COVER STORY

The Heart of a Healthy Supply Chain

Author(s):

Lisa Arnseth
Lisa Arnseth is a senior writer for Inside Supply Management^®

September 2012, Inside Supply Management^® Vol. 23, No. 7, page 16

Boston Scientific Corporation transforms its global indirect sourcing and procurement function to lead from the center to improve processes, uncover savings and optimize spend.

When a patient learns he or she needs a procedure to diagnose or treat a condition, one of the more comforting phrases to hear from a doctor is that the procedure will be "minimally invasive." Thanks to advances in science and medicine, small catheters and stents are commonly used where open surgery was once the only medical option. Patients can recover faster, with less pain, and the costs are lower overall. Minimally invasive medicine is a platform for ongoing innovation, and companies like Boston Scientific Corporation in Natick, Massachusetts, are at the forefront of developing some of the most cutting-edge devices available to physicians around the world today.

The business of helping people live longer, healthier lives is not taken lightly in any regard. Suppliers to Boston Scientific must guarantee extremely high quality and delivery, because the smallest imperfection or delay could be life-threatening. For this reason, the entire supply chain depends on efficiency and quality. The global indirect sourcing and procurement (GISP) organization at Boston Scientific is responsible for all strategic and tactical procurement of indirect materials and services, using a center-led operating model to organize sourcing around the world. Leading this team is Karen Weinstein, vice president, global facilities and security, real estate and indirect sourcing and procurement.

Weinstein, who has been with Boston Scientific for nearly 12 years, was involved in a 2010 directive from the CEO to "optimize the company," which translated into the creation of a new indirect organization that would leverage best practices, find bottom-line savings and improve processes. At the time, sourcing and procurement were centrally influenced. Indirect procurement was performed at all the different locations, while sourcing was performed in a "hub and spoke model," with eight different commodity managers handling a variety of commodities, from travel, to facilities, to legal and clinical services across multiple Boston Scientific locations. Each manufacturing site had a vertical operating structure, with buyers reporting to purchasing managers, who, in turn, reported to material directors.

The scattered operations meant, among other things, that procurement best practices were not communicated or leveraged on a broad basis, visibility into spend was fragmented and full value from suppliers was not being realized. For instance, Guidant Corporation, a manufacturer of cardiac medical equipment, acquired by Boston Scientific in 2006, operated with its own category managers as an independent indirect organization. Integrating Guidant into Boston Scientific's overall business model helped encourage the dramatic reorganization, says Weinstein. "We understood that standardizing our processes would, and will, help improve services to the business by maximizing our capacity and capability. This reorganization was a step toward building a culture that will serve us well into the future."

She adds that taking a fresh look at the company's procurement strategies presented opportunities to maximize working capital, as well. "After the reorganization, we extended offers to our suppliers to receive their payments more promptly than our standard payment terms in exchange for a prompt payment discount," she says. This was a win-win situation, with suppliers being paid sooner and Boston Scientific receiving a discount.

Conducting a Global Transformation

Transitioning from a decentralized to a center-led operating model is no simple endeavor, and Weinstein and the newly created GISP team approached this task from the ground up. First, the center-led operating model was broken into five regions around the globe. Each region consists of at least three Boston Scientific sites managed by one regional manager. The regional managers report to the director of procurement, who is responsible for global indirect sourcing activities. "The regional manager also has a 'strong dotted line' connecting him or her to the director of sourcing, who is responsible for cost savings goals and supplier management," explains Weinstein.

Once the regional structure was developed, the corporate indirect senior leadership team went on a worldwide tour to each site, assessing processes, management structures, policies, systems, personnel and performance. They identified gaps, redundancies and opportunities for procurement to play a significant role in the company. Staff was transferred or hired accordingly, and a communication plan was created to ensure all stakeholders, from the buyer to executive levels, were kept up-to-date with all the changes. Other changes, such as the restructuring of a p-card program to streamline and monitor its use, as well as new cascading metrics to measure performance globally, regionally and by site, were all rolled out systematically and with as much transparency to stakeholders as possible.

Weinstein says three innovative solutions were the keys to developing a leaner, more flexible and effective organization, while enabling a smooth transition:

1. A comprehensive resource activity allocation model. The team created a comprehensive tool — the resource activity allocation model — to identify, assess and allocate resources by region, site and procurement/sourcing activities. One hurdle to overcome, however, was the management of attrition. As with most corporate reorganizations, attrition is an expected issue. In this case, the attrition rate throughout the transformation was approximately 33 percent. A communication plan was put in place that included frequent updates from the executive level downward. This involved face-to-face meetings with site vice presidents, as well as monthly meetings with site material directors and weekly meetings with human resources to streamline the hiring process and facilitate the communication of organizational changes to all stakeholders.
   
