Transforming a complex supply chain to respond to…

"The most important priority is to keep the supply chain agile - more important than the typical focus on cost. To ensure a highly agile response to customer needs, supply chain directors should avoid ‘hard wiring’ businesses’ supply chain.

Hein Gijsbers, Senior Vice President for Commercial Operations, Philips Healthcare

PA believes that, to win in today’s market, companies must find new ways to reconnect with customers. That means understanding their needs, creating the propositions that will meet those needs, and sometimes reinventing their organisations to deliver those propositions. Few companies have embraced this imperative more successfully than Philips Healthcare, where the supply chain team has transformed its quote-to-cash processes.

Hein Gijsbers (HG), Senior Vice President for Commercial Operations at Philips Healthcare, was responsible both for leading the Quote to Cash project and owning the fully fledged global Commercial Operations organisation, that arose from this project. Hein, now Senior Vice President, Global Operations at FEI Company, talked to PA about how the project became a key driver for change throughout the Healthcare sector, and how the economic crisis drove the business to focus more strongly on its customers:

PA: Philips Healthcare is going through a major transformation of the supply chain operating model, as part of which it has redesigned and re-launched the quote-to-cash process. What are the main objectives for this transformation?

HG: Over the past ten years, the Healthcare sector has grown predominantly through acquisition, resulting in a business that initially operated as a conglomerate of 20-30 companies, both small and large. Because of the speed of growth, structures had become overly complicated from both a process and an organisational point of view.

Simply put, the Healthcare sector is now aiming to become a leading business in the market. We have had to simplify our processes in order to make it easier for customers to do business with us throughout the entire quote-to-cash cycle: that is, quotation and solution design, ordering, manufacturing, on-site installation and finally payment processing. ‘Sense and simplicity’ is the Philips slogan, and it’s the mantra for everything we do across the business.

Previously, customers might have had multiple touch points across the organisation, all operating to differing process standards. This situation made it difficult for the customers to interact with the Healthcare team.

The sales teams are dedicated to delivering an exceptional customer experience during the whole quote-to-cash process; they accompany the customer for the entire journey. A highly specialised central team provided round-the-clock support both to the sales teams and directly to customers.

This central team was initially focused on supply chain activities. Over time, though, many processes relating to the customer experience and formerly carried out by the sales and marketing teams have been added to the back office activities performed by the central team.

PA: How did you select the central team?

HG: We had sponsorship from the CEO to hand-pick the operating team from across the whole business and bring in all the right skills. We selected an experienced team with a rich cultural mix; this allowed us rapidly to gain the trust of the sales force. The team members brought together for the project have all gone forward to execute the transformation plan they put in place.

PA: What were project’s key challenges?

HG: The team focused on three key challenges: firstly, getting everyone in the team and the business behind the implementation plan; secondly, managing stakeholders across the business; and finally, ensuring the business had a common understanding of what really drives customer satisfaction within the Healthcare sector.

Our products and services range from the supply of original equipment through to meeting aftermarket orders to support the installed product base of Philips’ global customers. Therefore, it is critical to organise the multiple end-to-end supply chains so as to deliver the best outcome for the customer in each situation. Asking the question ‘what is really important for the customer?’ gave us a clear understanding of where to concentrate our efforts in order to deliver an improved customer experience.

We then focused on establishing a logical and deliverable plan, keeping four guiding principles in mind at all stages: one, re-engineer processes to deliver value to the customer; two, simplify the IT infrastructure; three, re-focus the organisation to be customer-centric; and four, recognise the interaction between the different customer cultures, our customer markets and our internal teams.

Our planning also recognised that we needed to keep the business running highly effectively whilst making the changes. To help us, and to build momentum across the organisation, we looked for short-term successes. We did not try to transform everything at once, and avoided creating large-scale process changes.

PA: What changes has the business transformation driven amongst your supply chain operating teams?

