1. Improving Supply Chain Agility of a Medical Device Manufacturer
Authors: Xinye Bai and Yaniv Rosenberg
Advisor: Dr. Daniel Steeneck
MIT SCM Research Fest
May 21, 2015

2. Agenda Introduction Motivation Instruments Supply Chain
Analysis findings
Results - What hinders the Agility?
Recommendations

3. The Sponsor Company Johnson & Johnson (J&J)
Global healthcare company divided into three sectors: Consumer Products, Pharmaceutical and Medical Devices & Diagnostics
2014 Annual sales of $74.3b
Depuy Orthopaedics, Inc., a franchise of J&J, manufactures orthopedic surgical implants.

4. Motivation $ $ $ Agile Supply Chain
Surgical instrument SKU proliferation – 12,000
Long lead time from suppliers – 10 weeks
Short Lead Time to distributors – 48 hours
Inaccurate forecast – MAPE = 65%
High inventory levels, Costs – 5 times the annual cycle $ $ $
Supplier Strategies
Distribution Strategies
Inventory Strategies
Agile Supply Chain
Short Lead Times
Low inventory
Fast Response

5. Agility – Definition
The ability to quickly respond to customers’ dynamic demand while keeping inventory levels and cost low.
Virtual
Agile Supply Chain
Demand Sensitive
Process Integration
Network Based

6. Instrument Supply Chain
Information Flow
Make to Order
For the information flow, the order needs come from patients to supplier; And the products are manufacted from suppliers and make patients happy.
This is the make to order supply chain.
Material Flow

7. Problem / Opportunity Statement
Current Situations
Goal
Symptoms
Lead time
Average 8-12 weeks
$250 Million
65% SKUs >one year of inventory
17% of slow mover 34% of fast mover
Inventory Cost
These three key things cause the problems of supply chain and hinder the agility. Let’s look What the symptom what makes this supply chain bad, We want to be doctor and let’s check the details – them we can let’s diagnoses. Lead time numbers are spread out almost uniformly from 20 days to 180, and then with lower occurrences, from 200 to 690 days,
Backorders

8. Instrument Supply Chain
All the stages and their characters are complemented each other. Considering the long lead time
Manufacturing Stage

9. Key Findings: Long Lead Time on Manufacturing process
10 Components ……
Order
Schedule
Setup
Manufacture
Assemble
J&J is not the only customer, capacity constrain; This is what the long lead time comes from. Because there is big problems on the setup scheduling. Let’s look two figure, 8 hours for set up but 10 min for manufacturing all. We have to wait for a longer time for each component before assembling, Nomally one instrument has 10 compoments.
This is why the … lead time / inventory is high. Considering the capacity, that’s also the reason why supplier need MOQ. To balance MOQ and inventory
1 Day -5 Week
1 Day -10 Week
Capacity constraints
SKU manufacturing knowledge barrier
Minimum of quantity (MOQ) requirements

10. Finding: Ordering
Discrete Purchase Order: Orders are based on need. Lead time not in contract.
Vendor Management Inventory (VMI) (70% of SKUs): Annual order. Forecast and current inventory levels are shared.
DePuy has segmentation on the SKU and strategy to manage them. By supplier part,
Don’t know when they receive the PO, and when receive the goods; don’t know how to control the flow
DePuy don’t know when they receive the products.
Suppliers don’t have commitment from DePuy on future orders, can’t plan allocate capacity .

11. Instrument Supply Chain
Planning Stage
All the stages and their characters are complemented each other. Considering the long lead time

12. Finding: Order Management
PO and VMI are not Well Managed:
VMI conditions not enforced. Order strategy is not aligned with SKU demand.
PO, planner is blind to
VMI:

13. MIT SCM ResearchFest May 22, 2014
Finding: Inaccurate Forecast
Over forecasting
MIT SCM ResearchFest May 22, 2014

14. Finding: Data Barrier
No history data: New Products accounts for 50% budget
Hard to Predict: 77% of 12,000 SKUs are legacy products.
Leading to xxx, the scheduling, compensate.
77% SKUs

15. MIT SCM ResearchFest May 22, 2014
Findings – Ordering Practices
Uncertain Ordering – cannot capture the real lead time. They don’t really Keep the log and acture data ; (reorder)- inaccurate and we cannt see the real situations.
Reuse of existing POs – cannot capture lead time.
Delay of orders to reach MOQ/discount thresholds.
MIT SCM ResearchFest May 22, 2014

16. Instrument Supply Chain
Demand Stage
All the stages and their characters are complemented each other. Considering the long lead time

17. Finding: High demand variation
High share of slow movers: 59% of SKUs are <5 units per month
Orders pattern uncertainty: orders flow in a volatile manner
Hard to predict
Information Barrier: No Communications between Distributors;
No visibility to inventory at distributors’ warehouses.

