The words "continuous improvement" are so common to the world of business that it's easy to forget how hard the concept is to achieve.

Smiths Medical, headquartered in St. Paul, Minn., is a division of the London-based Smiths Group. It makes a variety of sophisticated medical devices and equipment for surgery, drug delivery and post-operative care. In a business where the stakes are so high, the company prides itself on top-notch customer service. Recently, however, Smiths decided that it just wasn't doing well enough.

The problem was one that comes with success. Smiths had experienced several years of dramatic improvements in line-fill rate. Then it "plateaued," according to director of global service management Cherelle Whitfield. In addition, like so many other businesses in a worsening economy, the company was becoming more conscious of its cash position. To ensure that it was getting the most out of its investment, Smiths sought to reduce unnecessary inventory - even while continuing to boost service levels.

The two goals often are in conflict with one another. But Smiths was determined to increase customer service "without throwing inventory at it," says Whitfield. It needed a new metric for assessing performance, in addition to the traditional ones of back-order value, line-fill rate and the ability to ship on time every day.

At a supply-chain seminar hosted by A.T. Kearney, Smiths was introduced to ToolsGroup, a provider of software for supply-chain planning and inventory optimization. The two companies had crossed paths earlier, but Smiths at the time was busy with a major implementation of enterprise resource planning (ERP) software, notes Martin Woodward, managing director of ToolsGroup in the United Kingdom. A couple of years later, the dust from that project had settled, and the time was right for a fresh initiative on the inventory-management and customer-service side.

One priority, says Whitfield, was a new means of determining the optimal level of safety stock. ToolsGroup helped Smiths to measure all the way down to the order-line level, with the aim of matching inventory with strict performance goals.

A Global Business

Making matters more difficult was the global nature of Smith's business. The medical-device market differs greatly from country to country, Whitfield notes, based on the nature of each locality's healthcare system. In addition, the company was dealing with multiple tiers of suppliers and manufacturing sites. Against that backdrop of challenges, "the main problem is getting the right stock deployed in the right place," says Woodward.

Often a new piece of software will require major business-process change. That wasn't the case with the ToolsGroup implementation. Most of the work, says Whitfield, consisted of getting the right data out of Smiths' system and into a format that could feed into the new application. ToolsGroup provided a dedicated individual to act as a consultant on getting the data cleansed and aligned.

As with any such implementation, "there was a lot of work on our side," says Whitfield. But the task was made somewhat easier by the fact that Smiths had previously withstood the global, multi-year implementation of new ERP software. Once the company got the go-ahead for the ToolsGroup app, it was able to access and cleanse the necessary data within a couple of months, using staff that also had full-time jobs in day-to-day management.

The ERP project put the Smiths organization on the road to globalization. It had already begun scrutinizing every policy - including metrics for inventory management - on a company-wide basis. At the same time, Smiths was benchmarking itself against other medical-device companies. "We looked to get into the top quartile in inventory turns," says Whitfield.

The project began with a pilot in May 2011, following the couple of months spent on assembling the data. Woodward says the company identified 1,100 items at random, then compared them with others from the same product family that were still being managed in the traditional way. The new system was up and running by September, and was being deployed to calculate safety-stock levels by December.

Phasing It In

The phased approach was crucial to the project's success. "You've got to be very careful about throwing those kind of curve balls [at the organization]," says Whitfield. In the early days of using the new system, Smiths would even allow for some buffer stock above what was determined by the ToolsGroup app to be the optimal level.

Order lines, demand volatility and inventory volume were all targets for analysis in phase one. Phase two added average supply delay into the calculation, for an even more accurate determination of stock levels. Already, though, Smiths could see that it had too much inventory on its highest-running codes and not enough on the more volatile ones. The ToolsGroup application allowed the company to redeploy items where they were really needed.

Phase three, yet to be implemented, will see Smiths engaging with its commercial groups for various geographic regions and product segments. It will be able to set service levels for those items that are "most effective for our business," says Whitfield. Smiths will likely undertake the third phase after the end of its fiscal year in July.

Early benefits have been encouraging. In the pilot, Smiths was able to track how well it had met performance targets for fill rates, lines out of stock, back orders, safety stock value and inventory levels, the last of which were significantly down. Line-fill rates didn't see quite the improvement that the company was hoping for, however, the result of shipping delays.

To address that problem, Smiths is adding a new metric, measuring whether a product was available for a particular order line. "Right now we're seeing things headed in the right direction," Whitfield says. "We've got to give it a bit more time."

In particular, the company is targeting selected service levels and inventory turns. It's monitoring progress through monthly meetings with ToolsGroup representatives.

In addition to rebalancing inventory, the new system has allowed for better supply forecasting, smoothing out Smiths' manufacturing cycles. Understocks can result in a sudden surge of demand for raw materials, notes Woodward, while overstocks can force an expensive plant to stand idle for a period of time. Both hazards are minimized through the ToolsGroup application.

Whitfield says the company will continue to seek improvements in service and inventory management through the system. At some point, it might apply the technology to its service and repair operations, "but we haven't begun that conversation."

ToolsGroup has proved to be "a true partner," says Whitfield. "It was their request to meet with us on a monthly basis. You definitely feel they own being a success as much as we do."

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