Ever since COVID hit, supply chain executives have embraced supply chain risk management. Within this discipline, one of the toughest challenges is how to get visibility to problems arising across the extended supply network.
Supply Chain Chaos is the New Norm
Becton Dickinson (BD) has been on a journey to improve visibility into their extended supply chain. They call this their “n-tier” supply chain. Kevin Nelson, a chief procurement officer and senior vice president at BD, agreed to be interviewed on this topic. Mr. Nelson points out that it is possible for a sourcing problem deep in a supply chain to halt production for BD. “When COVID happened we really saw a lot of issues with the supply chain. Around 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 to which suppliers around the world were providing goods, materials, and feedstock to other suppliers.”
With revenues exceeding $20 billion annually, BD (NYSE: BDX) is one of the largest global medical technology companies in the world. BD and its 75,000 employees ship more than 45 billion devices annually to customers in over 190 countries.
Mr. Nelson went onto explain that during COVID, “we, along with a lot of other companies in the world, were just in a constant firefighting mode. Only through this extensive mapping can you see that it may be because there’s a Tier 5 supplier who is not able to get the rare earth mineral out of China that goes into the microprocessor (we purchase). We couldn’t look around the corner in terms of what might happen next.”
While 20 years ago, BD could run a just-in-time supply chain that had a high degree of reliability, that is no longer feasible. “I think a lot of people are waiting for things to get back to normal,” Mr. Nelson said. “We’ve really embraced the fact that chaos might be our future.”
BD is a big company with a very big supply base. BD has about 5000 suppliers that are delivering, components and materials that go into their products. “Now those 5000 suppliers are at Tier 1. You probably need to multiply that by 10” to get a count “for the Tier 2 suppliers. Then multiply by 10 for the Tier 3.” You don’t have to go too far back in the supply chain before you are talking about 100s of thousands of suppliers. “How can you manage a supply chain when you’re completely blind?”
Compounding the problem for BD is that if they fail to deliver products, the consequences are greater than having unhappy clients. Some of BD’s products are critical healthcare products. If they are not delivered, patients can die.
Chasing N-Tier Visibility
BD, was using a supply chain risk management solution. But they did not have visibility beyond their Tier 1 suppliers. They went on a search for a risk management solution that could allow them deeper 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 was using artificial intelligence (AI) and Big Data to solve this n-tier problem. The company had access to huge amounts of trade data, for example. But I was skeptical. It is not enough to have data; you need the right kind of data! I could understand how trade 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 for a component that eventually ended up in a product. In an article, I voiced my skepticism and said that I believed using AI to solve this problem would lead to huge number of false positives.
Mr. Nelson explained that he too was skeptical. “I’m not going to pretend I understand exactly how it works. But being the skeptic, I tested the validity.” Before committing to do business with Everstream, BD asked Everstream to map the supply chain for one product line. “They came back after three days and said “we’ve got the mapping for you.” And I said, ‘you can’t. It’s impossible! We’ve been working on this for four years. We can’t get the data. But we were able to go back to every supplier and confirm that this (mapping from Everstream) was accurate.” Mr. Nelson quickly concluded that Everstream was at least 90% accurate. And, with a problem this difficult, that is “remarkable.” Since then, BD has achieved a very high level of accuracy, accuracy significantly above 90%, for the product supply chains they have mapped. That is an accuracy many times higher than what they achieved with their old solution.
With the other risk management supplier, they spent four years trying to map their extended supply chain. They spent a lot of money. And yet BD never got to a level of accuracy they were comfortable with. Further, the day after BD mapped an extended supply chain, things would begin to change, and the risk map would become less and less accurate.
The other risk management software supplier’s methodology was based on surveys. They would go to a Tier 1 manufacturer and ask them to identify the Tier 2 suppliers for the parts that went into a specific component. And then BD would go to the 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 up the supply chain BD went, the less incentive suppliers had to participate in these exercises.
Even though Everstream’s mappings can be done much more quickly than with the legacy process, with hundreds of thousands of n-tier suppliers, Becton Dickinson has had to prioritize which product supply chains they map. They have prioritized mapping 94 supply chains that are critical because a breakdown in those supply chains could lead to suffering, or even death, for patients.
The Benefits of Robust Supply Chain Risk Management
BD is using the visibility in several ways. First, by seeing a problem before their competitors, they can react faster to problems, prebuy, and gain a larger supply of key components that are likely to be in short supply. In short, they have an agility advantage over their competitors.
Secondly, the visibility solution is used to improve a supply chain’s resilience. If there is only one supplier in the world providing a critical component, “do I need to dual source? Do I need to restructure my contract with them? Do I need more inventory? All those different variables go into helping us reduce the risk in a product line.” Mr. Nelson went onto explain that there are many different resilience scenarios that can be run with Everstream. You could ask, what if there was an earthquake in South Korea? “You can see that you have four suppliers that might be of concern. You can map your product lines at the push of a button to say, alright, those suppliers contribute to five BD products.”
Thirdly, the tool can improve their financial forecast. The tool can tell them how much of their revenue is at risk if there is a failure at some point in the extended supply chain.
Finally, the tool is a sales tool. They show hospitals their capabilities surrounding supply chain risk management and help those potential customers see that the risks associated with working with BD are lower than with BD’s competitors.
Technology is Not Enough
In the BD supply chain, it is the procurement team that plays a key risk management role. Procurement managers need to focus on more than just saving money. Their managers are tasked with improving total value. And total value includes the dimensions of quality, driving innovation in the supply base, and risk.
To accomplish this, BD is pivoting their procurement strategy from solely a category focus – category managers that cover resins or packaging, for example – to a broader focus that encompasses a product line. Procurement managers need to understand all the components that make up a product and the n-tier components that could be adding risk. “We want them to manage a category, but also have a product view,” Mr. Nelson explained. “They need to look at the entire product and they have all the elements in that product optimized.”
While a lot of procurement organizations are still “old school, we’ve pivoted aggressively into the bigger picture” where managers are asked to consider how their activities affect the patient. “Bring it back to the patient. Do it every time.
“I think the benefit here, and I talk to our peers constantly,” is showing up in our turnover numbers. “Our procurement turnover is at 4%. That is phenomenal! Our peers are running at 12, 18, or even 28% turnover. “Because we’ve shifted what they’re doing and how they’re doing it, it’s a much more exciting and rewarding role.”