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The 6th Global Health Supply Chain Summit
Reducing Risk and Achieving Better Control with Automatic
Identification Technologies (AIT) – Supply Chain and Inventory Control
Ike Anyaoku
Deloitte and Touche LLP
[SPEAKERS NAMES]
[DATE]
November 18-20, 2013
Addis Ababa, Ethiopia
Table of Contents
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Introduction
Risk Management and Supply Chain
Emerging Industry Trends
Supply Chain Technologies via AIT
Case Study: Improving Patients Safety in Pakistan’s Hospitals
Thinking Ahead
Questions
2
Introduction
Ike Anyaoku
Deloitte Supply Chain Services
• Manager, Deloitte and Touche LLP
• Global Public Financial Mgmt. and
Supply Chain Assessments
• 10+ years of experience in risk
assessments supply chain
management
• Focused primarily on public sector
assisting NGOs and ministries
improve performance
•
•
•
•
•
•
Risk and supply chain assessments
End-to-End Supply Chain Risk Diagnostics
Sourcing & Procurement Best Practices
Coordinate, manage, and participate in
relevant workshops to identify effective
program modalities utilized in peer countries
Distribution Network & Transportation
Optimization
Warehouse Design and Implementation
Worldwide Presence
Europe/Middle East Africa
“Senior stakeholders within many companies would agree
that managing reputational risk is of critical importance. The
supply chain represents one of the greatest exposures for
reputational risk – because if one of your suppliers stumble,
it quickly can impact your brand,” Henry Ristuccia, Deloitte
Global Leader. Source: Kennedy Consulting Research & Advisory.
• 61,800 employees
Americas
• 68,700
employees
3
Risk Management & Supply Chain
4
Risk Management Model & Supply Chain?
How Does It Work?
The risk management model helps the organization to better structure its process in
order to reduce costs and losses in the supply chain that result from theft,
assaults, and other illegal activities. The model is about the reduction of risk due
to those activities

What is it?
A systematic approach to organize and automate risk management process
in the supply chain enabling:
– Visualization and optimization of portfolio of routes
– Standardization of business practices throughout the value chain
How the Model
Works

Supply chain managers are asked to think critically about each route: (a)
what does it look like (who is involved, where, when, etc.)? (b) what happens
on that route? (c) what risks are associated with each route?

The determination of risk must be done according to an agreed-upon
methodology: managers must think about the types of risks, the impact of
certain risks, and so on

The supply chain picture that emerges allows managers to think more
creatively about investments and costs allocations across the supply5
chain: what requires attention and why?
Risk Management Model
More About the Model
The development of the Risk Management Model in Supply Chain could be
based on these four steps
Develop Risk
Model

Define a scoring
model based on:
Activities
—
Relevant criteria
for measuring
Supply Chain
risk1
—
Weights
—
Performance
levels (KPI)
Map Risk Rating of
Routes

Identify and collect data
from routes

Calculate scores for
routes
Set Action Plan

Define standard
actions in order to
mitigate risks for each
risk rating

Classify routes,
consolidate data and
establish portfolio of
routes
Identify routes with
excess or gap of
security resources

Reallocate resources
according to risk
rating of each route2

Analyze risk rating of
portfolio of routes


Test model against
collected data
Estimate potential
savings / costs due to
resource reallocation


