AI-driven data analytics helps pharmaceutical distributor HD Smith streamline operations, manage inventory and cut costs.
CIOs rarely focus on supply chains, but the IT experts at HD Smith are key players in the wholesaler's supply-chain-first effort. Over the past few years, IT has powered that initiative with an ERP solution, migration to the cloud and artificial-intelligence-driven data analytics.
The results have been "transformational," according to Davíd Guzmán, CIO of the Springfield, Ill.-based company.
"There was an urgent need to bring large-scale efficiencies to our business," says Guzmán, who joined HD Smith in 2011. "The pharmaceutical supply chain is one of the most unwieldy in the world, with long R&D processes and endless compliance requirements from a host of regulatory agencies."
In addition, "byzantine pricing" has resulted in more than 600 million price permutations for the distributor's 100,000 SKUs, thanks to group purchasing, chargebacks, rebates and more.
Though HD Smith is the country's fifth-largest pharmaceutical wholesaler, it's dwarfed by McKesson and other giants, which together account for 85 percent of prescription drug distribution. Maintaining just enough inventory to keep its service level high was critical to the company's success.
HD Smith had other priorities as well. "Health care costs are insane," Guzmán observes. "We wanted to reduce those costs and improve patient outcomes."
The wholesaler also wanted to better serve the independent community drugstores that make up one-third of the nation's pharmacies. One way to achieve that was to free up resources, both human and computer, to emphasize service. "We wanted to move from being just a product chain to an informed value chain," he says.
Starting With an ERP Implementation
The effort began with a large SAP business solution implementation from July 2010 to September 2013. The company pushed that SAP/ERP data to the cloud and adopted cloud applications, such as Office 365 and SugarCRM. Next up: a data warehouse.
"We had a lot of experience building data warehouses, but we wanted to focus on our customers and use partners to provide the service," Guzman notes. Most major companies required a big on-premises warehouse, which he viewed as outsourcing rather than a cloud-based solution.
A startup company in Silicon Valley called FusionOps offered what he wanted: a data warehouse in the cloud. FusionOps' supply chain intelligence platform uses industry-standard models, making it more specific to HD Smith's needs than a general solution.
The analytics piece of FusionOps is a layer working on top of systems new and old, automatically ingesting SAP data and pulling together data from several sources. "We got started with prebuilt routines that allowed us to get value out of the supply chain quickly, then added customized routines," Guzmán recalls.
Adopting a new mindset was the biggest challenge for the 200 or so users among HD Smith's 1,200 employees. "We were used to throwing things over the fence, asking IT to create reports," the CIO explains. FusionOps introduced a self-service model. "We trained our key business leaders to be self-reliant, to think with an analyst's mindset so they could develop business requests, create an agile storyboard and design flow charts. We've inculcated the discipline of IT into our business."
The intuitive design of FusionOps eased the transition, according to Kyle Pudenz, senior director of purchasing. He and his team of 23 staffers rapidly became familiar with the system and found the ability to visualize information, even from huge record sets, a great advantage.
The cloud-based system allows access from anywhere, on multiple devices and platforms. "I can check inventory even if I'm not connected to our server or corporate email," Pudenz says.
Autonomous Supply Chain Frees Up Staff
Predictability is a major benefit to an autonomous supply chain. "When the system handles rote day-to-day tasks, our employees can focus on higher-level activities," Guzmán says. Pudenz agrees. "Instead of spending time generating reports, my team can act on the information FusionOps provides," he says. "It takes the tedium out of the job and we're able to do more with less."
That has already paid off. "Previously, we faced significant challenges hitting our service-level metric," Pudenz says. "We just passed our 16th month in a row in which we hit our service level while decreasing inventory levels."
That translates into major savings. "We have had tens of millions of dollars in inventory reduction, freeing up working capital we can use elsewhere," Guzmán adds.
HD Smith is starting to offer FusionOps as a service to customers. "We developed a mobile app for our sales force that enables the pharmacies we serve to analyze and change their mix of products to get better rebates or incentives," Guzmán reports. "We can help them compete against the big chains."
Putting more emphasis on such services is critical to the distributor's future. But the supply chain remains a focus, and analytics is essential.
"Predictability enables us to balance having the right amount at the right time to satisfy customer demand," Guzmán declares. "We're moving to predictive analytics, but we're not all the way there yet. FusionOps has been a critical part of our transformation."