Medical Products Distributor Takes Charge Of Its Supply Chain

Technology is making it easier for Owens & Minor, Inc. (Richmond, VA) to annually distribute more than 140,000 SKUs (stock-keeping units) from its 1,200 suppliers to its 4,000 customers nationwide. Owens & Minor, a Fortune 500 company, is one of the nation's largest distributors of national name-brand medical/surgical supplies, such as syringes, bandages, and gloves. More than 2,700 employees, known as teammates, ship products from Owens & Minor's 39 distribution centers to hospitals, integrated healthcare systems, and group purchasing organizations. Many of the distribution centers are within a 100- to 150-mile radius of customer sites. Because Owens & Minor is a decentralized organization, each distribution center handles its own purchasing, customer service, accounts payable/receivable, and warehousing functions.

Specifically, Owens & Minor is improving its role in the supply chain using a warehouse management system (WMS) from Cambar Software. But the company's use of technology doesn't stop there. Owens & Minor incorporates EDI (electronic data interchange) and data warehousing to improve its customer relations as well.

Getting Started With WMS — No Easy Task
The need for an automated warehouse system, to replace a paper-based system, was the result of the demand for inventory accuracy and higher service levels to customers. "Our customers require high service levels and demand low cost," explains Pat Caine, project director for warehouse management systems at Owens & Minor. "We are the low-cost distributor, and our ability to supply high service levels is reflected by our ability to attract and retain large national customers."

"In the early 90s, we decided to take our warehouse systems off the mainframe computer system and distribute them to each site," says Caine. Older mainframe computers use a batch method of processing data, whereby all the data is downloaded at one time. During the batch processing, the mainframe computer cannot be used for anything else. As Owens & Minor divisions moved from a one-shift to a two- or three-shift operation, it would not be able to "shut down" to run batch processes. "All of our facilities needed 24-hour access to inventory levels, which eliminates the use of batch processing."

A Less-Than-Perfect Match
"When we decided to move to a distributed WMS, we set up a team to formally analyze other businesses that were successfully using distributed, automated warehouse systems," explains Caine. "We built data models, process models, and relationship diagrams to help us make a decision on WMS software." The team included internal technical staff, end users, finance department employees and a project manager. "From 30 possible software vendors, we narrowed the field to five," explains Caine. "For each of those five vendors we completed a product review, visited the companies, and talked to their customers." Cambar Software (Charleston, SC) was one of the five final candidates.

"Despite their ability to meet our business application requirements, Cambar's Client/Server Warehousing (CSW) System was not platform-independent enough to work with the company's overall approach to put together a best of breed enterprise resource planning (ERP) system," says Caine. "We worked with an alternate vendor, but had to terminate that relationship when their goals and our goals no longer matched," says Caine. After the failure of the first system, Owens & Minor operated for approximately one year with a restricted system while the search for a larger WMS continued. Fortunately, around the same time, Cambar introduced a new, platform-independent software package. "Rather than start our selection process over again, we went with Cambar."

Moving To A Three-Shift Operation With New WMS
Cambar's CSW is designed for mid-sized to Fortune 1000 manufacturing and distribution facilities. "The system automates our receiving, putaway, picking, inventory control, and report generation," says Caine. "It enables us to run 24 hours a day, eliminating batch processing. It puts more control and immediate access to information in the end users' hands.

"The biggest advantage the CSW software brings is the tracking of products and people through the entire warehouse process," says Caine. "We are realizing higher productivity and accuracy in our receiving, putaway, picking, and shipping functions. This leads to more accurate and efficient deliveries to our customers, as well as higher service levels."

The project began in the 4th quarter of 1997. "In the first quarter of 1998, Cambar made specific modifications to CSW," says Caine. "The system was piloted during the second quarter. We began moving the system into our 39 sites during the third quarter (approximately 31 are completed). Within one year, all 39 distribution sites will operate using CSW." The biggest challenge during the installation was making the solution "fit" all 39 sites. "Usually, you aren't able to use the same system in scattered sites," says Caine. "And we've grown through acquisition, so some of the distribution centers operate differently. Cambar customized CSW to meet the various needs of the centers; yet, upgrades can still be done easily."

