McKesson: Efficiency at Scale

This is part 2 of 13 from “Analytics: The Widening Divide,” a report on the findings of the 2011 New Intelligent Enterprise Global Executive Study and Research Project.

Improving process efficiency within the supply chain has been standard practice in the last several years, particularly for those organizations that operate in high-volume, low-margin businesses. McKesson, a U.S.-based pharmaceutical distribution and healthcare technology company, ranks among the largest companies in the world, and has gone farther than most in incorporating advanced analytics into a supply chain operation that processes over 2 million orders per day, and oversees more than $8 billion of inventory.

For management of in-transit inventory, McKesson has developed a supply chain model that provides a highly accurate view of its cost-to-serve – by product lines, transportation costs and even by carbon footprint. This detail provides the company with a more realistic view of how it is operating at any given point in time, said Robert Gooby, vice president of process redesign.

“But where most models are simplifications of the physical world, this one has all of the complexities and all of the data of our reality. It allows us to quantify in extreme detail the impacts of making fundamental changes to our operation,” Gooby explained. “This model is not a simplification.”

Another area where McKesson has applied advanced analytics is simulating and automating the physical placement of inventory within its distribution centers. The ability to assess changes in its policies and supply chains has helped it increase customer responsiveness, as well as reduce working capital. Overall, McKesson’s transformation of the supply chain has reduced more than $100 million in working capital.

McKesson recognizes that analytic tools are only part of the equation. The company has invested significantly in building the analytical skills and capabilities of its entire workforce. It has used the Six Sigma program as a consistent way of thinking about, and approaching, data-related issues. The ability to weed out extraneous activity, minimize defects and reduce inventory through these structured improvement methodologies has had significant payback in terms of time, resource allocation and capital.

Just as importantly, company leaders now recognize that the company’s operations are so complex they can no longer be managed without analytics. “You reach stages where your intuition is no longer enough. You have to go into detailed analysis. There are too many things, too many opportunities that can exist undetected unless you dive into the details,” said Gooby. Together, the combination of process expertise and advanced analytics capability has provided McKesson with the right formulation for supply chain success.