Interview: DHL's Scott Allison on the challenges of healthcare supply chains
DHL is supporting the supply chains of health organisations in 220 countries. We asked Scott Allison, President of Life Sciences and Healthcare, about his work and the challenges facing such a complex industry
“In November 2016, when I took on leadership of the DHL Life Sciences and Healthcare sector, it was very clear to me that this industry lags behind others in its digitisation journey,” remarks Scott Allison. “In particular, the life sciences and healthcare supply chain still has some way to go to achieve digital maturity.”
A logistics veteran of almost 30 years, 24 of which spent with DHL, Allison is a proud Scot who now resides in Texas as President of the company’s Life Sciences and Healthcare division. His task – to aid the maturation of life science and health supply chains in the 220 countries where DHL operates.
This is no small task. However, since 2004 the German logistical giant has adopted a sector specific approach, a move which has allowed it to build up formidable expertise and experience in the heart of numerous industries.
“In the DHL Life Sciences and Healthcare Sector, our scope of operations is extremely broad,” continues Allison. “In effect, we work across every area of the life sciences and healthcare value chain including inbound to manufacturing (I2M), primary distribution, secondary distribution, and reverse logistics. These activities occur in all different parts of the Life Sciences and Healthcare industry, from clinical trials and R&D to cold chain distribution, medical device logistics, and final-mile delivery to patients.”
Allison points towards three major obstacles facing supply chains in the health industry at the moment. The first is what he describes as a near-constant downward pressure on costs from an operational and regulatory perspective. Second is rising expectations of patients, fuelled by a greater understanding of medical issues and what can be offered – quality must rise while prices must fall.
It is the third challenge that Allison believes ties the rest together, chiefly how digitisation can help companies address the first two challenges. He cites two examples to underline his point made from the outset: “In two other sectors – the technology sector and the automotive sector – the inbound supply chain uses vendor-managed inventory solutions, and has been for a long time. Although a common solution in these sectors, the vendor-managed inventory has hardly been developed in life sciences and healthcare at all. By the way, this represents a big opportunity for life sciences and healthcare companies to reduce costs.
“My second example of digital lag is the near-absence of customer-driven supply chains. Inventory in a hospital is often controlled by surgeons with the tendency to order stock ‘just-in-case’ rather than ‘just-in-time’. This type of system simply isn’t efficient; it can meet patient needs, yet modern supply chain techniques are proven to optimise inventory processes while positively impacting customer care.”
While there are significant opportunities to improve the supply chain practices within the sector, Allison believes it is going to need a connected approach by all parties involved to make it a reality.
In order to address these challenges, DHL presents and promotes the brightest supply chain ideas both from within life sciences and healthcare and other industries. The company also helps clients to pilot some of these ideas and practices.
“For example, currently we are collaborating with one of the world’s premier biopharmaceutical companies to pilot an innovative warehouse ‘vision picking’ solution in Australia,” Allison says. “We’re investigating the extent to which using augmented reality (AR) glasses increases productivity and cuts order picking costs compared with standard manual scanning processes.
Another example is a pilot with a multinational chemical, pharmaceutical and life sciences company to equip an entire warehouse with wifi infrastructure beacons. This ‘connected warehouse’ solution enables precise location of tagged items throughout the facility, and a virtualisation of the environment so that the operations can be optimised using heat mapping software.
“The supply chain is becoming a much more strategic issue on boardroom agendas,” Allison continues. “Although logistics costs are relatively low in this sector – well below one percent of sales revenues – the extreme margin-squeeze that our customers are experiencing mean that both the indirect supply chain costs such as inventory, obsolescence and lost sales, and direct logistics costs, such as transportation and warehousing are coming under closer scrutiny. Better, smarter supply chains provide the answer.”
Indeed, the demand for smarter health is leading to a proliferation of services being delivered online. This is one of the most significant trends Allison believes will impact the industry in the coming months and years, especially when looking at the American market.
“A key prescription drugs online dispenser has been delivering medicines by e-commerce for the past two years,” he says. “The company claims to practice ‘smarter’ pharmacy, putting medicine within reach of tens of millions of people by aligning with customers, taking bold action, and delivering patient-centered care at a lower cost.
“Others in the life sciences and healthcare sector are sure to follow this lead with the intention of getting closer to customers while also lowering costs. Patients in Germany, for example, will soon be able to order prescriptions drugs from the most popular online retailer, in partnership with the country’s largest retail pharmacy.”
