Transcript Title of the document

CLICK TO ADD
TITLE
The 5th Global Health Supply Chain Summit
What can we learn from Consumer Goods on supply chain? How can
we smartly apply that to Health?
Hassan Belkhayat & Doan Hackley
McKinsey & Company
[SPEAKERS NAMES]
November
14 -16, 2012[DATE]
Kigali, Rwanda
0
In Africa, CPG has much lower stock-out
rates than EHP
EHP1
CPG1 stock-out rate: prepaid mobile
phone credit cards
stock-out rate
% of time, annual average
Kenya
Nigeria
Senegal
Amoxicillin
Pills
Depo
% of time, annual average
9
Kenya
25
Uganda
4
Tanzania
3
Nigeria
3
DRC
2
50
46
Nigeria POS: ~55,000
Nigeria POS: ~710,000
1 EHP : Essential Health Products; CPG : Consumer Packaged Goods
Source: DHS 2006, BMGF Contraceptive supply chain diagnostic in Senegal and Nigeria 2011
1
Learning from CPG, despite differences,
given similar challenges seem in EHP
Similar challenges
▪
▪
▪
▪
Breadth of distribution
Ensuring high quality of delivered
product
Managing “compliance”
Increasing efficiency
Differences
▪
▪
▪
▪
▪
Product economics
Management model
Complexity of delivery
Regulatory considerations
Product demand dynamics
2
SCM is the end to end integration of key
business processes
Information flow
Procurement
planning
Production
planning
Materials
management
Manufacturing
Logistics
planning
Distribution
Order and
demand
management
Customer
service
management
Physical flow
▪ Distribution – network configuration, transportation
▪
Source: McKinsey
management, operations of distribution centers, 3PL, and
retailers
Objective – deliver high-quality products, on time, in the
demanded volumes
3
A distinctive approach to supply chain
improvement
End to
end
Holistic perspective on performance
▪ From customer to supplier
▪ Quantitative (metrics) and qualitative (maturity of processes)
▪ Correlation between structural set up and performance
Fast and
focused
Fast and effective approach with relevant key insights
▪ Focus on understanding key performance drivers
▪ No extensive data mining
▪ Top-down quantification and prioritization
Linked
to action
Prioritized action plan is key outcome
▪ Rapid estimation of impact potential
▪ Prioritize measures by impact and implementation effort
▪ Best-practice repository and deep-dive analysis tools
Source: McKinsey SCM Practice
4
McKinsey 360º SC diagnostic…
Quantitative – KPI benchmarks
<Client> shows average performance in supply
chain cost and service while there is high
improvement potential in inventory
Service
Percent
INDUSTRY
3rd or 4th quartile
2nd quartile
Top quartile
<Client> performance shows gap to best practice in ….
<Client>
Industry median
Industry top quartile
90
Forecast
accuracy1
14,2
97
86
85
Training & development
19
3
Portfolio complexity
management
4
Staff capabilities 18
4
SC segmentation
3
25,0
2
Incentives 17
7,4
▪
Integrated SCM is
lacking in <Client>
– historical grown
and plant focused
network
▪
Capabilities, SC
Organization,
S&OP, SC Strategy
are major gaps to
best practice in
<Client> industry
Network
design
5
15,0
1
Performance
management
16
IT
Cost
Percent of COGS
Total SC cost2
8,9
7,0
4,9
4,5
Supply management
3,5
McKinsey & Company
cost, capital
Comparison with average and top quartile
Source: McKinsey SCM Practice
8
| 6
SC risk
management
S&OP
Order & demand
management
9
Inventory management
12
10
11
Production management
• 30 KPIs across three dimensions – service,
•
7
15
Operational logistics 13
1 Total forecast accuracy is calculated as average value for all products and forecast buckets in the year
2 Includes total transportation, warehousing, inventory holding, obsolescence, lost sales and SC administrative cost
Source: McKinsey
6
0
SC organization
Management
14
III infrastructure
Transportation +
warehouse cost
5,5
INDUSTRY
2
5
30,0
11,2
70
Best of best
I
Service level management
1
20
Finished goods
inventory
Days
Strategy
SC strategy
Mindsets and behaviors
Total inventory
Percent of COGS
Client
Industry median
IV Mindsets & capabilities
Capital
Service level
OTIF – to request
90
Qualitative – maturity of practices
Forecasting
Operating system II
SOURCE: Responses from participants, team analysis, Benchmark from Survey Supply chain Delivers, > X participants,
relevant sample with X Companies, mainly Europe + NA
• 20 practices across four dimensions –
•
McKinsey & Company | 6
strategy, operating system, management
infrastructure, mindsets and capabilities
Calibrated with proven maturity model
5
…then assess impact potential and prioritize
actions
Assess impact potential
Move to action – prioritize measures
Action program – measure prioritization
Potential EBT impact of supply chain improvement program is XXX USD
Improvement
Improvement
millions
Transportation/
Warehousing
4,2
Direct supply
chain cost
22,6
Inventory holding1
2,5
Obsolescence
2,9
Indirect supply
chain cost
5
0.2
9
237,3
14,2
2.3
6
0.7
1
1
2.0
5.0
35
14,2
5,0
Current
Improve- Future
ment
11
8
8 Order and
demand
management
12
Operational
13 logistics
Resulting financial impact
and SCM performance
▪ Implementing S&OP
process and an integrated
SCM organization
▪ Improved supplier
management
13
Low
Difficult
McKinsey & Company | 59
chain strategy – e.g., service level vs. cost
In health – stock-outs & quality, but also
on overall coverage (consumption)
Source: McKinsey SCM Practice
▪
▪
▪
Segment customers
Link prices to services offered
Define service level for each customer segments