   
2. Lean principles. Prior to the transformation, there was limited sharing of best practices across the organization, with many procurement areas focused on their own businesses and the avoidance of looking across to other sites for leveraged opportunities. Once the resource activity allocation model was in place, redundancies or gaps in the procurement activities at each site were eliminated and lean practices put into place.
   
   
3. A global resource optimization model. This model was developed to flex transactional resources within the Boston Scientific procurement network to optimize capacity. For example, at the start of the transition, the team found that it took 7.7 days to route a purchase request through approval and PO creation. Improvement was made to the PO process by implementing automated workflows and resource optimization, which improved efficiency by 30 percent. Gains in efficiency were used to bring more spend under control and allocate resources to other value-add areas. "This analytical tool allows us to see opportunities across staffing in procurement to maximize our effectiveness," explains Weinstein. "It gives us more strategic visibility than we would have leveraged using a more tactical execution through individual sites."

One area that experienced significant change was the p-card program. An initial review was conducted using the new strategies, and improvement opportunities were identified along with the proper resources (and skill sets) to handle them. External resources were hired to gain an outside perspective; in particular, people with banking experience brought program management experience and stronger analytics capability. Existing controls and metrics were evaluated and changed accordingly if there was room for improvement. And finally, processes themselves were modified to improve and optimize efficiency in application submissions, transactions and approvals, and controls and analysis.

"Based on our efforts, more than 20 opportunities were identified, and we implemented corrective action plans," says Weinstein. "For instance, we expanded the use of the p-card program for domestic and international sites to provide a single point of data analysis and reporting. We also enforced discipline around the use of the p-card for appropriate applications and reconciliation of expenses."

The p-card program overhaul paid off. "We reduced inappropriate use violations from 0.47 percent to 0.01 percent as a percentage of spend, and late approvals from 5.3 percent to 0.2 percent as a percentage of transactions," says Weinstein. The next step for the p-card program is to extend it to all nonmanufacturing sites around the globe within the next few months.

Cascading Metrics, Impressive Results

Within such a complex, global sourcing environment, common measures of performance are necessary to keep everything on track. The GISP team uses a set of cascading metrics, which Weinstein says are intended to roll up savings and value using a standard measurement that can be reviewed, analyzed and shared accordingly. "For example, when we talk about value improvement, we can differentiate using common language so we know exactly what figures represent cost avoidance and which ones represent cost savings to the business," says Weinstein.

The metrics are referred to as cascading because they are designed to capture and build upon an individual's performance at the site where the individual works and then filter out to the region. Ultimately, the data feed into a summarized, central set of reporting metrics viewed by senior management. When the new organization was officially completed and implemented in April 2011, the metrics showed that site savings increased by 114 percent and the number of procurement procedures were reduced by 70 percent, from 108 to 32.

The GISP team also hosted a global face-to-face Indirect Summit to showcase best practices, report on prior-year achievements and develop strategic goals and objectives for the coming year. Rewards and recognition are important to keep momentum going and encourage ongoing improvement, not only among Boston Scientific procurement team members but suppliers, as well. An annual Indirect Supplier Management Awards program was launched in 2011, as an opportunity to reward top performers.

In the future, several other metrics will be added to measure integration performance. Weinstein says there are plans to measure areas such as invoice inaccuracy, spend, global cycle time and capacity utilization, among others. The point isn't to simply measure numbers in a static environment, she says. "It's about using analytics intelligently to best direct activities, today and going forward."

A Hardworking Team of Professionals

None of this would have been possible without the work of a highly dedicated team of supply management and procurement professionals, says Weinstein. "We're blessed with a highly motivated team that knows the value of working in a team environment, and can play off the strengths of one another, spark open and honest dialogues throughout the organization and challenge one another," she says. "By achieving bottom-line savings and reducing risk, these efforts showcased the achievements of indirect procurement and sourcing to the C-suite."

Weinstein encourages other supply management senior executives to continually keep talent resources and skill sets in mind as strategic planning moves forward within their companies. "Be clear on the capabilities needed now and into the future. It requires serious, strategic attention to skill-set needs over the next two or three strategic time horizons," she says.

Being competitive in the future requires objectivity as well as a way to uncover any talent gaps and mobilize to close those gaps in an efficient, timely manner. "We must assess current capabilities rigorously and dispassionately; too frequently, we try to build the future around today's players and end up short. Include a process to discover talent in the organizational hinterlands."

Overall, the goal for the global indirect sourcing and procurement team comes down to the mission of Boston Scientific Corporation: to improve the quality of patient care and productivity of healthcare delivery. Weinstein feels honored to work with a team devoted to delivering results, now and in the future. "We need to continually challenge ourselves to seek opportunities in the unconventional areas of spend, to search the white space for value improvement," she says. "The wonderful thing is that any dollars we save can be reallocated toward further investment in R&D to create new treatment modalities to improve the quality of patient care."

For more information, send an e-mail to author@ism.ws.

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