Supply Chain Management

Supply Chain Management: 

Supply Chain Management A comprehensive presentation with examples By R. Masilamani

Content: 

Things to Ponder & Wonder ! The Supply Chain A Planter & An Automotive Examples A Drug Example Emerging Lessons of Commodity Security from Developing Countries Logistics Management Information Systems Value of Information and SCM Content 2

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3 THINGS TO PONDER & Wonder !

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4 Questions to Ponder Is Supply Chain Management a new concept? Is Supply Chain Management More Than Purchasing? What are supply chain disruptions ? what factors drive supply chain disruptions? Why Wal-Mart's supply chain is so successful ? Is Dell Supply Chain Management successful too? Is supply chain management for Plantation Industry different ? What Is Supply Chain Management, Anyway?

Answers to Wonder: 

Relatively newer. The term "supply chain management" entered the public domain when Keith Oliver , a consultant at Booz Allen Hamilton, used it in an interview for the Financial Times in 1982 Yes, purchasing is only a subset of SCM which encompasses more Creating inefficiencies/ineffectiveness of SCM Things like lack of alternate suppliers, over-reliance on outsourcing, having very lean operations, poor collaboration, demand-supply variations, natural calamities, part shortages, manufacturing delays, shipping and cargo delays, rollout problems, order changes by some customers etc. Always customer oriented , ‘Everyday Low Price Strategy’ Yes, because Dell sells its computer systems directly to end customers , bypassing distributors and retailers (resellers) Only in Practice; in principle the same . A supply chain consists of three types of entities : customers, a producer, and the producer's suppliers 5 Answers to Wonder

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The Supply ChaiN 6

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7 " Pretty much, Apple and Dell are the only ones in this industry making money. They make it by being Wal-Mart . We make it by innovation ". - Steve Jobs, Apple PCM Needs Innovation

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What is Supply Chain Management ? Supply Chain is a set of activities (e.g. purchasing, manufacturing, logistics, distribution, marketing) that perform the function of delivering value to end customer . The supply chain planning is an effort to achieve the primary goal of, “producing and distributing the merchandise at the right quantity, to the right locations, and at the right time with minimum system wide cost “ - in the presence of conflicting goals of various business units 8

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Supply-Chain Management Supply-chain management is the integration of business processes from end user through original suppliers, that provide products, services, and information that add value for customers. Supply-chain management connects a company’s supply side with its demand side. It opens up supplier relationships for companies outside of the buyer’s domestic market. 9

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What Is the Supply Chain ? Also referred to as the logistics network “Suppliers, manufacturers, warehouses, distribution centres and retail outlets – “facilities” and the Raw materials Work-in-process (WIP) inventory Finished products that flow between the facilities 10

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11 About Supply Chain Management Supply chain management (SCM) systems are used to coordinate the movement of products and services from suppliers to customers (including manufacturers, wholesalers, and retailers). These systems are used to manage demand, warehouses, trade logistics, transportation, and other issues concerning facilities, and movement and transformation of materials on their way to customers. Components of SCM include supply chain optimization, and supply chain event management . SCM also comprises warehouse management, radio frequency identification (RFID), and transportation management. Other modules of SCM solutions include functionality for international trade and logistics, demand management, supplier relationship management, and service parts planning

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The Supply Chain 12

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Supply Chain Processes 13

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The Supply Chain – Another View 14

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Supply Chain Illustration 15

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Supply Chain for Denim Jeans 16

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Supply Chain for Denim Jeans (cont.) 17

Exercise 1: 

What’s the SCM process in your company? Draw its outline on Chart Identify all components of the process Identify any uniqueness 10 mins -preparation 10 mins -presentation 18 Exercise 1

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What Is Supply Chain Management (SCM)? A set of approaches used to efficiently integrate Suppliers Manufacturers Warehouses Distribution centres So that the product is produced and distributed In the right quantities To the right locations, and At the right time System-wide costs are minimized and Service level requirements are satisfied 19

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Supply Chain for Service Providers More difficult than manufacturing Does not focus on the flow of physical goods Focuses on human resources and support services More compact and less extended 20

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History of Supply Chain Management 1960’s - Inventory Management Focus, Cost Control 1970’s - MRP & BOM - Operations Planning 1980’s - MRPII, JIT - Materials Management, Logistics 1990’s - SCM - ERP - “Integrated” Purchasing, Financials, Manufacturing, Order Entry 2000’s - Optimized “Value Network” with Real- Time Decision Support; Synchronized & Collaborative Extended Network 21

