The combination of aging and obesity in developing countries has led to a steady increase in diabetes and chronic wounds. With these problems comes the need for treatment via new medical techniques and dressings. It falls to the supply chain managers of the companies supplying those dressings to forecast demand for various regions and to avoid overstocks and consequent aging inventories.
Systagenix (www.systagenix.com) has been producing wound care products since 1934. It has established an efficient supply chain to serve its customers in the global health care industry. Its operations are based in Gargrave, North Yorkshire, in the U.K. The manufacturing plant is co-located with its research and development facility, the Gargrave Centre of Excellence for Wound Healing.
Systagenix offers health clinicians a range of dressings and therapeutic devices designed to heal difficult wounds and prevent them from leading to more serious consequences. Due to the critical nature of patient requirements, health care providers expect high service levels (at least 98 percent) and stock availability for wound care products.
The Wound Care Supply Chain
After manufacture, the majority of these products are sterilized on-site at the company’s gamma irradiation plant. Products are then transferred to the company’s global distribution hub (also on-site), from which they ultimately make their way to 100 countries on every major continent. More than 90 percent of Systagenix’ production is exported.
Systagenix produces more than 300 SKUs, but variations in demand along with varying shelf lives for each type of dressing—ranging from one to five years—adds to supply chain planning complexity. Customers want to receive products at the beginning of their shelf lives; therefore Systagenix cannot afford to hold products for too long in inventory.
Geographic complexity and long lead-times pose further supply chain challenges. Systagenix uses a network of six third-party logistics providers around the world: two in North America, one in South Africa, one in Brazil and two in Europe. Accurate forecasting is critical.
Evolving the Forecasting System
To strike the optimal balance between inventory and service levels, Systagenix runs a single global instance of SAP’s ERP (www.sap.com), incorporating Advanced Planner and Optimizer (APO) software for forecasting, network planning and order allocation. But Systagenix found that this tool required additional data manipulation to generate a reasonable forecast, which reduced the amount of time available for the commercial teams to refine and enhance the forecasts, according to Alastair Mitchell, supply chain general manager for this manufacturer.
After evaluating several alternatives to improve their forecasting ability, Mitchell selected ToolsGroup SO99+ (www.toolsgroup.com), which helps his team factor in the demand variability at the order-line level in order to optimize safety stocks.
The system forecasts demand for each market at SKU level, then calculates safety stock levels for all 300+ SKUs and the six 3PL stock locations across the global supply chain. It extracts the data from the SAP ERP system and uses it to calculate a demand forecast. Next, the forecasts are refined further with input from the commercial team before finally being used to calculate safety stocks at each location based on target service levels. Finally, the forecast and these dynamic safety stocks are loaded into SAP, which then executes the planned replenishment actions.
The 99 percent service levels at the 3PL distribution sites can be accomplished with up to 15 percent lower safety stock levels than with the previous spreadsheet-based calculations, according to Mitchell. This resulted in a same-year ROI.
Another important benefit is that Systagenix now only needs one full-time person to develop the global forecasts and his time is freed up for refining the forecasts with input from the commercial team. Also, where the monthly forecast used to take two people an entire week, it now only takes a day.
Mitchell and his team plan to move from monthly to weekly forecasts, using the tool to calculate safety stocks for the Gargrave hub. Systagenix also plans to continue making adjustments to its forecasting model. That will help the company keep an eye on demand for its products in developing countries as the standards of living among those populations rise and demand for advanced wound care products follows.
(Ed. Note: Systagenix is in the process of being acquired by the U.S. company Kinetics Concepts Inc. (KCI), a transaction which will create the world’s largest wound care company.)
