BMS Aims High Through Benchmarking

Bristol-Myers Squibb benchmarked against the leanest, most agile consumer goods companies to transform its supply chain management processes and culture.

By Agnes Shanley, Editor in Chief

When you decide to change the way a major pharmaceutical manufacturer manages its global supply chain, it helps to have the right benchmarks. For Bristol-Myers Squibb Co. (New York), those models were no less than GE, Wal-Mart, Gillette and the world’s leading electronics firms.

Vice president Cheryl Capps and a team led by Mike Evinski and Todd Smith, directors of supply chain optimization, saw the need to improve the company’s inventory management and forecasting ability, and to optimize the quality of data that would make that possible. Their goals were to reduce inventory, speed responsiveness and “lock in” lower costs for key materials.

“We didn’t compromise because BMS is a pharmaceutical company,” says Evinski. And they took a hard-nosed, statistical approach, using standardized metrics and calculating customer service levels with one algorithm.

Their work, which began in April 2000, is already paying off, and the improved supply chain management model is currently being used in 95% of the company’s facilities around the world. Customer backorders are down by 90%, ship-to-promise rates are up 25%, inventory levels are down by one-third, and central headquarters’ overhead is down by 40%, Capps says. Data quality levels, meanwhile, now exceed 4σ, up significantly from where they were four years ago.

These changes required vision and the ability to think outside of the pharma box, and key team members brought fresh perspectives with them. Capps, an engineer, has a green belt in Six Sigma and a degree in psychology, and had worked at GE before joining BMS. Smith had a background in consulting and had worked in the telecommunications field, while Evinski had experience both as a plant engineer and management consultant.

They all shared a clear picture of the ideal end state, and where a company, regardless of industry, should be in terms of inventory management and customer service. “Because pharmaceutical margins have been relatively healthy, many drug companies feel they don’t have to be the best in supply chain management,” says Evinski. So BMS looked outside of pharma. “We felt ‘why reinvent the wheel’ when industries with razor-thin margins had already done what we wanted to,” Evinski says.

They decided to take a cross-section of best practices from different industries. “Some practices adopted widely in other manufacturing sectors won’t work in pharma, where others will,” says Smith. “We found those that we thought would create the most benefit.”

This was not the first time BMS had undertaken an overhaul of its SCM system. This was the first time it had taken such a stringent quantitative approach; the team made it a priority to ensure that the quality of data was as good as it could be; data quality was an area where prior efforts had stumbled.

Bringing 'the big picture' to employees throughout an organization requires pharma firms to take a hard look at their 'functional silos' and change cultures in which a given silo optimizes itself at the expense of the whole company.

Seeing the big picture

Established practices and people issues have proven to be the primary challenges for the team so far. Bringing “the big picture” to employees throughout the organization required cultural change. “If you look at most pharmaceutical companies, they’re still set up with functional silos, each of which tends to optimize itself at the expense of the whole,” says Smith. Employees, at every level of the company, needed to see themselves and their operations as nodes in a much longer chain. “It’s not OK to make your sales targets in one country, but have a global shortage of product,” Capps says.

The team assigned a full-time change management professional, and built rewards and incentives for the right behavior into the company’s compensation programs. Four years later, the effort is changing the company’s supply chain management culture, and more employees are embracing the new approach.

In the “Business Capability Release” (BCR) concept that initially drove this project, the team worked backward from an ideal end state, systematically breaking a huge and ambitious project down into reasonable pieces. It set out to create a series of well-defined projects or BCRs, each lasting from six to nine months. Projects had to have clear goals, and had to be set up so that results would build on each other, says Evinski.

Making the business case

Data had to be transparent. “We needed to know inventory and demand figures continuously to be able to perform more complex tasks like advanced planning,” says Evinski. Disparate IT platforms initially made communicating this information difficult. When the project began, SAP handled about 80% of the company’s supply chain (on a dollar basis), but was used in only one-third of its manufacturing plants. BMS used 25 customized BPCS platforms, resulting in a combination of SAP, BPCS, and “one-offs” of MAPICs and Data 3. Since then the company has standardized on SAP and Manugistics, and is planning to implement MES gradually.

But IT proved the easiest fix. Customs and people, and often the simplest of business forms, challenged the team. For example, forecasts were handled differently at various facilities, using different time periods and different requirements. Even something as basic as a purchase order prevented data optimization; before the new program was rolled out, one plant might interpret the date on the order as the request date, while its vendors might view it as the ship date.

Convincing people to embrace the new vision wasn’t easy. For senior management, it was hard, initially, to define a “burning platform” because, after all, the company was still making money, Evinski says. The concept of pulling cost out of the supply chain, given the decreasing number of new drug announcements in the industry, resonated well with top management.

The team’s business case focused on reductions of inventory, transportation costs, head count and purchase price variance as the drivers. It also factored in incineration and obsolete inventory costs, proposing that product nearing expiration be donated rather than wasted.