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Why Is SCM Difficult? Uncertainty is inherent to every supply chain Travel times Breakdowns of machines and vehicles Weather, natural catastrophe, war Local politics, labor conditions, border issues The complexity of the problem to globally optimize a supply chain is significant Minimize internal costs Minimize uncertainty Deal with remaining uncertainty 22

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Dealing with uncertain environments – matching supply and demand -Boeing announced a $2.6 billion write-off in 1997 due to “raw materials shortages, internal and supplier parts shortages and productivity inefficiencies” -U.S Surgical Corporation announced a $22 million loss in 1993 due to “larger than anticipated inventories on the shelves of hospitals” -IBM sold out its supply of its new Aptiva PC in 1994 costing it millions in potential revenue -Hewlett-Packard and Dell found it difficult to obtain important components for their PC’s from Taiwanese suppliers in 1999 due to a massive earthquake U.S. firms spent $898 billion (10% of GDP) on supply-chain related activities in 1998 The Importance of Supply Chain Management 23

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The Importance of Supply Chain Management Shorter product life cycles of high-technology products Less opportunity to accumulate historical data on customer demand Wide choice of competing products makes it difficult to predict demand The growth of technologies such as the Internet enable greater collaboration between supply chain trading partners If you don’t do it , your competitor will Major buyers such as Wal-Mart demand a level of “supply chain maturity” of its suppliers Availability of SCM technologies on the market Firms have access to multiple products (e.g., SAP, Baan, Oracle, JD Edwards) with which to integrate internal processes 24

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Supply Chain Management and Uncertainty Inventory and back-order levels fluctuate considerably across the supply chain even when customer demand doesn’t vary The variability worsens as we travel “up” the supply chain Forecasting doesn’t help! 25

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Factors Contributing to the Bullwhip Demand forecasting practices Min-max inventory management (reorder points to bring inventory up to predicted levels) Lead time Longer lead times lead to greater variability in estimates of average demand, thus increasing variability and safety stock costs Batch ordering Peaks and valleys in orders Fixed ordering costs Impact of transportation costs (e.g., fuel costs) Sales quotas Price fluctuations Promotion and discount policies Lack of centralized information 26

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Personalized content and services for their customers Collaborative planning with design partners, distributors, and suppliers Real-time commitments for design, production, inventory, and transportation capacity Flexible logistics options to ensure timely fulfillment Order tracking & reporting across multiple vendors and carriers Today’s Marketplace Requires: Shared visibility for trading partners 27

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Supply Chain Management – Key Issues Overcoming functional silos with conflicting goals 28

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Supply Chain Management – Key Issues Warehouse locations and capacities Plant locations and production levels Transportation flows between facilities to minimize cost and time ------------------------------------------------------------------- How should inventory be managed? Why does inventory fluctuate and what strategies minimize this? ------------------------------------------------------------------- Impact of volume discount and revenue sharing Pricing strategies to reduce order-shipment variability ------------------------------------------------------------------- Selection of distribution strategies (e.g., direct ship vs. cross-docking) How many cross-dock points are needed? Cost/Benefits of different strategies ------------------------------------------------------------------- How can integration with partners be achieved? What level of integration is best? What information and processes can be shared? What partnerships should be implemented and in which situations? ------------------------------------------------------------------- What are our core supply chain capabilities and which are not- Does our product design mandate different outsourcing approaches? Risk management ------------------------------------------------------------------- How are inventory holding and transportation costs affected by product design? How does product design enable mass customization? --------------------------------------------------------------------------- Network Planning ____________________________________ Inventory Control ____________________________________ Supply Contracts ____________________________________ Distribution Strategies ------------------------------- Integration and Strategic Partnering ------------------------------- Outsourcing & Procurement Strategies ------------------------------- Product Design ---------------------------- Aource-Simchi /Levi 29

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Make to Stock Make to Order Configure to Order Engineer to Order standardized products, relatively predictable demand customized products, many variations Low manufacturing costs; meet customer demands quickly Customization; reduced inventory; improved service levels Low inventory levels; wide range of product offerings; simplified planning Enables response to specific customer requirements WHEN TO CHOOSE Supply Chain Management Operations Strategies STRATEGY BENEFITS many variations on finished product; infrequent demand complex products, unique customer specifications 30