Treat divergences
Detail implementation
plan

Determine risk ratings

Integrate Model
within Routine of
the Area

Incorporate process
to the routine of the
area through:
– Ongoing activities
– Periodic activities
Notes: 1) Use of Multi-Criteria Decision Analysis (MCDA)
2) It is possible to customize actions to be taken based on the experience of people in the company for specific routes
6
Emerging Trends
7
Supply chain practices of the last two decades, focused on efficiencies
and cost, have had the side effect of increasing and shifting risk exposure
These strategies have broadened the range of risks to which supply chains are exposed and
often limit companies’ abilities to rapidly react when disruptions occur
Firm-specific practices that have increased supply chain risk exposure
GLOBALIZATION
OF SUPPLY CHAINS
RISE OF JUST-INTIME AND LEAN
PRACTICES
INCREASED
OUTSOURCING OF
CORE ACTIVITIES
SUPPLIER
CONSOLIDATION
STRATEGIES
CENTRALIZATION
FOR ECONOMIES
OF SCALE
Risk events across the globe can now have profound disruptive effects on a
company’s operations
Lower safety stocks and increased timing and logistics complexity have
introduced new risks into operations
Outsourcing business activities can hamper a company’s ability to manage
disruptions within a multi-tiered supplier network
Consolidation reduces sourcing flexibility and can limit capacity to respond
to demand fluctuation or crisis events
Centralization can make companies increasingly susceptible to significant
disruption by a single-site event
8
In parallel, external customer, macroeconomic, and societal trends have
increased pressure on supply chain operations
Many of these trends have increased in intensity in the last decade
External trends that have increased supply chain risk exposure
SHORTENED
Rapid shifts in consumer demand across diverse geographies, in parallel
with heightened competition, have increased supply chain complexity
PRODUCT
LIFECYCLES
WORSENED
Urbanization, population growth, and technological interconnectedness
have resulted in natural disasters’ increasingly negative outcomes
IMPACT OF
NATURAL
DISASTERS
NEED FOR
ENVIRONMENTAL
AND SOCIAL
RESPONSIBILITY
Social and media scrutiny, as well as resource scarcity, impact how
companies must manage supply chains
HEIGHTENED
Regulatory compliance issues have resulted in high-profile, high-cost
shutdowns and penalties
REGULATORY
ENFORCEMENT
SHIFTING
ECONOMIC
LANDSCAPE
SOCIAL MEDIA &
INCREASING
TRANSPARENCY
€
$
£
¥
Sales and operational planning risks have increased as a result of market
and commodity-price volatility
Reputational risks have increased to the rapid spread of information and
greater transparency from social media and digital platforms
9
These executive concerns continue to arise and become more acute
because of the number of recent and interrelated high-visibility/highcost supply chain disruptions
In parallel, the recent financial crisis has raised the awareness of “Black Swan” risk events
Recent risk events triggering significant supply chain disruptions
US$ 125B of estimated
financial damage2
US$ 100B of estimated
financial damage2
Kobe earthquake
80% increase in oil
prices in 7 weeks1
Hurricane Katrina
0.2% of China’s GDP
growth3
SARS outbreak
Iraqi invasion of
Kuwait
Year
US$ 625M of
estimated financial
damage2
Sovereign bankruptcy
in Italy precipitates a
Euro-zone financial
meltdown
Carbon tax passed
in the U.S.
Genzyme production
shutdown
1990
Italy Lombardi
storm
US$ 600M in lost
revenues4
Illustrative future events
2000
Boeing supply failure
US$ 2.6B in resulting
write-offs5
2010
Mattel lead paint
crisis
19M toys recalled7
9/11 attacks
Legend
High-impact, low-probability
(“Black Swan”) events
US$ 40B in insurance
losses alone6
Nationalization
of cement
industry in
Venezuela
US$ 400M sales
lost by Cemex8
Japanese earthquake
and reactor failure
US$ 210B of estimated
financial damage2
2020
Electrical grid failure
in Bangalore
Acute shortage of rare
earth metals hampers
tech sector growth
Successful cyber attack
knocks out most cell
service in NYC
Sources: 1) “The Economic Risks,” The Economist; 2) “The Internal Disaster Database,” EM-DAT; 3) “The Effects of SARS on East Asian Economies,” FRB Dallas; 4) “Genzyme Held Bad News As Shares Dropped,” Forbes; 5)
“Supply Chain Project Management,” Daniel Newman; 6) “Cost of 9/11 in Dollars,” CBS News; 7) “Mattel Recalls 19 Million Toys Sent From China,” The New York Times; 8) “Cement industry is Venezuela’s latest target for state
takeover,” LA Times
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Few industries have avoided negative business outcomes
resulting from serious disruptions to supply chains
Company
Event
Outcome
Flash floods and mudslides forced Sony to shut
production at 2 of its 3 units in Thailand
Sony delayed the launch of two products
indefinitely
Due to disagreement around job security and pay,
26,000 commercial aircraft workers went on a strike
for 8 weeks
Boeing’s fourth-quarter revenues declined 27% as
the strike reduced commercial airplane deliveries by
70 units
Genzyme discovered a virus in a bioreactor, resulting
in production shutdown for 3 drugs
Genzyme estimated the revenue loss associated with
the disruption to be around $600M
One of Mattel’s Tier 2 suppliers used paint from an
unauthorized 3rd party
Mattel recalled 19M toys with “impermissible levels