18. Instrument Supply Chain
All the stages and their characters are complemented each other. Considering the long lead time
Inventory and Delivery Stage

19. Finding: Drivers of High Levels of Inventory
65% of the SKUs are with more than a year worth of supply
Inaccurate forecast
Minimum Order Quantity (MOQ)required by suppliers
Lack of transshipment between distributors
Lack of visibility across the supply chain
Long lead time
all com together, lack of responsness.carrying the intventory

20. Results – What Hinders Agility?
No visibility across partners
No standard inventory management
Communications
Information Barriers
Virtual
Agile Supply Chain
Volatile order flow
VMI not managed
No sales feedback
Inaccurate forecast
Demand Sensitive
Process Integration
Network Based
No knowledge sharing
No inventory sharing
Material Flow Barriers

21. Recommendations Distribution Channel DePuy Practices
Suppliers Management

22. Recommendations Distribution Channel DePuy Practices
Suppliers Management

23. Build a Database of inventory at Distributors
Recommendations
Distribution Channel
DePuy Practices
Suppliers Management
Build a Database of inventory at Distributors D1 D2 D3 D4 ? ? ? ?
DePuy

24. Recommendations Distribution Channel DePuy Practices
Suppliers Management
Build a Database of inventory at Distributors
Benefits
Close monitor of real time usage.
Advice Distributors on inventory management – orchestrate the supply chain.
Validate orders
Extend the visibility to all players D1 D2 D3 D4
Suppliers
DePuy

25. Recommendations Distribution Channel DePuy Practices
Suppliers Management
Build a Database of inventory at Distributors
Transshipment – Replenishments between distributors
One network vs. independent warehouses.
Benefits:
Second source of supply
Reduced safety stock
Fast response, high LOS
Less inventory D1 D2 D3 D4
DePuy
Yale T. Herer, Michal Tzur, Enver Yucesan (2002)

26. Recommendations Distribution Channel DePuy Practices
Suppliers Management
Build a Database of inventory at Distributors
Transshipment – Replenishments between distributors
Slow movers managed by DePuy
Benefit:
No need for 37 safety stocks of 7,000 instruments. D1 D2 D3 D4
DePuy

27. Recommendations Distribution Channel DePuy Practices
Suppliers Management
Build a Database of inventory at Distributors
Transshipment – Replenishments between distributors
Slow movers managed by DePuy
Benefit:
No need for 37 safety stocks of 7,000 instruments.
Build a Database of inventory
Replenishments between distributors
Slow movers managed by DePuy
DePuy D1 D2 D3 D4

28. Recommendations Distribution Channel DePuy Practices
Suppliers Management
Build a Database of inventory
Replenishments between distributors
Slow movers managed by DePuy
Order instruments in product families
Suppliers to identify families to minimize setup times
Benefit:
Reducing MOQ, will be applied at the group level
Better forecast
Lower inventory levels
DePuy D1 D2 D3 D4

29. Recommendations Distribution Channel DePuy Practices
Suppliers Management
Build a Database of inventory
Replenishments between distributors
Slow movers managed by DePuy
Order instruments in product families
DePuy D1 D2 D3 D4

30. Recommendations Distribution Channel DePuy Practices
Suppliers Management
Build a Database of inventory
Replenishments between distributors
Slow movers managed by DePuy
Order instruments in product families
Dedicated capacity
Benefits:
Gain back in-house flexibilities
Reduced lead time
No capacity competition
Lower unit cost
How?
Commitment on minimum order
Smooth ordering flow
DePuy D1 D2 D3 D4

31. Recommendations Distribution Channel DePuy Practices
Suppliers Management
Build a Database of inventory
Replenishments between distributors
Slow movers managed by DePuy
Order instruments in product families
Dedicated capacity
Work with suppliers to eliminate/reduce MOQ
Avoid working with one instrument suppliers
DePuy D1 D2 D3 D4

32. Recommendations Distribution Channel DePuy Practices
Suppliers Management
Build a Database of inventory
Replenishments between distributors
Slow movers managed by DePuy
Order instruments in product families
Dedicated capacity
Eliminate/Reduce MOQ
Avoid working with one instrument supplier
Order instruments in product families
Dedicated capacity
Benefits:
Gain back in-house flexibilities
Reduced lead time
No capacity competition
Lower unit cost (15%)
How?
Commitment on minimum order
Smooth ordering flow
DePuy D1 D2 D3 D4

33. Recommendations Distribution Channel DePuy Practices
Suppliers Management
Build a Database of inventory
Replenishments between distributors
Slow movers managed by DePuy
SKU Rationalization
12,000 SKUs only in joint reconstruction. 14,000 in spine.
Benefits:
Reduced complexity
Improved forecast
Lower inventory
How?
Incentivize designers for fewer new instruments.
End of life process – charge for ‘exotic’ instruments
Order instruments in product families
Dedicated capacity
Eliminate/Reduce MOQ
Avoid working with one instrument supplier
DePuy D1 D2 D3 D4

34. Recommendations Distribution Channel DePuy Practices
Suppliers Management
Build a Database of inventory
Replenishments between distributors
Slow movers managed by DePuy
SKU Rationalization
Better management of instruments under VMI
Consider relaxing LOS when servicing distributors
Simplify the process of opening PO
Manage legacy and base instruments differently
Order instruments in product families
Dedicated capacity
Eliminate/Reduce MOQ
Avoid working with one instrument supplier
DePuy D1 D2 D3 D4

35. MIT SCM ResearchFest May 21, 2015
Questions?
MIT SCM ResearchFest May 21, 2015