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Supply Chain Management – Benefits Delivery Performance 16%-28% Improvement Inventory Reduction ` 25%-60% Improvement Fulfilment Cycle Time 30%-50% Improvement Forecast Accuracy 25%-80% Improvement Overall Productivity 10%-16% Improvement Lower Supply-Chain Costs 25%-50% Improvement Fill Rates 20%-30% Improvement Improved Capacity Realization 10%-20% Improvement Source: Cohen & Roussel A 1997 PRTM Integrated Supply Chain Benchmarking Survey of 331 firms found significant benefits to integrating the supply chain 31

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Supply Chain Imperatives for Success View the supply chain as a strategic asset and a differentiator -Wal-Mart’s partnership with Proctor & Gamble to automatically replenish inventory -Dell’s innovative direct-to-consumer sales and build-to-order manufacturing Create unique supply chain configurations that align with your company’s strategic objectives Operations strategy Outsourcing strategy Channel strategy Customer service strategy Asset network Reduce uncertainty Forecasting Collaboration Integration Supply chain configuration components 32

Exercise 2: 

Define SCM in your own words. Explain how far you have advanced in implementing SCM in your company Is there room for improvement If so, put down your recommendations Preparation-10mins Presentation-10mins 33 Exercise 2

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TWo Examples-a planter & an Automotive 34

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Supply Chain Evolution at Nabisco 35

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Supply Chain Evolution at Nabisco (cont.) 36

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Supply Chain Evolution at Nabisco (cont.) 37

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39 E-automotive Supply Chain (cont.)

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Considerations for Selecting a Mode of Transport Transit Time Predictability Cost Non-economic Factors 40

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Export Documentation A bill of lading is a contract between the exporter and the carrier indicating that the carrier has accepted responsibility for the goods and will provide transportation in return for payment . A commercial invoice is a bill for the goods stating basic information about the transaction, including a description of the merchandise, total cost of the goods sold, addresses of the shipper and seller, and delivery and payment terms . A freight forwarder specializes in handling export documentation. 41

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Logistics • Changed rapidly during past 40 years • In 1960s logistics was synonymous with physical distribution • In 1970s German business administration professors introduced the concept of, “ Betriebswirtschaftliche Logistik ” defining logistics as, “ integrated management of the flow of goods and related information” 42

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A firm’s logistics platform is determined by a location’s ease and convenience of market reach under favourable cost circumstances . The public sector’s investment priorities , safety regulations, tax incentives, and transport policies can have major effects on the logistics decisions of firms . The logistics manager must learn about existing and planned infrastructures abroad and at home and factor them into the firm’s strategy. Transportation Infrastructure 43

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SCM Problems • Supply interruptions are a classical problem in programs • Stock outs and expirations are common in all programs • There is critical need to predict and carefully manage potential supply chain interruptions • There is a multiplicity of causes of supply chain interruptions 44

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Types of SCM • Full supply – supply matches demand • Limited supply – demand exceeds supply • Integrated supply chain • Vertical supply chain 45

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What is Supply Chain Management? • No consensus on what supply chain or SCM is • 1985, Jones and Riley introduced SCM as a tool to manage inventory for gaining competitive advantage • Many definitions , theories and models proposed • Supply Chain = linkages of organizations, people, procedures and systems involved in getting products to customers • SCM is the management of the entire set of business processes that produces and delivers products/services to the final customer 46

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A Drug example for SCM 47

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Setting Scene For Effective SCM • Enabling environment • Coordination • Planning framework • Financial resources • Human resources 48

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SCM Acid Test The barometer of effective SCM is the availability of , The Right medicine In the Right quantity For the Right patient At the Right time In the Right condition At the Right price Six rights of logistics adapted from John Snow Inc. 50

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Logistics Cycle – Group Exercise • Allocate the different activities in the logistics cycle to small groups • Each group to discuss the importance of the activity in supply chain management of your company pds / svs • For each activity identify possible causes of inefficiency pds -products s vs -services 51

Product Selection: 

Product Selection Importance Specifies products Ensures compatibility with guidelines & laws Ensures safety, quality and cost effectiveness Sources of inefficiency No policy, guidelines or STGs No transparency Inadequate human capacity 52

Quantification/Forecasting: 

Sources of inefficiency Quantification/Forecasting • No reliable consumption data • No reliable stock status data • No human capacity • Estimates short, medium and long term requirements • Ensures uninterrupted supply Importance 53

Procurement: 