HG: Building on the technology and product excellence for which our Healthcare business was known, our supply chain operating teams are now a critical enabler of our highly customer-centric approach. We have worked hard to get complexity out of the sales force processes in order to allow them to concentrate on customer intimacy and customer experience.

The final change in the transformation will be to address the current IT complexity. At present, the sales force is dealing with less complexity than before, but the burden is on the back office teams, who are operating multiple IT systems. IT harmonisation will commence during 2011, creating a common IT platform for the business.

PA: Did the economic downturn require aspects of the operating model to be adjusted?

HG: The economic downturn has forced the whole Healthcare sector to think about how it does business. There have been some major shifts in demand which have affected product portfolios as healthcare buyers re-examine their strategies. More than ever, customers are looking at the lifetime operating costs of their installed base and not just the initial capital investment.

Across the sector, customer-facing sales teams have had to re-focus their efforts and develop new selling skills; such teams are frequently to be found presenting in the boardroom on the whole-life costs of the product, as well as talking to clinical physicians about product needs and specifications.

We had already embarked on the Quote to Cash project prior to the onset of the economic downturn, but the downturn actually helped us. It gave the project a new sense of urgency: a new level of pressure to deliver faster.

The downturn also introduced an extra challenge; it became necessary to protect the newly created supply chain operation from the remainder of the organisation, which wanted to add scope and responsibilities to the quote-to-cash processes. At first the organisation had to be pushed (through high levels of active stakeholder management) to participate in the business transformation; now, however, it became necessary to protect what had been created, and to complete the initial transformation before extending the scope.

PA: Did you involve suppliers and customers in your transformation activities?

HG: As a team we talked with many customers during the early stages of the transformation project. We aimed to understand their business needs and aspirations, and carried out ‘pulse’ surveys with them. This involvement shaped the project, ensuring we became much more strongly driven by the needs of our customers than ever before.

Collaboration with suppliers is also key. They include Philips’ own factories supplying the Healthcare sector, as well as third party vendors. Discussion is just commencing on third party vendor involvement; Philips has formed a clear view on its preferred suppliers, and intends to forge much closer links with them.

PA: What do you think the next stage of supply chain development will be?

HG: Within the Healthcare sector, we will focus on differentiating the multiple customer value chains, assessing where we can add value for the customer through recognising the different chains and channels serviced.

For some markets this will be via a direct channel; for emerging markets it will be through the distribution and dealer channel. These routes to market require different ways of doing business, but both offer the opportunity to differentiate through innovative use of the supply chain serving the respective channel.

The supply chain team is learning how to support business in different markets and via multiple channels, and is developing its own capability and expertise to meet regional or market-specific requirements. For example, working with emerging market distributor channels requires distributor management skills to be developed within the team.

PA: What do you consider to be the top priorities for supply chain directors aiming to build a resilient supply chain, fit for future growth?

The most important priority is to keep the supply chain agile; in many respects this is more important than the typical focus on cost. To ensure a highly agile response to changing customer needs, supply chain directors should avoid ‘hard wiring’ their businesses’ supply chain. In addition, as long as supply chains remain global and complex, the importance of supply chain management relative to other functions within the business will remain high.

Respond to customer needs with maximum agility

Businesses are now preparing for, and embarking on, a return to growth, but for the next few years at least that growth will have to occur in a context of great economic uncertainty. The winning companies will be those which, in the teeth of the difficulties, maintain their focus on the real requirements of their customers.

Because of uncertainty, one of the most important of those requirements is the ability to respond to changing customer needs with maximum agility. Philips is showing how an organisation, and in particular its supply chain team, can methodically equip itself to provide that agile response.

Crucially, too, Philips is providing customers with a consistent, robust way of interfacing with it. PA’s research shows that major cost and performance benefits can accrue from a ‘single point of contact’ approach: an organisation operating in a number of markets and with multiple customer interface points can often reduce employee costs by 10-20%.

To find out how PA can help you adapt your business to changing customer needs, please contact us now.