Since COVID hit, supply chain leaders have embraced supply chain risk management. In this discipline, one of the most difficult challenges is how to gain visibility into issues that arise across the extended supply network.
Supply chain chaos is the new normal
Becton Dickinson (BD) has embarked on a journey to improve the visibility of its extended supply chain. They call this their “n-tier” supply chain. Kevin Nelson, chief purchasing officer and senior vice president of BD, agreed to be interviewed on this topic. Mr. Nelson points out that it is possible for a supply problem deep in a supply chain to halt BD production. “When COVID came around, we really saw a lot of issues with the supply chain. About 80% of our disruptions were the result of the n-tier supply base, not our tier 1 suppliers. So we had a very urgent need to have visibility into suppliers around the world who were supplying goods , materials and raw materials to other suppliers. »
With revenues in excess of $20 billion a year, BD (NYSE: BDX) is one of the world’s largest global medical technology companies. BD and its 75,000 employees ship more than 45 billion devices each year to customers in more than 190 countries.
Mr. Nelson went on to explain that during COVID, “we, along with a lot of other businesses around the world, were just in constant firefighting mode. It’s only through this in-depth mapping that you can see that maybe it’s because there is a tier 5 supplier who is not able to get the rare earth mineral that goes into the microprocessor (which we buy) out of China. look around the corner in terms of what might happen next.
Whereas 20 years ago BD could manage a just-in-time supply chain that had a high degree of reliability, this is no longer feasible. “I think a lot of people are waiting for things to get back to normal,” Mr Nelson said. “We really understood that chaos could be our future.”
BD is a big company with a very large supply base. BD has approximately 5,000 suppliers who deliver components and materials that go into their products. “Now those 5000 vendors are Tier 1. You probably need to multiply that by 10 ‘to get a count’ for Tier 2 vendors. Then multiply by 10 for Tier 3.” There’s no need to go back too far far down the supply chain before talking about hundreds of thousands of suppliers, “How can you run a supply chain when you’re completely blind?”
The problem for BD is compounded by the fact that if they don’t deliver the products, the consequences are greater than having unhappy customers. Some of BD’s products are critical healthcare products. If they are not delivered, patients can die.
In pursuit of multi-level visibility
BD, was using a supply chain risk management solution. But they didn’t have visibility beyond their Tier 1 suppliers. They went looking for a risk management solution that could give them better visibility into their extended supply chain. They ended up with a solution from Everstream.
In a conversation with Everstream’s chief data officer, the executive told this writer that the company is using artificial intelligence (AI) and big data to solve this problem on multiple levels. The company had access to huge amounts of business data, for example. But I was skeptical. It is not enough to have data; you need the right data type! I could understand how the business data would allow the solution to detect potential suppliers in the extended supply chain, but not how the solution would know that it was the supplier’s factory in Xian China – as opposed to Tianjin – that was the source of a component that eventually ended up in a product. In a post, I expressed my skepticism and said that I thought using AI to solve this problem would lead to a lot of false positives.
Mr. Nelson explained that he too was skeptical. “I’m not going to pretend that I understand exactly how it works. But being the skeptic, I tested the validity. Prior to committing to doing business with Everstream, BD asked Everstream to map the supply chain for a product line. “They came back after three days and said ‘we have the mapping for you’. And I said, ‘you can’t. It’s impossible! We’ve been working on it for four years. We can’t get data. But we were able to go back to each vendor and confirm that this (Everstream mapping) was accurate.” Nelson quickly concluded that Everstream was at least 90% accurate. And, with such a difficult problem, that’s “remarkable”. Since then, BD has achieved a very high level of accuracy, well over 90%, for the product supply chains it has mapped. That’s several times better than what they were getting with their old solution.
With the other risk management vendor, they spent four years trying to map their extended supply chain. They spent a lot of money. And yet, BD never achieved a level of precision he was comfortable with. Also, the day after BD mapped an extended supply chain, things would start to change and the risk map would become less and less accurate.
The other risk management software vendor’s methodology was survey-based. They would go to a Tier 1 manufacturer and ask them to identify Tier 2 suppliers for parts going into a specific component. Then BD would go to Tier 2 suppliers and ask them to identify their Tier 1 suppliers (which would be BD’s Tier 3 suppliers). And this would continue until a product supply chain was mapped. But the further BD moved up the supply chain, the less incentive there was for suppliers to participate in these exercises.
Even though Everstream’s mappings can be completed much faster than with the legacy process, with hundreds of thousands of tiered suppliers, Becton Dickinson had to prioritize the product supply chains he maps. They prioritized mapping 94 supply chains that are essential because a breakdown in these supply chains could lead to suffering or even death for patients.
The Benefits of Strong Supply Chain Risk Management
BD uses visibility in several ways. First, by seeing a problem before their competitors, they can react to problems more quickly, buy in advance, and obtain a greater supply of key components that may be in short supply. In short, they have an agility advantage over their competitors.
Second, the visibility solution is used to improve the resilience of a supply chain. If there is only one vendor in the world supplying a critical component, “do I need dual sourcing?” Should I restructure my contract with them? Do I need more inventory? All of these different variables work together to help us reduce risk in a product line. Mr. Nelson went on to explain that there are many different resiliency scenarios that can be performed with Everstream. You might ask, what if there was an earthquake in South Korea? “You can see that you have four vendors that could be of concern. You can map your product lines with the push of a button to say, okay, these vendors contribute five BD products.
Third, the tool can improve their financial forecasts. The tool can tell them how much of their revenue is at risk if the extended supply chain fails at any given time.
Finally, the tool is a sales tool. They show hospitals their capabilities in supply chain risk management and help these potential customers see that the risks associated with working with BD are lower than those of BD’s competitors.
Technology is not enough
In BD’s supply chain, the procurement team plays a key role in risk management. Procurement managers need to focus on more than just saving money. Their managers are responsible for improving total value. And the total value includes the dimensions of quality, driving innovation in the supply base, and risk.
To do this, BD is pivoting its sourcing strategy from a category-only focus — category managers who cover resins or packaging, for example — to a broader focus that encompasses a range of products. Procurement managers need to understand all the components that make up a product and the tiered components that could add risk. “We want them to manage a category, but also have a view of the product,” Nelson explained. “They have to look at the whole product and they have all the elements of that product optimized.”
While many supply organizations are still “old school, we have aggressively shifted to the big picture” where managers are asked to consider how their activities affect the patient. “Take it back to the patient. Do it every time.
“I think the advantage here, and I constantly talk to our peers,” shows up in our turnover numbers. “Our purchasing turnover is 4%. It’s phenomenal! Our peers turn to 12, 18, even 28% of turnover. “Because we’ve changed what they do and how they do it, it’s a much more exciting and rewarding role.”