▪
▪
▪
Clear rules to prioritize and allocate capacity
Integrated planning tool across production steps and plants
Converting specific services and customer changes into
detailed production steps
▪
▪
▪
Improve forecasting, reduce bias towards higher forecast
Decouple operational sales forecast from sales target
Measure and link forecast accuracy to personal
incentive/objectives
▪
▪
▪
Establish systems to have a comprehensive view on
supply needs across the company
Regularly evaluate suppliers for price and risks
Link suppliers incentives to the SC performance
▪
▪
Optimize warehouse layout
Reduce waiting time by adjusting WMS
Easy
Ease of implementation
▪
▪
• Impact assessment tailored to supply
•
Supply
management
Production
11 management
1 Assumption WACC=12%
SOURCE: McKinsey analysis
2
19,2
9
0.3
131,2
Service level
management 12
EBT
US Dollar millions
8
0.9
2
SOURCE: McKinsey
Supply chain lever
Area of priority
Proposed improvement actions by lever
High
9
0.2
38,0
Material cost
5
1.0
15,4
Production cost
5
0.2
10,0
Total supply
chain cost
EBT
potential
Percent of baseline
0.8
18,4
SCM Admin,
IT, overhead
Lost margin
potential
US Dollar millions
Impact that can be captured
Current cost
US Dollar millions
EXAMPLE
X
+
Common supply chain organization with clear role and
interfaces with other functions
Improving necessary business processes and supporting IT
systems
McKinsey & Company | 10
• Description of measures across all
•
performance dimensions
Best-practice SC repository including
case studies and detailed approaches
6
6 lessons on what drives performance
1 Explicitly linking supply chain strategy to corporate
strategy; setting clear, well-understood aspirations
2 Using segmentation to embrace the complexity
that matters
3 Designing and building forward-looking networks
that meet service, cost, and risk aspirations
4 Creating lean, end-to-end value chains
by optimizing across functions
5 Executing world-class integrated demand and
production planning processes with discipline
6 Getting the right talent on board and holding them
accountable
Source: McKinsey SCM Practice
7
Methodology applied to Senegal
contraceptive supply chain
Quantitative
Qualitative
Room for action
Average # days of stock out
per year at SDP level
Central level stock-outs
▪ Revive RHSC to review
>300
>150
Implants
Injectables
Source of stock outs
40%
60%
▪ Inappropriate forecasting
▪ Lack of performance
management – procurement
and stock levels
▪ Non standardized order
management
Distribution issues
▪ Complex network design
▪ Malfunctioning order
management
Central
level
Distribution
issues
▪ Low staff capabilities;
medical staff as logisticians
Source: BMGF Contraceptive supply chain diagnostic in Senegal and Nigeria 2011
central stock levels monthly
▪ Change forecasting tool and
methodology (target driven)
▪ Implement informed push
system for distribution (private
logistician)
Target < 2% stock-out at
facility level
Supply chain key component of
the FP strategy to move from
12% CPR to 27%
8
Potential concrete solutions:
best practice CPG ideas
Inventory management: right stock level?
Financing: how to pay for inventory
Streamlining the design: how many
steps?
Performance management: how to get
/use data to improve performance?
Outsourcing: who and how to optimize?
Source: Team analysis
9
Solutions for public health inspired
by CPG best practices
Inventory management: right stock level?
▪ Revive a RHSC with all donors to follow on a
▪
monthly basis stock
Trigger procurement when stock levels hit a
minimum level
Financing: how to pay for inventory?
▪ Initial endowment from MoH of base stock to
▪
facilities as a working capital
Facilities only reimburse for products sold
Streamlining the design: how many
steps?
Performance management: how to get
/use data to improve performance?
▪ Products flow straight from regional warehouse to
▪ Central unit following impact on stock-outs and
▪
facilities
Products are delivered using a standard and
optimized route
▪
consumption (merged potentially with RHSC)
Data of stock-outs and consumption collected
monthly by operator
Outsourcing: who should operate?
▪ Outsource logistic duties (order management, transportation, stock
▪
▪
monitoring) to a private operator
Contract includes penalties if stock-outs are >2% and data flow not on time
Medical workers focus only on medical tasks
10
Senegal case-study results :
massive supply chain improvements
PIKINE DISTRICT- 2012 fugures
Stock-outs
Share of SDPs experiencing at least one stock-outs during a month (%)
14
DIU
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
May
June
86
Implants
57
Injectable
57
Pills
Baseline Feb March April
Source: ISSU, operator : baseline average last quarter 2011
July August Sept
Oct
11
Senegal case-study results :
supply chain and performance management
increases health impact
PIKINE DISTRICT
Consumption
Number of units per month dispensed
60
DIU
42
35
12
25
41
17
Injectable
Pills
1,021
1,590
62
1,066
2,257
Baseline Feb
54
193
175
+940%
1,576
1,642
+61%
2,622
2,746
+73%
2,231
August
Sept
Oct
22
192
Implants
+52%
47
42
223
120
127
103
1,342
1,336
1,364
1,599
1,668
2,214
2,187
2,627
2,453
2,701
March
April
May
June
July
123
Source: ISSU, operator. Baseline : average consumption per month during last quartner
1,270
12
Ongoing performance management is
critical to satisfy customers
... without firefighting!
13