One year after the team made its initial pitch to top brass, the company’s president of technical operations issued a message to employees that BMS would be focusing on supply chain optimization and quality in a new initiative called “Quality in Everything We Do.” “By that point, we knew we had the project in hand,” Evinski recalls.

Convincing the middle layer

Overall, proselytizing proved relatively easy on the executive level and with operators, Capps recalls, but “we needed to reach out to that middle layer.” Outreach was especially important with manufacturing operations.

"Aiming high" involved convincing plant managers and manufacturing people without supply chain experience to go along with the program. It was tough at the beginning — "We had to prove the math," says BMS vice president Cheryl Capps.

“At any pharmaceutical company, manufacturing staff are used to people ‘jetting in’ to announce some new concept only to leave — and then, all too frequently, these people see concepts founder due to lack of management commitment,” says Evinski. “We had to align corporate and shop floor priorities so that there was no apparent conflict,” he says. “It took a lot of selling and a huge amount of work — sometimes just sheer determination.”

The team gathered supply chain experts from various industries to make presentations, but then established diverse teams, representing every stakeholder group within the company, including technical operations and manufacturing, to take the message out to employees. Team members from manufacturing relayed messages to their peers and helped tailor the message to the audience.

Convincing plant managers and manufacturing people without supply chain experience was tough at the beginning, Capps says. “We were talking about cycle counting and inventory, and the idea that these could be closely controlled,” she says. “We had to prove the math. But all this had been done 20 years ago in other industries, so we started at the very beginning.”

Training and empowerment

Training was the next step. A separate team was set up to teach plant personnel how to maintain data quality. Staff had to learn, for example, that if they didn’t key in transaction information as it happened, data would be incomplete and have expensive repercussions. “People needed to know that what they did, every day, affected the entire supply chain,” Capps says.

Skills were also an issue. “Supply chain management has never been recognized and valued in pharma, and top talent goes into the technology areas,” says Capps. At this point, a whole generation has viewed SCM as logistics and as very “hands on” and transaction-oriented work. As a result, within the industry, most pharmaceutical scheduling professionals tend to be people who have worked their way up through the plant with a basic high school education.

“We were now asking them to do statistics and advanced planning,” says Smith. “We needed to professionalize planning and to relate activities back to data.” In order to supplement existing strengths and develop competencies and planning excellence in the future, the company also plans to recruit more math majors and others with a statistics background, and teach them the industry side.

Eliminating spreadsheet creep

Ensuring that all planning is done within the system has been critical, and everyone within BMS involved in the initiative now verifies data with information in the planning system. “An unofficial metric for gauging success is how many spreadsheets we’ve eliminated,” says Smith.

BMS teams use Oliver White’s “Planning Excellence” both for training and evaluation, and a combination of classroom and online training involving the APICS program. Evaluations have led to some interesting results, Smith says, and some facilities that might have received high marks on performance in the old days, are now scoring much lower.

In addition to streamlining inventory and customer service, the new program has allowed BMS to improve its connection with suppliers; it’s no secret that pharma suppliers offer better pricing to customers that can better forecast future demand.

BMS is looking at key suppliers and building them into its supply chain, Evinski says. The company provides a 24-month rolling forecast to suppliers, who regularly communicate whether or not they can meet expectations and, in some cases, share information on their plants. Key suppliers are fully integrated into BMS’s platform via Manugistics’ Collaborative program.

The company is piloting this portion of the supply chain management program in North America, Latin America and Europe with five global suppliers. Eventually, it will be rolled out in all regions outside of Asia-Pacific, and regional users will be empowered to determine which suppliers are most important.

Security is the biggest issue with this program, Evinski says. “We’re letting each other into our firewalls, using technologies to lock the system down.” Currently, two kinds of modules are available: “unconstrained,” in which BMS gives the supplier BMS’s total requirements without knowing the supplier’s capacity, and the supplier indicates whether or not it can meet those requirements, and “constrained,” where BMS knows something about a supplier’s capacity.

In the process, BMS has gained subtle insights into lead-time requirements, defining three distinct time frames: “frozen,” or at the purchase order stage; “slush,” the first period where manufacturers are still free to make changes to future shipment commitments; and “liquid,” where the order is purely informational. This knowledge is particularly important, because once a purchase order is out, it is binding. Suppliers are particularly anxious about the slush stage -- for example, if a supplier forward buys component inventory for an anticipated order, but the buyer backs out.

Despite all the changes, BMS employees are warming up to the new supply chain approach, just as their peers in consumer goods and other industries did back in the 1980s. “Everyone thinks they’re unique,” says Capps.

For instance, pharmaceutical companies usually take regulatory requirements as an excuse not to change. However, as Smith points out, “Pharma definitely has some unique challenges where supply chain management is concerned, but you can still work around them.”

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