John Gossmann is vice president of strategic sourcing and procurement for Medtronic of Minneapolis, Minn. He has spent the last four years at Medtronic developing strategies to realize the company's global strategic vision and achieve cost reduction goals in the area of procurement and transportation.
Q: Medtronic has been a leader in growing its business through acquisition. What are some of the special logistics and supply-chain challenges you typically face when a new acquisition must be integrated into the corporate system?
A: Typical issues you would expect are prevalent when integrating an acquisition. They have their systems, their processes, their way of doing business. In most cases they're going from being a stand-alone small organization to now being part of a corporation with opportunities and issues surrounding their supply chains. Opportunities being the new leverage in size; problems being the fear of losing their identity. As part of the due diligence process we look at their current agreements and when integrating them into Medtronic agreements we look at the best overall solution. In some cases, the acquired companies have had terms or costs which Medtronic took advantage of.
Q: Trends in enterprise technology increasingly are focusing more on centralized systems, such as enterprise resource planning, as a way to gain efficiencies and cut costs. Medtronic has been fairly decentralized. Is there any movement toward more centralized enterprise systems?
A: Yes. We are currently going through a consolidation of our ERP systems, beginning with going from 16 instances for a J.D. Edwards ERP system to one for those businesses on JDE. We are also setting company-wide "gold standards" for other supporting software; i.e., product development management, human resources, and demand planning systems.
Q: For over a decade, everyone has talked about tearing down silos between corporate functions and activities so supply-chain information flows seamlessly throughout the organization. How has Medtronic approached this challenge?
A: Medtronic is just in the early stages of supply-chain organization development. First, the individual businesses are developing their supply-chain definition and organization. Next, at a corporate level, we are putting in place the shared-services organization that will provide more opportunity to leverage business collaboration. The main issue has been to develop and train the entire organization on the value supply-chain management can bring to their business. At a corporate level, we are breaking down the functional silos by developing a shared-services organization that will be focused on process value streams rather than function. We will link directly with the value proposition the businesses will realize by working horizontally instead of vertically.
Q: How have you handled the necessary change management issues?
A: While we would like everyone to love the opportunity to work across the company, we do run into some resistance. In most instances though, we have now developed new supply-chain organizations within each business area and have upgraded job positions and their scope of responsibility.
Q: As a manufacturer that deals with many global suppliers and contract manufacturers, how does Medtronic currently use technology to collaborate with these supply-chain partners?
A: Our current technology link to suppliers for production materials is CAD/CAM design technology. We are moving forward rapidly with product development management integrated solutions using Matrix One.
Q: Are you planning to develop any other types of collaborative capabilities, perhaps with major suppliers to handle requests for proposals?
A: We are currently assessing supplier relationship management systems to enhance our commercial and technology interaction with suppliers. The vision is to have one web-enabled tool to facilitate this interaction. Suppliers would be able to connect with our design people at initial development kick-off to collaborate specific portions of the project where their expertise can be fully realized. Through the same tool we would want to be able to manage the supplier commercial relationship. This would include cost management, supplier performance metric tracking, RFP as needed, etc. On the non-production side of materials and services we have launched Ariba as our purchasing tool. We rely on suppliers to maintain their catalogs, which we access with controls on pricing. We also have web-based tools in place for small package shipping. Any administrative assistant in the company can link to carrier web sites populated with our rates to generate shipping documents for small shipments.
Q: How about internet-based tools for selecting logistics providers?
A: We are looking at tools to allow Medtronic to manage freight and logistics suppliers through a web-enabled tool. Hopefully it will be the same or similar to the production materials tool.
Q: Which supply-chain activities have your highest priority, both in terms of importance for achieving near-term corporate goals and for longer-term return on investment?
A: Baseline to all these systems is data management and governance. We are embarking on a single instance of an ERP system, defining our "model company" process, which will be the gold standards for Medtronic. For the next few years, we will require interfaces with newly launched ERP systems that will not be immediately converted to the company JDE standard. These interfaces will feed the data warehouses we will need to access for analysis, performance management, etc.
Q: How have the last two years of economic slowdown impacted Medtronic?
A: We are fortunate to be in the medical industry in that our business does go not up and down based on the general economic trends. People need our products to improve their quality of life. Our industry is driven by technology and the significant need for novel products that help treat the growing population of patients with chronic disease. Our success is determined by having the right products, when our customers need them, and providing world-class customer service. Being the first in a specific market niche is also important, so Medtronic invests heavily in research and development. From this standpoint, the year ahead looks very good. We have many new products coming out. The heart-failure therapy market, for example, is growing faster than we expected. We have the right product at the right time, resulting in a significant lead in this specific market over most competitors.
Q: Is Medtronic primarily a domestic company?
A: No, we are a global company, doing business in more than 120 countries. For a variety of reasons, we tend to launch products first in Europe where we can bring them to market quickly. Additionally, Medtronic is rapidly expanding in Latin America, Eastern Europe, the Middle East and in most areas of Asia.