Importance Sources of inefficiency Procurement • Ensures that products are purchased • Poor specifications • Unclear procedures • No reliable quantification • Supplier uncertainty • Technology change 54

Storage: 

Storage Ensures that products are kept in a manner that maintains quality and efficacy Ensures that products are available when needed Sources of inefficiency Lack of knowledge about storage conditions Lack of ideal storage facilities Poor communication between SCM and program managers Importance 55

Distribution: 

Distribution Importance Sources of inefficiency Ensures products are transported to dispensing sites Unclear procedures Unreliable mode of transport Lack of dedicated transport Poor coordination between distributor, SCM and program managers 56

Inventory Control: 

Inventory Control Importance Sources of inefficiency Ensures stock status monitoring No system No tools Tools not collecting essential data Lack of human capacity 57

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Inventory Management • Storage • Distribution • Inventory control 58

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Storage & Distribution (1 ) Ensure constant supply of medicines Maintain medicines in good condition until they reach the client Minimise losses due to damage and expiry Prevent theft and fraud 59

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Storage & Distribution (2 ) • Maintain accurate inventory records • Strategic storage points for timely delivery , quality maintenance and security • Efficient use of transport • Distribution – 20-25% cost of drug retail price ( US pharmaceutical industry ) 60

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Strategies for ARV Distribution • Integrated into essential drugs program or other existing system • Vertical distribution system • Mixed approach • Contracting with the private sector • Short supply chain improves effectiveness of distribution 61

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Storage Considerations (1) • Number of storage levels – Central – Intermediate • Adequate space – Optimal use of existing space – Disposal of expired commodities • Adequate security – High value drugs – Huge demand for drugs 62

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Storage Considerations (2 ) • Cold chain requirements – Rapid HIV test kits ( Capillus ) – Kaletra loses potency when stored >25 degrees C for at least 2 months • Short shelf life – Rapid HIV test kits – 6-18 months – Different shelf life for test (12-18 mnths ) and chase buffer (11-13mnths) – ARV drugs – 12-24 months 63

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Inventory Control • Stock status assessment – Tracking of quantity and use span of commodities in a supply chain/pipeline • Purpose – To determine how long supplies will last – To detect potential stock outs/expirations and take appropriate and timely action – This is particularly critical in ART programs where there should be zero tolerance for stock out 64

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What information is needed ? • Stock on Hand – Physical inventory – Stock card • Average monthly consumption(AMC) – Dispensed to user data (consumption data) – Issues data • Calculating AMC – Trend – recent 6 months average – Fluctuation – last 3 months average – How about ART programs? • Stock Status – MOS = SOH/AMC 65

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Stock Status Assessment Challenges • Too many products in EDL • Staff shortages • So what can be done? • Prioritization – VEN = classification by medical need – ABC = classification by cost (Pareto analysis) • ARV drugs are high priority in either system and therefore regular stock status assessment is critical 66

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Inventory Control Systems • When to order or issue? • How much to order or issue? • Determining and maintaining appropriate stock level • Pull system • Push system • Goal: To avoid stock out and expiration • How: By setting SL low enough to avoid S/O and high enough to avoid expiration • Huge challenge and requires reliable LMIS data 67

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Stock Levels • Maximum – Minimum – Established range of stock level • Maximum – Established maximum threshold • Minimum – Established minimum threshold • Different max-min levels may be set for each level of the pipeline 68

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Useful concepts • Review period/Order interval – Interval between stock status assessments – May result in an order or issue • Safety stock level – Buffer of stock on hand needed to prevent unexpected stock out • Lead time – Time interval between placing an order and receiving and having stock ready for use • Emergency order point – Stock level threshold which triggers an order or issue irrespective of the review period 69

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Determinants of lead time • Manufacturer capacity - Zerit global demand • Customs clearance process • Reliability of distribution system in developing countries • Length of the supply chain 70

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Setting Stock Levels (Forced Ordering ) • Min SL = Lead time SL + Safety SL • Safety SL = at least half review period stock • Max SL >/= Min SL + Review Period SL • EOP =/> Longest emergency lead time stock 71

Forced Ordering: 

Forced Ordering Advantages • Simple decision rule • Schedule transport Disadvantages • Possibility of small quantity orders 72

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Forced-Ordering Delivery (2) • This system can either be pull or push • Explain the difference • Useful for ART programs • Requires investment in transport system and trained delivery staff • Reliable collection of logistics information • Discuss other advantages of this system 73

