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How can I create business advantage with my supply chain?  This is a question healthcare companies are increasingly asking themselves, and their logistics service providers, as the market becomes more competitive, more global, and frankly more challenging.  Healthcare companies are recognizing that their supply chain’s performance can have a significant impact on their overall performance and are a source of competitive advantage. 

A key thing to note is that supply chains aren’t static. They must change to support companies’ strategies of entering new markets and integrating new acquisitions. Changes to supply chains should be based on regular assessments and redesigns. Companies must understand their current supply chains and analyze various scenarios for improving them.

On average, the total supply chain costs for healthcare companies average 9.3% of sales. But best-in-class companies spend just 4.2% on their supply chain, outperforming average players by 5%. Effective supply chain management can reduce total distribution costs by up to 5%, which can have the same impact as a 30% increase in sales.  Clearly, supply chain management can create competitive advantage and positively affect a company’s financial performance.

In addition to the cost advantages of effective supply chain management, companies with best-in-class freight and logistics competencies grow at a faster rate than their competitors, with growth rates that are 7–26% above the industry average. Thus, supply chain leaders have both lower costs and faster growth.

In my experience, it is beneficial for a healthcare company to evaluate its supply chain network every two to three years, or when there is a compelling event. Reasons for undertaking such an analysis often include: 

  • Growth through acquisition. Acquisitions can result in a fragmented, uncoordinated supply chain that is a very different supply chain that has evolved with a cohesive design.
  • Expansion to new markets. When interested in entering a new market, it is appropriate to assess whether the organization’s current supply chain fits with that strategy as well as to create a business case for when to build out new capabilities.

Goals for initiating such an analysis typically include improving service, supporting sales growth, and/or reducing costs.

A network analysis helps a company understand its current supply chain status in terms of its cost and service tradeoffs.   A company can see where it is and how it may want to change its supply chain to achieve a more optimal cost/service position. 

When UPS works with customers to evaluate their supply chains, the evaluation can include assessing:

  • Sustainability. Any changes to a supply chain will have an effect on sustainability. 
  • Engineering services. When an organization has a facility or process that is not optimal, engineering services can look at the processes in place and offer improvements.  
  • Technology and visibility. This entails looking at what information exists, what a company is measuring, what it needs to know, and how to bridge that gap.  
  • Supply chain optimization. A thorough supply chain optimization process involves network modeling that takes into account physical facilities, transportation modes, and determining the optimal supply chain infrastructure.

Through a network analysis, companies understand its suppliers, its manufacturing processes and costs, how it distributes finished goods, who its customers are and what their experience is, and how returns are managed.  Ideally, this process is followed by a redesign initiative to strengthen your supply chain and direct it to drive strong performance.

Have you embarked upon such an initiative already? What results are you seeing? Please, share your story with us!

Category: Healthcare
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