Q: Do you serve these markets from the U.S.?
A: Not usually. We have manufacturing locations, distribution centers, and education centers all over the world.
Q:: Which supply-chain-related activities are your company currently outsourcing, and how is this outsourcing activity supporting corporate goals?
A: Assessing whether we outsource processes or capabilities that we once considered core is getting greater visibility at Medtronic. We have had success with many of our outsourcing ventures and we are more clearly defining our core competencies, both in manufacturing and logistics. For example, with logistics, we are looking well beyond just moving material capability from our key providers. We are looking at 3PLs to manage cross-border inventories, using consolidation points around the world, and all shipping between our factories and stocking points.
Q: Since Medtronic medical devices are so specialized, do you find it difficult to find 3PLs capable of properly handling your products?
A: No. Even though our product is very specialized medical devices, the leading 3PLs are all very capable of meeting our needs. Because we are so heavily into airfreight, we are big users of FedEx and UPS. Eagle and Exel are significant suppliers for us on heavier, international freight.
Q: Do you expect to increase the level of logistics outsourcing at Medtronic?
A: There are no plans yet to totally outsource our distribution, but we are looking for specific opportunities where it might make sense to outsource more. In the Northeast, for example, our customer base is highly concentrated, yet we are still overnighting large numbers of individual shipments to these customers. We are assessing whether or not it makes more sense to service this market with a 3PL that manages a mini-hub there for us for certain products.
Q: How about outsourcing other supply-chain activities? Do you see these activities growing?
A: Yes. In manufacturing, we are outsourcing some operations that we previously considered core activities. We are finding out in many cases that the contract manufacturers have the best practices. For example, we used to do all of our own injection molding. We have now divested ourselves of most of that capability because we found injection molding companies who were significantly further along the technology curve for these processes than we were. These types of arrangements enable us to more fully realize our world-class competencies and expertise and at the same time, continue accessing the best suppliers and manufacturers that will help us deliver high-quality products to physicians and their patients.
Q: Have 9/11 and other recent disruptive events caused you to rethink your approach to contingency planning, and what strategies are you employing to deal with these possible disruptions?
A: We have an overall disaster recovery plan. Part of that plan is working with our major logistics partners to understand their capabilities and how they can be used to support us in the event of a disaster. During the 9/11 crises that grounded all civilian aircraft, partners like FedEx and UPS moved our shipments on the ground and maintained our flow of materials. We had no disruptions.
Q: How do you manage the transportation issues associated with sourcing from so many parts of the world?
A: Airfreight is our primary mode of transportation both domestically and internationally, so we are very dependent on the technology provided by our major carriers like FedEx and UPS. We can trace shipments globally. We have continuous shipment visibility from before it leaves our dock until it reaches the customer, 24/7. These carriers have set the technology benchmark for the rest of the industry. Any carrier that wants to compete in this market has to have these capabilities. We expect that from every carrier we use.
While we are very satisfied with the quality of airfreight service, we have to constantly examine our use of this premium form of transportation. It is expensive. We know we could save a lot of money by moving more freight on the ground and ocean for international moves. If we can manage our whole supply-chain pipeline, we should not need to put everything in the air.
Q: Between your logistics providers and your internal systems, do you have the degree of supply-chain visibility that you would like?
A: Logistically we have a good handle on visibility. When it comes to management of supplier inventories and parts, we are not where we want to be. We are evaluating SRM software partially for that reason. We want to link such technology into our ERP system so we have total supply-chain visibility from our supplier to our customer.
Q: Most companies that use 3PLs have some difficulty maintaining a high degree of visibility and control. Has this been your experience?
A: The industry has come a long way. We are finding it much easier to work with our partners in sharing data. Just in the last three or four years, the visibility has vastly improved for our suppliers and us. FedEx and UPS can tell us if we miss a sort an hour after a shipment was suppose to make it.
Q: Do you think your logistics providers are up to the task of supporting your increased global activity?
A: Every business today has to think globally and be able to visualize globally. We are looking for a different skill set at the logistics provider level. We are no longer just asking our logistics suppliers just to ship product. We need 3PLs and carriers that understand the total business landscape, so they can expand the value-add that they can bring.
Q: What are your major challenges in the year ahead?
A: The rapid growth of Medtronic and all the acquisitions has caused some major data management challenges. We are using this single-instance of ERP to drive data management discipline back into the process. This lack of data transparency has created the second challenge that we need to deal with: inventory.
This year, we need to implement a better logistics strategy that services our customers faster, while we also reduce the amount of inventory in the pipeline.
Q: How do you plan to meet this challenge?
A: Some of our leading businesses, which are in the smaller markets, are making the greatest progress. They are driving their supply-chain very fast and very lean. While they are make-to-stock companies, they are increasingly operating like make-to-order companies. Our challenge is to have all of our businesses operating with this level of supply-chain efficiency.
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