The Health and Personal Care Logistics Conference (HPCLC) is an 86-year-old organization of health and personal care companies dedicated to improving their logistics and supply chain performance. The organization conducts three meetings each year to focus on critical supply chain issues impacting the industry and discuss solutions. At a recent meeting held at Johnson & Johnson headquarters in New Brunswick, New Jersey, facilitators from Abbott Labs, Merck, Johnson & Johnson and JPMorgan Chase challenged attendees to focus on finding cutting-edge solutions to emerging supply chain vulnerabilities faced by health and personal care supply chain managers. The narrative below summarizes the discussions held that day as well as suggested solutions that emerged.
Risk management and mitigation techniques have emerged as central elements of successful supply chain management strategies. From fluctuations in fuel costs to the uncertain politics and economies of countries from which raw materials and component products are sourced, disruptions and delays of supply chain flows threaten the profitability of every firm competing in today's global business environment. These risks are particularly poignant in the health and personal care (HPC) industry, where a single container of product may be worth millions of dollars and require stringent temperature control across a broad spectrum of environmental conditions. Disruptions in HPC supply chains often impact more than just the economic bottom-line; inability to get products to the right place at the right time in the right condition often has serious implications for personal and public health. Among the most prominent areas of risk for HPC supply chain managers are temperature control, fuel cost, and product flow visibility.
Temperature control risk relates to the requirement to maintain the ambient temperature of many HPC products as they flow through the supply chain within very stringent windows; if temperatures venture outside of the specified range for even short periods of time, the product cannot be used. Technology and methods utilized on the manufacturing floor recently have been adopted throughout the supply chain to improve the reliability to manage the risk associated with temperature controls.
Managing such "cold chains" involves maintaining product quality and ensuring compliance with global regulations and industry standards for the storage, handling and distribution of temperature-sensitive products. The cold-chain management model includes consideration of product requirements, qualification/validation of equipment, facility and transportation temperatures, supply chain partner management, performance measurement and reporting, communication and education and continuous improvement. Qualification is one element of cold-chain management used to ascertain that the quality and efficacy of temperature-sensitive products are maintained. The understanding and improvement of cold-chain shipment conformance requires a structured problem-solving approach and implementation of processes and procedures to ensure sustainability. Shipment conformance should be part of the cold-chain management program, which in turn must support a firm's supply chain objectives in terms of compliance, customer service and costs.
Rising fuel costs combined with volatile fuel markets have caused firms to be subject to both fuel surcharges and rising base transportation rates. Although the costs and risk of rising fuel costs are not specific to firms in the HPC industry, HPC firms must manage somewhat differently because of the high value and sensitivity of the products they are transporting. HPC firms increasingly use external market intelligence on both crude and refined oil costs to gain market insights and pricing data. This information is used to generate forecasts and model the budget impact associated with fuel cost variations.
Managers at the recent meeting suggested other risk-mitigation strategies for managing fuel costs including partnering with suppliers to decouple fuel costs from cost of goods sold to enable better tracking and measurement; contractually eliminating fuel surcharges by blending volatility into base rates; establishing contractual caps on fuel charges to shift some of the risk to carriers; and searching for modal shifts and consolidation opportunities in transportation (to enable shifting from LTL to less-costly, full-truckload movements.)
Managers also revealed a number of operational techniques that they are attempting to use to minimize the risk associated with rising fuel costs. Some HPC firms are taking the opportunity to consolidate logistics decision and transportation freight flows not only across SBUs within their own organizations, but also across their supply chains by working with customers, suppliers, carriers and even competitors to align freight flows on both front and back haul lanes, thus optimizing the effectiveness of transportation assets and reducing fuel costs.
There are, however, considerable barriers that continue to make this a difficult area to manage. Differences in organizational culture, for example, preclude companies from collaborating across SBUs to consolidate delivering different product families to the same location on the same transportation asset. In addition, given the high value and sensitivity of inventory in HPC, ensuring sufficient supply and maintaining time and temperature controls is more critical than optimizing loads, forcing trade-offs to be made when managing fuel costs.
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