of lead,” resulting in a single day share price
decline of 2.4% and significant brand damage
Due to gaps in demand visibility, Cisco could not see
slowing demand before the tech bubble burst in 2001
Cisco took a $2.25B inventory write-off, one of the
largest in history
Extreme flooding in Thailand resulted in shortages of
critical hard drive components
Intel forecasted a $1B loss in revenue in for Q4 2011
attributable largely to hard drive shortages
Sources: Sony – “Sony postpones product launches due to Thailand floods,” BBC News; Boeing – “Boeing posts quarterly loss on strike impact and charges,” Boeing press release from 01/28/2008; Genzyme – “Genzyme Held
Bad News As Shares Dropped,” Forbes; Mattel – “Mattel Recalls 19 Million Toys Sent From China,” The New York Times; Cisco – “Cisco’s $2.25 billion mea culpa,” CNET; Intel – “Intel's Fourth-Quarter Revenue to Be Below
Expectations Due to Hard Disk Drive Supply Shortages,” Intel press release from 12/12/2011
11
Automatic Identification Technologies
(AIT)
12
Emerging Industry Trends
How technology powers supply chain
Today, technology in supply chain is
much more than just computers. It
includes varied aspects, right from
factory automation, enhanced
communication devices, data
recognition equipment to other types of
automated hardware and services.
13
Types of Automatic Identification Technology (AIT)
Application
Types of Automatic Identification Technology
(AIT)
Application of AIT
Bar Codes
•
Black bars with white spaces
•
Printed on labels
•
Store large amounts of data
•
Read using barcode readers
•
•
•
•
•
Rental cars and airline luggage
Express mail
Supermarket checkout systems
Universal Product codes (UPC)
Healthcare system (patient data, medial history, drug allergies)
Radio Frequency Identification (RFID)
•
Transmits identify of products & services using radio waves
•
Effective form of AIT
•
Transmitted by any portable device ”Tag” is read by an RFID
reader
•
Tracks moving objects with accuracy
•
•
•
•
•
Asset management
Product tracking
Inventory systems
Transportation and logistics
Hospital equipment tracking
Smart Cards
•
Pocket-sized card
•
Contains embedded integrated circuits
•
Plastic
•
Provide identification, authentication, data storage and
application processing
•
•
•
Credit Cards
Public Transit
Security
Contact Memory
• Electronic identification device
• Packaged in a coin-shaped stainless steel container
• Activated by touch probe
• Read and/or write operations performed instantly
• Long-lasting data integrity
•
•
•
•
•
Asset Tracking
Access control
Digital cash
Maintenance records
Time and attendance
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Automatic Identification Technologies (AIT)
Types of Technologies
Bar Coding
RFID
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Emerging standard AIT - Radio Frequency
Identification (RFID)
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Trends and Best Practices
Vision
Healthcare
Retail
In order to respond to the upcoming regulations and improve safety and security, all
stakeholders throughout the chain need to invest in systems and collaborate towards
the achievement of a common vision.
• To flow seamlessly through the chain, data needs to have common standards
• Various systems need to be implemented up to point of care to take advantage of the full benefits
• Each transfer of ownership is critical throughout the chain to transfer information
Supplier Drug
Serial #
Manufacturer ERP
System
Distributor
ERP & WMS
System
Pharmacy Clinical
System
Inventory
Management
System
Pharmacy Management System
RFID Patient
Identification
Wristband
Patient
Records
Hardware – RFID Tags or 2D Barcodes
Software– e-Pedigree, Serialization, Track & Trace
Communication Protocols – EDI, XML, and common data standards
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AIT and Supply Chain Inventory Control
Challenges and Solutions
Supply Chain Inventory Challenges
Solutions using AIT technology
Information gaps between shipping origin
and destination
•
RFID enables real –time supply chain visibility, allowing users to
track the product throughout the supply chain from the
manufacturer to the customer.
Shrinkage and theft
•
Improved tracking of pallets, cases and individual products and
reduced manual entry errors.
Maintain inventory quality
•
RFID environment technology that measures the temperature,
humidity, and light.
Coordination of all performers in the
supply chain
•
RFID tags can be written and rewritten so that a tag including
manufacturing information may be updated to also contain
information about the distributor.
Smart Cards contain shipping and customer information.
•
Competence in risk management in terms
of security and compliance
•
•
RFID systems demand information be accurate and timely
Information can be used by governments to determine the
integrity of transactions and supply chain.
18
Example: RFID Reduces Supply Chain Risk in
Emerging Markets
Integrity
Authenticity
Specificity
 Reduce the risk of counterfeit products entering
the supply chain.
 Overseas manufacturing functions can be
monitored for quality control by confirming that
each step of the assembly line was completed.
Compliance
Location
 Immunizations and other medication
are tracked to ensure shipment is
stored in required government
regulated environment to reduce
