The events of 2020 tested the mettle of procurement teams managing volatile supply chains across the globe like never before, with resilience and agility emerging as essential qualities for business survival.
As supply chain congestion and interruptions became more frequent throughout the pandemic, the critical role of pharmaceutical and medical supplies industries was thrust into the public eye. But not even the oldest and largest distributors of vital products for medical team first responders were immune to the challenges brought on by widespread factory closures, a lack of raw materials and rising container dwell times at ports around the world.
In the view of Vice President of Global Operations at McKesson Corporation, Tad Strong, the pandemic has thrown myriad operational and financial obstacles for the global healthcare organization to overcome. Taking part in a Procurement Leaders panel discussion alongside Keelvar's Founder & CEO Alan Holland in January 2021, Mr. Strong outlined some of the challenges Keelvar's customer McKesson -- which has more than 70,000 employees throughout the world -- has faced and shared some learnings about the importance of having a nimble supply chain as the disruption caused by the global pandemic persists.
Here are some of the key takeaways from the discussion:
Meet Challenges With Adaptable Priorities & Practices
In March 2020, McKesson was dealt its first blow from the pandemic when its operations in China were shut down, restrictions were put in place, and mandatory work-from-home orders were imposed. As lockdown measures started sweeping across Southeast Asia, Europe and the United States, a growing number of factories, physician offices, and hospitals closed, placing further strain on the organization's finances.
"In the beginning, it was really tough for us," said Mr. Strong. "Products weren't available, so safety stock went pretty quick, and allocations started to kick in." But even as factories moved their operations online, the pharmaceutical and medical distribution giant was faced with new obstacles as containers were held up due to port congestion, warehouses were overrun with products, and dwell times went from "three days to three weeks."
To alleviate some of the backlog and meet the demand for protective equipment and medical supplies in the United States, McKesson became involved in pandemic relief effort Project Airbridge, which effectively saw the organization flip its freight shipping model of 90% ocean and 10% air. "For several months, it was just PPE, and then we had our normal products coming by ocean freight," recalled Mr. Strong. "It was hugely challenging for myself and the team."
For McKesson today, sourcing raw materials, port congestion and skyrocketing rates for containers remain ongoing issues, compounded by COVID-19 outbreaks and factory closures as the Chinese New Year approaches. At the same time, some 50,000 'non-essential' employees continue to work from home -- the success of which has been "a real eye-opener" for the organization. But as Mr. Strong explained: "to be a successful company, you've got to be ready for change, and you've got to be adaptable."
Diversify Your Supplier Base and Get Creative
For many organizations, the COVID-19 crisis was a wake-up call that exposed long-standing vulnerabilities in their sourcing processes and highlighted the importance of supplier diversity, relationships and risk mitigation. And yet, Keelvar's Alan Holland told the panel, Keelvar occasionally hears people espousing the benefits of simplifying their supply chain structure and consolidating spend with as small a number of suppliers as possible.
"As a tech vendor, we believe in embracing complexity and using tools to reason about how you can combine small, medium and large suppliers to optimize your outcomes -- and I don't mean in terms of costs."
Mr. Holland explained that by having a rich pool of small and medium-sized suppliers, you're effectively building resilience into your supply chain, supporting long-term competition in markets and 'buying insurance' for your business against a multitude of risks -- in particular, the "unknown unknowns."
"It can be impossible to predict the kind of unforeseen events that will arise. But what we can predict is that there will be some," he continued.
"You're only as strong as your key supplier, so it makes sense to be dual sourcing and sourcing from multiple vendors, not just for competition in line but also resilience."
For McKesson, having suppliers for products in several countries was key to their ability to pivot when issues arose. As an example, McKesson was able to foster strong relationships with retail partners and apparel factories, making it possible to source surgical gowns from a supplier that previously made t-shirts.
Also, in order to stay true to the company's robust sustainability and Corporate Social Responsibility values, at one critical point during the pandemic McKesson disqualified a supplier that seemed to have forced labor violations, even though the PPE that the factory was to produce was direly needed.
"We sent somebody to go look at the factory and we didn't get a good feeling about it, so we shut it down, we stopped buying from them," said Mr. Strong. "It wasn't a tough decision to make based on why we did it, but it was tough to do when you know you're already short on an important product."
Let Go of Legacy Systems
The pandemic has been a catalyst in forcing companies to take a closer look at their procurement strategies, with a growing number now exploring digitization and sourcing automation as a means to augment their supply chain processes and become more agile. Yet, as little as four years ago, McKesson was one of the multi-billion dollar companies still using Excel to send bids to 30 different service providers in ocean freight alone.
Feeling "held back" by the large number of legacy systems the company had gained through various acquisitions, McKesson decided to switch to tools that could handle the full workflow from sourcing to delivery, including their partnership with Keelvar. Prior to COVID-19, Mr. Strong said McKesson was on schedule to save 6% of its global freight budget, having already saved 6% the year before just by changing to the use of the sourcing optimization solution.
"Excel is nice, but it's not where we need to be. And over the next few years, we've some pretty big plans on making that shift into a more automated, more robust system," he added.
With increased volatility in markets for air, ocean and road transportation, many of Keelvar's customers have found our Intelligent Sourcing Bots to be a timely solution for some of the disruption currently being witnessed.
"Many carriers that committed to rates several months ago are not necessarily honoring those returns, and their company shippers are going to spot market," explained Mr. Holland. "So, in recent months, we've been launching Sourcing Bots for shippers who want to increase the frequency of bid events and automate the execution of them.”
It's a step-change in how logistics procurement teams can approach their sourcing strategy, but for many Keelvar customers, “the thought of going back and manually running the process with hundreds of thousands of lanes again is just inconceivable," Mr. Holland added.
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