Allison believes that, although still high regulated, market pressures will drive the industry further in the direction of providing care in the home, e-commerce being one solution to address this need. Mobile apps are among other technology solutions that will also enable this transition.
The second big trend is the increasing segmentation of product types to the point at which e-commerce becomes a viable option.
Allison continues: “Currently, many pharmaceutical manufacturers have portfolios containing both high-end drugs and unregulated over the counter products. As the consumer end of this range expands, each organisation becomes ripe for ecommerce innovation, and take-up is likely to happen at a very fast pace.”
This marks a shift in the way businesses approach supply chain issues – Allison observes that companies were, up until a year or so ago, justifying the status quo based purely on the cost of transport and warehousing. Today, the picture looks markedly different.
Allison concludes: “Life sciences and healthcare companies are instead securing a holistic perspective. While working to cut the cost of air, ocean, road and rail freight and the cost of storage and distribution, companies are now also questioning the cost of inefficient inventory, obsolescence, lost sales, and decreasing customer loyalty. The answers they need are in part, provided by digitising the supply chain, paired with increasing velocity in the adoption of supply chain techniques.”
About Scott Allison
Scott Allison is President, DHL Life Sciences & Healthcare. He is a member of Customer Solutions & Innovation Senior Management Team, a member of the Solutions & Innovation Board, DHL Life Sciences Supply Chain Board and heads the DHL Life Science & Healthcare Steering Committee and the Customer Logistics Advisory Board.
He is responsible for driving growth and development of the global Life Sciences and Healthcare industry sector and oversees strategy and solutions development in addition to his commercial duties.
Scott is a supply chain professional with over 25 years of experience and has been with the DPDHL GROUP since 1992, working both in the DHL Global Forwarding and Supply Chain organizations before moving into more commercial and strategic roles in the early 2000’s. Most recently, he led DHL’s Technology sector in the Americas, having previously led the EMEA region. In both regions he was responsible for the development and execution of DHL’s global Technology strategy, including the development and delivery of supply chain solutions, strategies and growth for some of the world’s largest Technology companies.
A native of Scotland, Scott lives with his family in Dallas, Texas, U.S.
NTT DATA Services, Remodelling Supply Chains for Resilience
Joey Dean, the man with the coolest name ever and Managing Director in the healthcare consulting practice for NTT DATA and is focused on delivering workplace transformation and enabling the future workforce for healthcare providers. Dean also leads client innovation programs to enhance service delivery and business outcomes for clients.
The pandemic has shifted priorities and created opportunities to do things differently, and companies are now looking to build more resilient supply chains, none needed more urgently than those within the healthcare system. Dean shares with us how he feels they can get there.
A Multi-Vendor Sourcing Approach
“Healthcare systems cannot afford delays in the supply chain when there are lives at stake. Healthcare procurement teams are looking at multi-vendor sourcing strategies, stockpiling more inventory, and ways to use data and AI to have a predictive view into the future and drive greater efficiency.
“The priority should be to shore up procurement channels and re-evaluate inventory management norms, i.e. stockpiling for assurance. Health systems should take the opportunity to renegotiate with their current vendors and broaden the supplier channel. Through those efforts, work with suppliers that have greater geographic diversity and transparency around manufacturing data, process, and continuity plans,” says Dean.
But here ensues the never-ending battle of domestic vs global supply chains. As I see it, domestic sourcing limits the high-risk exposure related to offshore sourcing— Canada’s issue with importing the vaccine is a good example of that. So, of course, I had to ask, for lifesaving products, is building domestic capabilities an option that is being considered?
“Domestic supply chains are sparse or have a high dependence on overseas centres for parts and raw materials. There are measures being discussed from a legislative perspective to drive more domestic sourcing, and there will need to be a concerted effort by Western countries through a mix of investments and financial incentives,” Dean explains.
Wielding Big Tech for Better Outcomes
So, that’s a long way off. In the meantime, leveraging technology is another way to mitigate the risks that lie within global supply chains while decreasing costs and improving quality. Dean expands on the potential of blockchain and AI in the industry.
“Blockchain is particularly interesting in creating more transparency and visibility across all supply chain activities. Organisations can create a decentralised record of all transactions to track assets from production to delivery or use by end-user. This increased supply chain transparency provides more visibility to both buyers and suppliers to resolve disputes and build more trusting relationships. Another benefit is that the validation of data is more efficient to prioritise time on the delivery of goods and services to reduce cost and improve quality.