spoilage and ensure delivery to
patients.
 Aid workers are provided with real
time visibility at different points of
the supply chain to manage
shortages in immunizations,
mosquito netting, water, food, ect.
 International aid agencies gain
reliance that donations and
assistance is delivered to the
intended beneficiary.
 Inventory is tracked for accurate
financial reporting and tax
implications.
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Supply Chain and RFID
How RFID products and solutions could be deployed from
manufacturing plant to healthcare workers in rural Africa
Manufacturing Plant
•
•
•
Manufacturer adds RFID tag to
the antiviral drug
Antiviral drug is loaded into
RFID cases and pallets
Symbol readers above shipping
doors reads each pallet, case
and item as it leaves the plant
In country distribution centers
•
•
•
•
Manufacturers’ pallets arrive in
country for distribution
Pallets are picked with vehicle
mounted RFID readers
Antiviral inventory is automatically
received and updated in system
Network of symbol readers ensure
the antiviral movement is tracked
Hospitals and field offices in remote locations
•
•
•
•
Delivery arrives to hospitals and FOs
Inventory is automatically received and updated
Network of symbol readers ensure that product
movement is tracked
Healthcare workers distribute antiviral prescription
20
Applications in AIT
Case Study: Improving Patient Safety in Pakistan’s
Hospitals
Problem
Poor hospital patient safety protocols
Intensive Care Unit (ICU) patients in low and middle income countries (LMIC) are two times more likely
to get catheter-associated urinary tract infections and four times more likely to develop ventilatorassociated pneumonia than their counterparts in high income countries. Mortality in LMIC is between
three to nine times higher due to elevated rates of central line-associated bloodstream infections.
Solution
Mobile health solutions
Using radio frequency identification (RFID) tags on patient identification wristbands, health workers can
access forms, procedure protocols, and important patient information by simply tapping the wristband
with a cell phone. Patients’ information is updated in real time from central server, health workers can
operate with the most up-to date understanding of patients’ condition and keep electronic records of
patient safety events.
- USAID Development Innovation Ventures report – July 2013
21
Industry mandates and direct guidelines
outlining specific labeling requirements:
• Wal-Mart and other global retailers such as Target and BestBuy are
mandating that suppliers apply RFID tags to all pallets and cases,
phasing in the technologies
• The U.S. Department of Defense, which runs what is considered the
world’s largest and longest supply chain with more than 60,000
suppliers, has mandated a phased-in approach for RFID labeling to its
suppliers
• The U.S. FDA (Food and Drug Administration) is looking to RFID to
control the nation’s drug supply to ensure quality and reduce
counterfeiting
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Thinking Ahead
23
Deloitte has identified a variety of best practices for supply chain risk
management
Sense emerging trends
Focus not just on traditional and known risks. Many companies are over prepared for operational and other
common risks. Leading companies sense emerging drivers that transform into risks over time
Be forward thinking
History can be helpful, but past performance does not necessarily correlate with future success. Prepare by
imbedding predictive thinking to become more forward looking
Look beyond the four
walls
Risks emanate from a multitude of sources. Look beyond the company’s four walls – into the extended value chain,
both upstream and downstream, and into the macro-environment
Be proactive
Be proactive: focus on addressing critical vulnerabilities that expose important nodes within the supply chain to
risks as a means of managing risk
Prioritize
Prioritize and build resilience where it matters. Understand the critical, high-value nodes throughout the supply
chain – even beyond Tier 1 suppliers
AIT - Measure and monitor
AIT - Quantify through
analytics
Measure resilience and continuously monitor and reassess. Establish feedback loops to ensure that observations
inform resilience strategy planning and implementation
Quantify the risk impacts using advanced analytics and simulation capabilities. Qualitative techniques, while
valuable for certain applications, limit the insights into the magnitude of risks
Test the worst case
Test worst case scenarios as a means to understand performance, especially in the instance of low-probability,
high-impact “black swan” risk events
Think beyond BCP
Integrated supply chain risk management goes beyond site and node level business continuity planning. While
specific node-level operational plans are important, effective risk management is more holistic
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Questions?
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Appendix
27
Benefits of the Model Focus
The model helps managers (a) document the modus operandi in the supply chain, (b)
reduce variability of supply chain losses, (c) reduce cost of supply chain losses. It also
has a number of additional benefits, which come with some caveats:
Benefits
Limitations
Consequences