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Advantages of Forced-Ordering Delivery • Lead time is eliminated • Shortens pipeline • Reduces costs of holding inventory • Redistribution and collection of damaged or expired products possible • Provides opportunity for support and supervision 74

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Continuous Review System • Assess stock status every time an issue is made and order back to max only when Min SL is reached • No fixed review period • Store keeper must know both max and min • No EOP • Example is a condom dispenser • Is always a pull system (Explain why?) 75

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Continuous Review Advantages • Simple decision rule • Orders can be placed any time (good for SDP) Disadvantages • Huge transport demand • Work intensive • Can be expensive 76

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Two-Bin System • Two equal bins of inventory • Order when 1 bin is empty • Simple variation of continuous review system • No paper work, No calculations • Min = 1 bin, Max = 2 bins • Size of each bin should be determined by AMC • Useful for CBDs 77

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Standard System • Only order to bring to max SL products that are below Min SL at end of review period • Emergency orders can be placed at any time • Hybrid of forced order and continuous review systems • Review period fixed • Stock level set • EOP is also set 78

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Standard Advantages • No small orders • No need to assess stock status continually, ideal for many commodities • Regular order schedule Disadvantages • High buffer stock • Discuss attendant problems of huge buffer stock • Training of storekeepers 79

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Group Work • You are starting an ART program at four sites in your region/country. Each site has fairly reliable telephone/fax communication with the MOH head office. A dedicated distribution system has been proposed for the program. Funding has been committed for first and second line drugs for up to 1000 patients at each site during the first year. Q1-Would you recommend a pull or push system for 1st line drugs? Q2-Would you recommend a pull or push system for 2nd line drugs? Q3-Describe the type of inventory control system which you would recommend. Your recommendation should include the factors that should be considered in designing the system 80

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Designing Inventory Control Systems • Number of products • Transport • Training • Reporting • Push or pull • Supervision • Storage space 81

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Logistics Management Information Systems 82

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Logistics Management Information Systems • Why should we collect data? • What data should we collect? • How do we collect the data? 83

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What is LMIS ? • Collecting, collating and analysing data for decision making • Critical for monitoring a supply chain • What are the important questions which must be answered by an LMIS? 84

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Essential LMIS Data Items • Stock on Hand • Consumption • Losses and adjustments • Service statistics - what are some of the important service statistics in an ART 85

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Sources of LMIS Data • Stock keeping records • Transaction records • Consumption records • Reports 86

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Supply Chain Management Strategies-an example • Objective: CREATE, ENHANCE and PROMOTE uninterrupted supply of high-quality, low cost products that flow through an accountable system • To rapidly scale up SCM to support HIV/AIDS treatment, prevention and care • To develop capacity for sustainable procurement and distribution • To ensure quality control of commodities • To address IPR laws at international and national levels Source : US Department of State - Supportive interventions for US Government Programs 87

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Strategies for Rapid SCM Scale up (1) • Private public collaboration • Set up vertical distribution and LMIS • Technical assistance • Improve storage conditions and capacity 88

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Strategies for Rapid SCM Scale up (2) Improve inventory management systems • Develop human capacity • Collaboration between SCM and program managers • Coordination of all donors and stakeholders 89

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Sustainable Procurement and Distribution • Use lessons learnt from other public health programs • Develop and strengthen procedures and guidelines for product selection • Develop and strengthen procedures and guidelines for distribution 90

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Quality Control of Commodities • Enhance country capacity to test and monitor quality of commodities • Establish regional quality control facilities 91

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Intellectual Property Rights • Balancing IPR and public health • TRIPS and flexibilities in Paragraph 6 of the DOHA Declaration • To what extent have developing countries used these flexibilities ? • Is IPR a barrier to effective SCM of HIV/AIDS drugs in the MENA region? • How is SCM affected by tariffs and duties? 92

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ARV Commodity Security • Sustainable supply for life for patients on ART • Pillars – Forecasting – Financing – Procurement – Distribution 93

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Emerging Lessons on HIV/AIDS Commodity Security from Developing Countries 94

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Forecasting • ART program newness • Lack of in-country expertise in forecasting and quantification • Lack of skilled staff – No pharmacists at district hospitals • Weak LMIS even in EDP • Poor quality of logistics data - incomplete and inaccurate • Lack of trust in the system – high prevalence of stock piling of essential drugs • Demographic data based on DHS either not up to date or lacks HIV prevalence data • Some countries not conducting HIV surveillance 95