Using Radio Frequency To Collect Data For Customers
More than 1,400 teammates were impacted by the new system. Training time was approximately four weeks, and it included training on Windows and radio frequency. "Five teams of five employee trainers each were formed," says Caine. "Each team was responsible for training certain areas of the facility. These teams traveled between distribution centers."

Each teammate now carries handheld radio frequency (RF) terminals throughout the distribution center. "The devices initiate and control workflow online with the CSW system," says Caine. The RF devices are used with the bar code labels on inventory bin locations, as well as on the shipping/receiving pallets. Inventory is automatically depleted when picked and then is replenished upon receipt within the CSW.

"The RF devices also collect valuable productivity information," says Caine. "This information, along with other activity-based costing data is used in a database that supports our CostTrack Supply Chain Management (SCM) system." Owens & Minor offers this service as a benefit to its customers. One customer, MediCorp Health System (Fredericksburg, VA) realized a savings of $160,000 in distribution fees and $100,000 in labor during 1998, the first year it used CostTrack.

CSW has made a positive difference in Owens & Minor's overall productivity. "We expect a full return on our investment within two years," says Caine. Owens & Minor has committed to supply chain management initiatives with an investment of more than $10 million in computer hardware and software to electronically link the company with its suppliers and customers.

Tying Into The ERP System
Owens & Minor's CostTrack programs include several components, all interfacing with the company's ERP system, according to Caine. These components include:

• FOCUS – (Focus On Consolidation, Utilization & Standardization) — This program allows Owens & Minor to increase inventory turnover (currently inventory turns nine times) by consolidating product lines. The program also aims to build stronger partnerships with the company's best suppliers. Customers, in turn, receive improved inventory management and cost savings.
• CRP – (Continuous Replenishment Process) – With CRP, inventory usage information is electronically transmitted to suppliers. "Our suppliers are better able to forecast our supply needs. They can create electronic purchase orders for continual replenishment of stock," explains Caine.
• EDI – (Electronic Data Interchange) – Caine estimates that 80% of Owens & Minor's customers' orders are received through the use of EDI. "We were the impetus for many of them to start using EDI," says Caine. Owens & Minor uses EDI with its suppliers as well. Of the company's top 20 suppliers, 18 are using EDI. This accounts for approximately 80% of the products the company buys for distribution.
• PANDAC – (automated wound closure asset management program) – This program is specific to wound closure products. It helps customers accurately manage the inventory of these products.

The Internet is also impacting business at Owens & Minor. "We call our data warehouse ‘DSS' – decision support system," explains Caine. "DSS gives our suppliers and customers access to their order history. It enables them to make buying decisions based on actual numbers. Overall inventory management improves."

To access information via the Internet, suppliers and customers access WISDOM — WebIntelligence™ Supporting Decisions from Owens & Minor. "Many of our smaller customers can't invest heavily in technology, so this is a benefit for them," explains Caine. "Hospitals are in the business of taking care of people, not managing inventory. With WISDOM, our customers are tracking the frequency of their orders, as well as the demand for inventory items," says Caine.

Outsourcing IT To Stay Ahead
With the addition of the WMS and the use of other technology, such as EDI, Caine sees his company evolving. "Technology allows Owens & Minor to be a leader in supply chain management. We are closing the gap between our customers and our suppliers. Now we are becoming a data distribution company. We hold the critical link to making the supply chain more efficient between manufacturer and customer because we have the data that both the customers and the suppliers need." This evolution includes the outsourcing of many IT functions to Perot Systems, a full-service information systems management company. "Perot Systems was brought in to help us manage our overall IT costs and bring a higher level of systems expertise," says Caine.

Several Owens & Minor employees have already become Perot Systems employees. This 10-year agreement is designed to strengthen Owens & Minor's e-commerce and Internet capabilities. It will also allow the company to create a digital (e-commerce) order fulfillment system. The addition of technology at Owens & Minor has met the goals of increasing service to customers while keeping costs down. The prognosis for Owens & Minor's future in the medical supply distribution market is very good.