Baxter Health Care: Strategic Alliance

• Background

• Business Process Redesign: Process, IT

• Lessons Learned

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Baxter Health Care

Baxter Is a World Leader in the Production and Distribution of Health Care Products

• Sales exceeded $7 billion in 1990:- Manufacturing plants all over North America- Strategy to be “low cost producer”- Supplier alliance programs since early 80’s

• Purchases over $50 million in corrugated material:- Quality packaging critical to distribution- Considered a “strategic material”

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Baxter Health Care

Baxter Corrugated Strategic Alliance Was a Multi-Year Commitment

Objectives:

• Reduce the supplier base to a minimum number

• Develop a long term strategic alliance

• Have a continuous improvement program

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Baxter Health Care

The First Step Was to Select Suppliers for Partnerships

1990 Corrugated Purchases

Georgia-Pacific/GNN

Temple InlandJSC/CCA

Wabash FibreWeyerhaeuser

Green Bay

Stone

Western Kraft

Boise Cascade

MacMillian Bloedel

JSC/CCA

Temple Inland

Weslvaco

Temple Inland

Weyerhaeuser

Stone

MacMillanBioedel

JSC/CCA

Longview

Temple Inland

MillerContainer

InternationalPaper

PCA

Green Bay

JSC/CCA

Temple Inland

GP/GNN30 Others 3 Others St. Joe WestvacoGP/GNN

BoiseCascade

Stone

UnionCamp

Weyerhaeuser

Plant EPlant CPlant BPlant A Plant D

Percentof

Total

1990 Purchases

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XXXXX / Gemini Innovation Workshop

04/20/23 16:41

Baxter Health Care

A Target Was Established to Reduce the Supply Chain Cost by 16 to 24 Percent

Targeted savings ranged from $8 to $12 million.Targeted savings ranged from $8 to $12 million.

Box redesign

Volume discount/price reduction

System cost

20

0

5

10

15

• Spec consolidation

• Source reduction (tray substitution)

• High performance linerboard

• Reusable containers

• Suppliers:-Production planning-Shipping logistics-Fewer customer/products

• Buyer:-Packaging line downtime-Receiving inspection-Accounts payable-JIT delivery

• Capacity utilization

• Long-term committed volumes

• Singular opportunity for competitive bid

Percentof

Savings

%

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XXXXX / Gemini Innovation Workshop

04/20/23 16:41

Baxter Health Care

Baxter and the Supplier Identified 34 Major Steps in the Supply Chain Process

ForecastMaster

Scheduling(MRP)

PlannedPurchase

Orders

ObtainQuotes

SelectSupplier

InitiatedPurchase

Orders(MRP)

IssuePurchase

Order

OrderReceived

andMatched

OrderInspected

Transfer to

Inventory

Inventory CycleCounted

Held andTracked

asInventory

WorkorderIssued(MRP)

PicklistGenerated

Pickedand Sent

toProduction

Floor

Issuesto

Workorder

Inventory Reconciled

(MRP)

Matched in

AccountsPayable

CheckIssued

Baxter Process Before Redesign:

Current Baxter Process:

CheckedIssued

Issuesto

Workorder

ElectronicMatchingForecast

Sent toProduction

Floor

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XXXXX / Gemini Innovation Workshop

04/20/23 16:41

Baxter Health Care

The Value Improvement Process Reduced the Effort to Eight Major Steps

Current Corrugated Supplier Process:

Forecast ReceiveCheck

OrderShipped

Receive“Request

forQuote”

PrepareQuote

ForecastReceiveOrder

Buildto

Inventory

PickOrder

PrepareShippingInvoice

OrderShipped

PrepareInvoice

Matchto

AccountsReceivable

Acct.

SendDocu-ments

toBaxter

ReceiveCheck

Corrugated Supplier Process Before Redesign:

(1)

(1) Does not include internal plant manufacturing systems

ReceivePlant

Request

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XXXXX / Gemini Innovation Workshop

04/20/23 16:41

Baxter Health Care

The New Procurement Process Is a Whole New Way of Doing Business

• Selected two suppliers in stategic alliance - they invest and share in program

• Price base on published corrugated plus convesion

• Taken off MRP and inventroy systems

• Decision-making responsibility at the lowest possible level

• Pre-released at supplier and process monitoring/validation to ensure quality

• Electronic process with high IT utilization; matching of purchase order with goods(electronic funds transfer

• Rules established for partnering continuious improvement with revenue sharing

NewOld

• Multiple suppliers: 68 in United States

• Each purchase was priced

• All planning through Forecase and MRP system

• Low employee empowerment—lack of decision- making authority and responsibility at the execution level

• Inspection on each lot at receiving

• Payments to suppliers are made upon receipt of the invoice

• Improvement projects managed seperate at Baxter and suppliers

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XXXXX / Gemini Innovation Workshop

04/20/23 16:41

Baxter Health Care

Baxter Achieved Many benefits from the CorrugatedStrategic Alliance

Cost Reduction Benefits

• Savings exceede $12 M by year three

• Reduced inventories by $17M

• Reduced accounts payable staff

• Reduced receiving staff

• Streamlined administrative functions—practically eliminated paperwork and indirect overhead

Increased Quality

Supplier Benefits

• Improved profit margins

• Increased plant capacity

• Used program with other customers

• More effective use of capital

• Early involvement in new design

• Joint problem solving

Staff Benefits

• Allowed Buyers to pursue other area

• Plant staff actively involved in programs

• More interesting work

• Quality improved 34 percent

• “0” defects rather that % acceptance

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Baxter Health Care

Key Lessons Learned

• A Strategic Alliance takes over two years to fully realize:- Requires continuous involvement of management (champions) and employees- Always establish financial/quality targets

• Information technology is not always the answer:- System justifications are critical- Not a solution looking for a problem