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[DATE][SPEAKERS NAMES]

The 5th Global Health Supply Chain Summit

November 14 -16, 2012Kigali, Rwanda

 

What can we learn from Consumer Goods on supply chain? How can we smartly apply that to Health?

Hassan Belkhayat & Doan HackleyMcKinsey & Company

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In Africa, CPG has much lower stock-out rates than EHP

1 EHP : Essential Health Products; CPG : Consumer Packaged Goods

Source: DHS 2006, BMGF Contraceptive supply chain diagnostic in Senegal and Nigeria 2011

% of time, annual average% of time, annual average

Depo 46

Pills 50

Amoxicillin 25

2

3

3

4

9Kenya

Nigeria

Senegal

CPG1 stock-out rate: prepaid mobile phone credit cards

EHP1 stock-out rate

Kenya

Uganda

Tanzania

Nigeria

DRC

Nigeria POS: ~55,000

Nigeria POS: ~710,000

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Learning from CPG, despite differences, given similar challenges seem in EHP

▪ Breadth of distribution

▪ Ensuring high quality of delivered product

▪ Managing “compliance”

▪ Increasing efficiency

Similar challenges

Differences▪ Product economics

▪ Management model

▪ Complexity of delivery

▪ Regulatory considerations

▪ Product demand dynamics

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SCM is the end to end integration of key business processes

Source: McKinsey

▪ Distribution – network configuration, transportation management, operations of distribution centers, 3PL, and retailers

▪ Objective – deliver high-quality products, on time, in the demanded volumes

Information flow

Physical flow

Materials management

Manufac-turing

Distribution

Procurement planning

Production planning

Logistics planning

Order and demand management

Customer service management

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A distinctive approach to supply chain improvement

Source: McKinsey SCM Practice

Fast and effective approach with relevant key insights▪ Focus on understanding key performance drivers▪ No extensive data mining▪ Top-down quantification and prioritization

Fast and focused

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

Linked to action

Holistic perspective on performance▪ From customer to supplier▪ Quantitative (metrics) and qualitative (maturity of processes)▪ Correlation between structural set up and performance

End to end

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McKinsey 360º SC diagnostic…

Source: McKinsey SCM Practice

Quantitative – KPI benchmarks

• 30 KPIs across three dimensions – service, cost, capital

• Comparison with average and top quartile

Qualitative – maturity of practices

• 20 practices across four dimensions – strategy, operating system, management infrastructure, mindsets and capabilities

• Calibrated with proven maturity model

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Move to action – prioritize measures

…then assess impact potential and prioritize actions

Source: McKinsey SCM Practice

• Description of measures across all performance dimensions

• Best-practice SC repository including case studies and detailed approaches

McKinsey & Company 10|

Action program – measure prioritization

SOURCE: McKinsey

X Supply chain lever

Proposed improvement actions by lever

▪ Common supply chain organization with clear role and interfaces with other functions

▪ Improving necessary business processes and supporting IT systems

+Ease of implementation

Imp

act

that

can

be c

aptu

red

EasyDifficult

High

Low

2

12

13

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Service level management

Supply management

Operationallogistics

Order and demand management

2 ▪ 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

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12 ▪ 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

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▪ Improve forecasting, reduce bias towards higher forecast ▪ Decouple operational sales forecast from sales target▪ Measure and link forecast accuracy to personal

incentive/objectives

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EXAMPLE

Area of priority

Production management11

Assess impact potential

• Impact assessment tailored to supply chain strategy – e.g., service level vs. cost

• In health – stock-outs & quality, but also on overall coverage (consumption)