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Methods for Improving Forecasts Internal experts External experts Domain experts Delphi technique Moving average Exponential smoothing Trend analysis Seasonality analysis Market testing Market surveys Focus groups Relies on data other than that being predicted Economic data, commodity data, etc Judgment Methods Market Research Analysis 96

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The Evolving Supply Chain 97

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Supply Chain Integration – Push Strategies Classical manufacturing supply chain strategy Manufacturing forecasts are long-range Orders from retailers’ warehouses Longer response time to react to marketplace changes Unable to meet changing demand patterns Supply chain inventory becomes obsolete as demand for certain products disappears Increased variability (Bullwhip effect) leading to: Large inventory safety stocks Larger and more variably sized production batches Unacceptable service levels Inventory obsolescence Inefficient use of production facilities (factories) How is demand determined? Peak? Average? How is transportation capacity determined? Examples: Auto industry, large appliances, others? 98

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Supply Chain Integration – Pull Strategies Production and distribution are demand-driven Coordinated with true customer demand None or little inventory held Only in response to specific orders Fast information flow mechanisms POS data Decreased lead times Decreased retailer inventory Decreased variability in the supply chain and especially at manufacturers Decreased manufacturer inventory More efficient use of resources More difficult to take advantage of scale opportunities Examples: Dell, Amazon 99

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Supply Chain Integration – Push/Pull Strategies Hybrid of “push” and “pull” strategies to overcome disadvantages of each Early stages of product assembly are done in a “push” manner Partial assembly of product based on aggregate demand forecasts (which are more accurate than individual product demand forecasts) Uncertainty is reduced so safety stock inventory is lower Final product assembly is done based on customer demand for specific product configurations Supply chain timeline determines “push-pull boundary “Customized” Product Generic” Product Supply Chain Timeline End Consumer Raw Materials 100

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Industries where: Customization is High Demand is uncertain Scale economies are Low Where do the following industries fit in this model: Automobile? Aircraft? Fashion? Petroleum refining? Pharmaceuticals? Biotechnology? Medical Devices? Industries where: Uncertainty is low Low economies of scale Push-pull supply chain Books, CD’s Pull Computer equipment Economies of Scale Demand Uncertaint y Industries where: Demand is uncertain Scale economies are High Low economies of scale Furniture Choosing Between Push/Pull Strategies Pull Push Push Industries where: Standard processes are the norm Demand is stable Scale economies are High Grocery, Beverages High High Low Low 101

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PUSH PULL Objective Minimize Cost Maximize Service Level High Low Complexity High Low Focus Resource Allocation Responsiveness Lead Time Long Short Processes Supply Chain Planning Order Fulfilment Characteristics of Push, Pull and Push/Pull Strategies Source: Simchi /Levi 102

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Financing- HIV/AIDS Drug • Huge treatment gap but not yet quantified • Multiple donors and little coordination • Competing priorities for Government expenditure • Donor commitments usually limited to 1 year • Variable degree of political and fiscal commitment in different countries • Scope for more private sector involvement • Approaches to cost sharing 103

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Procurement • Multiple procurement agents for various HIV/AIDS commodities with little coordination . • Donor funded programs tend to have carefully considered procurement plans • Lack of transparency and inefficiency of the procurement process remains a major issue 104

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Delivery • Weak LMIS for HIV related commodities • Multiple donor funded programs with different and uncoordinated distribution systems • Efficiency gained by outsourcing distribution of ARV drugs and other HIV products • Dedicated distribution for ARV drugs • Development of inventory management procedures and LMIS systems were frequently an after thought • Varying degrees of political, civil society and community pressure to initiate and/or rapidly scale-up ART programs 105

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ARV SCM Issues in the MENA Region • Program initiation versus scaling up • Stigma • New markets for most manufacturers • What is the role of private-public collaboration ? • Is there a place for pooled procurement ? • Sharing experience with countries in other regions 106

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Example of an ARV Supply Chain • Donor • Primary implementer • Procurement Agent • Storage and Distribution Agent • Service Delivery Points – 4 clinics • End users – 1000 eligible ART patients 107

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MOH DONOR Program Management ART service Delivery ART Patient Warehousing/Distribution Agent Procurement agent External supplier Flow of Drugs Flow of Info Monthly Program Report SDP to MOH Monthly Logistics Report /Reorder SDP to Program Manager Quarterly Program Report Program Manager to Donor MOH/Donor Meetings 2 year Forecast Procurement Plan – 4 shipments 7 ARV drugs Central min stock level = 2/12 Central max stock level = 8/12 Forced Ordering Pull IVCS at SDP Review period = 1/12 Min stock level = 1/12 Max stock level = 3/12 108

