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For B2C and retail supply chains, dedicated planning efforts throughout the year to prepare for the holiday surge period are about to meet the stress test. The Thanksgiving holiday is the stress test for food focused and grocery supply chains. The Black Friday shopping holiday that follows has promotional activities already underway this week, and in a matter of hours, online and in-store consumers will be seeking out the best bargains that extend through the Cyber Monday shopping holiday.

Last year, parcel carriers and logistics providers reported peak surges over the Black Friday weekend and during the first two Mondays in December. This year, parcel carriers expect a rather busy period, anticipating anywhere from 10 to 15 percent in increased parcel shipping volumes through the end of December.

As Supply Chain Matters has noted in prior commentaries, retailers once again have a lot at-stake. Last year’s activities were hampered by logjam and disruption of inbound and outbound holiday focused export inventory among U.S. West Coast ports. Approaching Black Friday this year, indications and evidence reflect that retailers are this year deep in inventory overhang, and such inventories need to be sold. Other data indicates that consumers will be unforgiving and will shop early for the upcoming holidays.

As we enter the holiday, there is a report posted on ZD Net indicating that Amazon has forced automatic individual account password resets with a number of registered users raising speculation that the online retailer may have been hacked in the area of mobile device access.

The next few days are obviously crucial for achieving revenue and profitability expectations for all stakeholders, retailers and carriers alike. If consumer promotions extend further into December, the stakes will obviously be far higher.

In the meantime, enjoy the Thanksgiving holiday with family and friends. Rest as best you can an d give thanks for family, friends and relationships.

We extend a Thanksgiving holiday wish to all of our U.S. based and other global readers for continued blessings.

Stay tuned to Supply Chain Matters for our continuing commentaries related to the 2015 holiday surge events including early insights as to supply chain performance.

Bob Ferrari


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