Background and Challenge
A global medical device manufacturer realized that it could only reach its aggressive sales goals in China by ensuring consistent product and service delivery and by creating a unique service experience for healthcare professionals. However, the manufacturer’s complex supply chain had grown amid expansion in China, and was now up to four steps away from the customer. This unwieldy supply chain reduced the manufacturer’s realized price (and potential profits) and placed undue constraints on working capital. The medtech manufacturer called upon L.E.K. Consulting to differentiate itself while servicing the many sales models and go-to-market routes required to serve different customer requirements across China’s diverse customer base.
Approach and Recommendations
As a starting point, we benchmarked the client’s current supply chain practices against multiple industries in China and worldwide, which enabled us to generate transformative yet implementable ideas regarding the shape of the future supply chain. Drawing from these findings, we designed a full supply chain solution that included new customer service centers that would serve traditional warehousing purposes. The recommendations also called for centralizing instrument care and healthcare professional support to establish the centralized control required to consistently deliver a high level of service.
Once the solution outline took shape, we conducted a series of workshops and meetings with senior management to refine the model and gain the necessary buy-in for a major transformation process. To create momentum behind the change, we also prepared a detailed financial case including increase in realized sales, additional costs to be incurred and net benefit from implementing the new supply chain.
Key elements of the supply chain strategy include:
- A network of locally operated warehouses that would represent the manufacturer by serving key markets and distributors – and ensure consistent service delivery
- The technology investment and infrastructure recommendations necessary to simplify the information flow from the customer to the manufacturer and ensure that the manufacturer has visibility of sales and control over field investments and inventory
- Options to reduce the cash burden of developing the business at a significant pace
- Proven ways of incentivizing the dealers’ network to deliver to agreed-upon standards
- Changes to internal processes and skills to use the new information generated through the supply chain partners to improve sales and reduce costs
To accelerate this process, we prepared a detailed implementation and change management plan, comprised of more than 20 projects grouped into five strategic initiatives. Each project had a detailed timeline, solutions for identified issues and initial indications on possible vendors and service providers to contact. In addition, the plan identified a number of quick wins, including immediate collection of sales data, a new Sales and Operations Planning (S&OP) process and infrastructure to support week-end surgeries to create excitement around the change initiative.
Today the company is implementing the recommendations, which are likely to be a three-to five year journey. The project has provided the foundation to allow the company to forge ahead with its sales expansion plan. In the short term, the company has realized a number of quick wins that are allowing it to gain added information to run its business more efficiently, renegotiate with key supply chain partners to improve performance and reduce costs, and select vendors to establish the infrastructure necessary to get closer to its customers.