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ARV LMIS • Stock keeping records – Stock card for each drug at SDP level – Stock card for each drug at central level – Capture SOH/ and L/A • Consumption records – Dispensing log at SDP level • Transaction records – RIV – Issue note at SDP level • Summary reporting – Monthly logistics and stock order form – Monthly ART report for service statistics 109

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Strengths of the System (1 ) • The LMIS forms at SDP level capture all 3 essential LMIS data items – Stock Card Stock on Hand • Losses and Adjustments • Promotes accountability – Dispensing Log • Dispensed to user data – Reporting/reordering • Self balancing monthly logistics R/R • The review period for stock status assessment and ordering coincides with reporting • Efficient mailing system and email service for submitting report to central • Short pipeline – 2 levels, lead time (SDP) = 1-2 weeks • Reliable transport and distribution system (outsourced) 110

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Strengths of the System (2) • Adaptability – the logistics R/R was revised twice in less than a year • Procurement plan is flexible – cancellation of planned second line ARV drug shipments permissible in supply contract • On-going quality monitoring - monthly site support visits and supervision • On-going collaboration with the MOH • Ownership of the program by the sites 111

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Conclusion (1 ) • SCM is often ignored in most public health programs • SCM should be carefully planned at the beginning of an ART program • Effective SCM is the key to effective comprehensive HIV/AIDS programs • Coordination is imperative – Program and SCM managers – Program Funders 112

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Conclusion (2) • Effective supply chain management of HIV related commodities is central to the hope for a longer and improved quality of life of more than 6 million PLWHA in urgent need of treatment globally! • Always remember that every stock-out of ARV drugs within your pipeline contributes to the unnecessary and premature death of a child, woman or man somewhere out there. • Our action must make a difference! 113

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Country Experiences (1 ) • Participants from each country to form a group • How many ARV supply chains are there? (different funders with different supply chains) • Draw the ARV supply chain for your National Program highlighting the flow of drugs and flow of data • Describe the strengths and weaknesses of the system • Suggest recommendations to strengthen the system • Describe problems which the system has encountered • How were the problems resolved? 114

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Country Experiences (2) Describe the LMIS forms in use • Describe how SDPs order ARV drugs • Describe the inventory control system that is in use • Have there been any reports of ARV stock out? If so why? • Have there been any ARV expiration? If so why reports of? • What strategies have been put in place to ensure ARV commodity security? • Are ARVs in full supply? 115

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Value of Information and SCM 116

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117 Information Dashboard Inventory management, e.g. Preventing lost sales due to stock outs; minimizing excess inventory by monitoring by product, geography, and partner Channel development, e.g. Identifying new partners; tracking market share trends by geography Sales management, e.g. Optimizing pricing based on sales velocity trends; developing vertical market strategies based on sales trends Financial reporting and compliance, e.g. Improving the accuracy of incentive payments; improving the accuracy of reserves through better tracking of returns

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118 Sales growth declined consistently from April through July. In contrast, online retail sales maintained the yearly growth rate with July 2011 showing a significant 33% increase above last year This slowdown started in May with year-on-year sales growth dropping to 4% from April’s 12% pace. Sales growth dropped further in June, and despite April’s strong start, the channel ended with Q2-11 sales growth of just 4% over Q2-10. The last two weeks of July saw a slight improvement , with overall sales growth for the month at 1% Vs. Jul-10. Online Retailers have grown significantly in recent years and now account for nearly 20% of the sales through the North American retail channel tracked in TCI. ( See chart on net slide) North American Retail data-2012

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Information In The Supply Chain Each facility further away from actual customer demand must make forecasts of demand Lacking actual customer buying data, each facility bases its forecasts on ‘downstream’ orders, which are more variable than actual demand To accommodate variability, inventory levels are overstocked thus increasing inventory carrying costs It’s estimated that the typical pharmaceutical company supply chain carries over 100 days of product to accommodate uncertainty Suppliers Manufacturers Warehouses & Distribution Centres Retaile r 120