McKinsey & Company 59|

Potential EBT impact of supply chain improvement program is XXX USD millions

Indirect supply chain cost

15,4

Lost margin 10,0

Obsolescence 2,9

Inventory holding1 2,5

Direct supply chain cost

22,6

SCM Admin,IT, overhead

4,2

Transportation/ Warehousing

18,4

Total supply chain cost

38,0

Current costUS Dollar millions

5,0

19,2

14,2

FutureImprove-ment

Current

Resulting financial impact and SCM performance▪ Implementing S&OP

process and an integrated SCM organization

▪ Improved supplier management

Improvement potentialUS Dollar millions

5

5

5

9

8

9

9

6

Improvement potentialPercent of baseline

EBTUS Dollar millions

5.0

2.0

0.7

2.3

0.3

0.9

0.2

0.2

1.0

0.2

0.8

EBT 14,2

Material cost 237,3

Production cost 131,21

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35

1 Assumption WACC=12%

SOURCE: McKinsey analysis

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6 lessons on what drives performance

Source: McKinsey SCM Practice

Explicitly linking supply chain strategy to corporate strategy; setting clear, well-understood aspirations

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Using segmentation to embrace the complexity that matters

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Designing and building forward-looking networks that meet service, cost, and risk aspirations

3

Creating lean, end-to-end value chains by optimizing across functions

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Executing world-class integrated demand and production planning processes with discipline

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Getting the right talent on board and holding them accountable

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Methodology applied to Senegal contraceptive supply chain

Source: BMGF Contraceptive supply chain diagnostic in Senegal and Nigeria 2011

Quantitative Qualitative Room for action

Central level stock-outs

▪ Inappropriate forecasting

▪ Lack of performance management – procurement and stock levels

▪ Non standardized order management

▪ Revive RHSC to review central stock levels monthly

▪ Change forecasting tool and methodology (target driven)

▪ Implement informed push system for distribution (private logistician)

Average # days of stock out per year at SDP level

Injectables

>150

Implants

>300

Source of stock outs

Distribution issues

60%

Central level

40%

Distribution issues

▪ Complex network design

▪ Malfunctioning order management

▪ Low staff capabilities; medical staff as logisticians

Target < 2% stock-out at facility level

Supply chain key component of the FP strategy to move from 12% CPR to 27%

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Potential concrete solutions: best practice CPG ideas

Streamlining the design: how many steps?

Financing: how to pay for inventoryInventory management: right stock level?

Performance management: how to get /use data to improve performance?

Outsourcing: who and how to optimize?

Source: Team analysis

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Solutions for public health inspired by CPG best practices

▪ Revive a RHSC with all donors to follow on a monthly basis stock

▪ Trigger procurement when stock levels hit a minimum level

▪ Initial endowment from MoH of base stock to facilities as a working capital

▪ Facilities only reimburse for products sold

Financing: how to pay for inventory?Inventory management: right stock level?

▪ Products flow straight from regional warehouse to facilities

▪ Products are delivered using a standard and optimized route

▪ Central unit following impact on stock-outs and consumption (merged potentially with RHSC)

▪ Data of stock-outs and consumption collected monthly by operator

Streamlining the design: how many steps?

Performance management: how to get /use data to improve performance?

▪ 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

Outsourcing: who should operate?

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Senegal case-study results : massive supply chain improvements

Source: ISSU, operator : baseline average last quarter 2011

PIKINE DISTRICT- 2012 fugures

000000000

57

OctSeptAugustJulyJuneMayAprilMarchFebBaseline

Stock-outsShare of SDPs experiencing at least one stock-outs during a month (%)

000000000

57

000000000

86

000000000

14DIU

Implants

Injectable

Pills

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Senegal case-study results : supply chain and performance management increases health impact

Source: ISSU, operator. Baseline : average consumption per month during last quartner

PIKINE DISTRICT

ConsumptionNumber of units per month dispensed

DIU

Implants

Injectable

Pills2,7462,6222,231

2,7012,4532,6272,1872,2142,2571,590

Baseline

+73%

OctSeptAugustJulyJuneMayAprilMarchFeb

1,6421,5761,2701,6681,5991,3641,3361,3421,0661,021

+61%

175193123

223192103127120

6217

+940%

544722

4260

4125

42

1235

+52%

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Ongoing performance management is critical to satisfy customers

... without firefighting!