It helps to structure and document
the know-how of the company

It is not an artificial intelligence
system

It is a support tool for decision
making

It allows to generate predictions
from criteria applicable for most
cases

It does not consider individual
exceptions of the routes and
mistakes on the execution of the
procedures

It does not aim at anticipate the
location of every event in supply
chain

It helps to standardize potential
actions to be taken in all routes

It is not a procedure handbook
It does not replace the specific local
knowledge of the people

Facilitate and speed up security
resource allocation decisions
among different routes
It allows managers to have a global
view of the portfolio of routes

It does not aim to be exhaustive
about route knowledge

Make communication inside the
department and with other
areas at the company easier
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

Risk Management Model
Scope
The model can be used to measure risk levels of individual routes along the supply chain
— from the plant all the way down to local warehouses and retail sights
Local Sites
Distribution Centers
Plants
Local
Warehouses
(Plants — Distribution Centers)
(Distribution Centers to Local Sites)
Route
29
Trends and Best Practices
Vision (Con’t)
E-Pedigree and RFID
Increasing safety issues such as counterfeiting and theft has alerted regulatory
organizations other and drug stakeholders to implement a safety system that enables
tracking and tracing across the entire supply chain.
Data Management and Systems
Data management and systems are critical components in improving collaboration
between stakeholders, as well as to achieve optimal internal efficiency.
Strategic Collaboration and Vision
The market will evolve towards strategic alliances rather than tactical operational
relationships in the perspective of streamlining the supply chain, and increasing
visibility and customer service. This factor will become increasingly important with the
continued acquisition and consolidation of outsourcing services.
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Trends and Best Practices
E-Pedigree & RFID
How does E-Pedigree Work?
Manufacturer
Distributor
Retail Store
31
Trends and Best Practices
E-Pedigree and RFID
E-Pedigree
 RFID tags enables tracking and tracing of drugs
all the way through the supply chain
 An answer to increasing counterfeit drugs and
theft
 FDA, EU, and other major regulatory agencies
are stepping up the efforts to implement EPedigree
 Prior to receiving, person accepting products in
to available inventory, pedigree check,
completeness and authenticity is validated
 E-Pedigree can tell if a product is authentic
RFID
RFID has the ability to increase security dramatically
by:
 Patient Identification
 Medication Management
 Tracking of Medication
 Error reduction
 Location of staff, drugs, and equipment
 Managing controlled substances, pathogens,
and other materials that pose a public health
risk
 Collaboration software publishes event data at
each step in the supply chain
Even though the e-pedigree regulation has not been yet implemented, this key trend
will greatly affect pharmaceutical distribution in the next 5 to 10 years. Your Supply
Chain needs to be flexible and ready for the implementation of this upcoming
standard.
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Trends and Best Practices
Data Management and Systems
Process
Description
EDI
(Electronic Data
Interchange)
A data protocol that supports the electronic transmission, receipt and acknowledgment of various
business documents such as: purchase orders, invoices, payments, price & sales catalogues,
advance shipping notices, etc.
E-Procurement
Purchasing of products or services from approved suppliers using electronic product catalogues and
the automation of the key transactional processes.
E-Collaboration
E-Sourcing
Optimizing business processes (e.g. collaborative planning, forecasting and inventory replenishment)
between companies & stakeholders with the use of Internet technologies.
E-Markets
Independent and neutral third party web-based exchanges that bring together multiple buyers and
sellers to facilitate trade through a number of protocols.
Component of the Sourcing and Procurement Cycle
ERP Systems
Organization wide ERP
systems with procure to pay,
finance, inventory
management, production and
warehousing capabilities can
be used to increase
performance, operational
efficiency, visibility &
availability of information,
data integration, etc.
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