“Artificial Intelligence and Machine Learning (AI/ML) is another area where there’s incredible value in processing massive amounts of data to aggregate and normalise the data to produce proactive recommendations on actions to improve the speed and cost-efficiency of the supply chain.”
Evolving Procurement Models
From asking more of suppliers to beefing up stocks, Dean believes procurement models should be remodelled to favour resilience, mitigate risk and ensure the needs of the customer are kept in view.
“The bottom line is that healthcare systems are expecting more from their suppliers. While transactional approaches focused solely on price and transactions have been the norm, collaborative relationships, where the buyer and supplier establish mutual objectives and outcomes, drives a trusting and transparent relationship. Healthcare systems are also looking to multi-vendor strategies to mitigate risk, so it is imperative for suppliers to stand out and embrace evolving procurement models.
“Healthcare systems are looking at partners that can establish domestic centres for supplies to mitigate the risks of having ‘all of their eggs’ in overseas locations. Suppliers should look to perform a strategic evaluation review that includes a distribution network analysis and distribution footprint review to understand cost, service, flexibility, and risks. Included in that strategy should be a “voice of the customer” assessment to understand current pain points and needs of customers.”
“Healthcare supply chain leaders are re-evaluating the Just In Time (JIT) model with supplies delivered on a regular basis. The approach does not require an investment in infrastructure but leaves organisations open to risk of disruption. Having domestic centres and warehousing from suppliers gives healthcare systems the ability to have inventory on hand without having to invest in their own infrastructure. Also, in the spirit of transparency, having predictive views into inventory levels can help enable better decision making from both sides.”
But, again, I had to ask, what about the risks and associated costs that come with higher inventory levels, such as expired product if there isn’t fast enough turnover, tying up cash flow, warehousing and inventory management costs?
“In the current supply chain environment, it is advisable for buyers to carry an in-house inventory on a just-in-time basis, while suppliers take a just-in-case approach, preserving capacity for surges, retaining safety stock, and building rapid replenishment channels for restock. But the risk of expired product is very real. This could be curbed with better data intelligence and improved technology that could forecast surges and predictively automate future supply needs. In this way, ordering would be more data-driven and rationalised to align with anticipated surges. Further adoption of data and intelligence and will be crucial for modernised buying in the new normal.
These are tough tasks, so I asked Dean to speak to some of the challenges. Luckily, he’s a patient guy with a lot to say.
On managing stakeholders and ensuring alignment on priorities and objectives, Dean says, “In order for managing stakeholders to stay aligned on priorities, they’ll need more transparency and collaborative win-win business relationships in which both healthcare systems and medical device manufacturers are equally committed to each other’s success. On the healthcare side, they need to understand where parts and products are manufactured to perform more predictive data and analytics for forecasting and planning efforts. And the manufacturers should offer more data transparency which will result in better planning and forecasting to navigate the ebbs and flows and enable better decision-making by healthcare systems.
Due to the sensitive nature of the information being requested, the effort to increase visibility is typically met with a lot of reluctance and push back. Dean essentially puts the onus back on suppliers to get with the times. “Traditionally, the relationships between buyers and suppliers are transactional, based only on the transaction between the two parties: what is the supplier providing, at what cost, and for what length of time. The relationship begins and ends there. The tide is shifting, and buyers expect more from their suppliers, especially given what the pandemic exposed around the fragility of the supply chain. The suppliers that get ahead of this will not only reap the benefits of improved relationships, but they will be able to take action on insights derived from greater visibility to manage risks more effectively.”
He offers a final tip. “A first step in enabling a supply chain data exchange is to make sure partners and buyers are aware of the conditions throughout the supply chain based on real-time data to enable predictive views into delays and disruptions. With well understand data sets, both parties can respond more effectively and work together when disruptions occur.”
As for where supply chain is heading, Dean says, “Moving forward, we’ll continue to see a shift toward Robotic Process Automation (RPA), Artificial Intelligence (AI), and advanced analytics to optimise the supply chain. The pandemic, as it has done in many other industries, will accelerate the move to digital, with the benefits of improving efficiency, visibility, and error rate. AI can consume enormous amounts of data to drive real-time pattern detection and mitigate risk from global disruptive events.”