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Taming the Bullwhip Four critical methods for reducing the Bullwhip effect: Reduce uncertainty in the supply chain -Centralize demand information -Keep each stage of the supply chain provided with up-to-date customer demand information -More frequent planning (continuous real-time planning the goal) Reduce variability in the supply chain -Every-day-low-price strategies for stable demand patterns Reduce lead times -Use cross-docking to reduce order lead times -Use EDI techniques to reduce information lead times Eliminate the bullwhip through strategic partnerships -Vendor-managed inventory (VMI) -Collaborative planning, forecasting and replenishment (CPFR) 121

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122 Top challenges to channel sales effectiveness Lack of data capture infrastructure Lack of shared master data definitions for all of that data that ’ s being shared Poor partner compliance with data reporting requirements and poor data quality

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123 On average, Japan is responsible for approximately 3 to 4% of international channel sales for the major US-based technology manufacturers tracked within TCI. Channel inventories for finished goods, not components, remain slightly low, but well within Japan ’ s normal range. April and May are traditionally important months for the Japanese technology channel, only slightly behind the year-end as the peak selling period. Japan Channels

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124 According to recent(April, 2011) data from Tech Channel Index (TCI) , channel sales in Japan for technology products from US manufacturers fell by an estimated 35% in the 9 days following the March 11th catastrophe, after adjusting for normal seasonal variations. See the chart below: Channel sales in Japan

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Because of the internet, firms are able to conduct many more global comparisons among suppliers and select from a wider variety of choices. When customers have the ability to access a company through the internet, the company must be prepared for 24-hour order-taking and customer service. For all countries, but particularly in developing nations, the issue of universal access to the internet is crucial. The Supply Chain and the Internet 125

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Information Technology: A Supply Chain Enabler Information links all aspects of supply chain E-business replacement of physical business processes with electronic ones Electronic data interchange (EDI) a computer-to- computer exchange of business documents Bar code and point-of-sale data creates an instantaneous computer record of a sale Radio frequency identification (RFID) technology can send product data from an item to a reader via radio waves Internet allows companies to communicate with suppliers, customers, shippers and other businesses around the world, instantaneously 126

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E-business and Supply Chain Cost savings and price reductions Reduction or elimination of the role of intermediaries Shortening supply chain response and transaction times Gaining a wider presence and increased visibility for companies Greater choices and more information for customers 127

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E-business and Supply Chain (cont.) Improved service as a result of instant accessibility to services Collection and analysis of voluminous amounts of customer data and preferences Creation of virtual companies Levelling playing field for small companies Gaining global access to markets, suppliers, and distribution channels 128

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RFID Capabilities 129

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RFID Capabilities (cont.) 130

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131

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After the terrorist attacks of 2001, companies have to deal with the fact that the pace of international transactions has slowed down and that formerly routine steps will now take longer. Logistics systems and modern transportation systems are often the targets of attacks. The need to institute new safeguards for international shipments will affect the ability of firms to efficiently plan their international shipments. Logistics and Security 132

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Logistics and the Environment Since environmental laws and regulations differ across the globe, the firm’s efforts need to be responsive to a wide variety of requirements. Reverse distribution systems are instrumental in ensuring that the firm not only delivers the product to the market, but also can retrieve it from the market for subsequent use, recycling, or disposal. Companies need to learn how to simultaneously achieve environmental and economic goals. 133

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Proliferation of trade agreements Group members charge uniform tariffs Member nations have a competitive advantage within the group Trade specialists include freight forwarders, customs house brokers, export packers, and export management and trading companies Duties and Tariffs 134

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Duties and Tariffs (cont.) 135

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Total cost of producing, storing, and transporting a product to the site of consumption or another port Value added tax (VAT) an indirect tax assessed on the increase in value of a good at any stage of production process from raw material to final product Clicker shock Occurs when an order is placed with a company that does not have the capability to calculate landed cost Landed Cost 136

Acknowledgements: 

Business Consulting Services, IBM Linda B Ban, Mgt Briefing Seminar, Aug 2004, IBM John Wiley & Sons, Inc. Roberta Russell & Bernard W. Taylor, III, University of Tennessee, USA K. Srinivasa , Distributed Systems Laboratory (DSL), Intel Corporation Dinesh Garg , Indian Institute of Science, Bangalore-India STEVENS Institute of Technology March 2011 Aberdeen study Tech Channel Index (TCI) A 1997 PRTM Integrated Supply Chain Benchmarking Survey WIKIPEDIA 137 Acknowledgements channel sales in Japan

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Be Logical in Logistics & Be Sensible in SCM - masi 138