Measuring the Impact
To date, Stryker has rolled out the new process and the TradeBeam solution to close to 100 suppliers, accounting for more than 95 percent of its direct materials spend. Stryker actually uses the solution to track 100 percent of its parts because of the visibility that the system provides to the company's buyers, but the suppliers of about 5 percent of the parts that the company buys are not using the system to manage their business with Stryker.
The manufacturer did not have a specific inventory reduction goal in mind going into the project, according to Lincoln. "As we were selling this expense and this new project across our organization, we wanted to be careful not to lay out the whole ROI in terms of reducing inventory by X dollars," he says. "Because we didn't know at the time — maybe this new system would say that we needed more inventory in certain areas. Six months later, if we hadn't reduced inventory but we were running a better business, we didn't want that to be considered bad."
Nevertheless, Stryker has documented inventory reductions of 30 percent over time, as well as an increase of 16 percent in inventory turns, and the elimination of expedited freight and stock-out occurrences. In fact, Lincoln says that the company recorded double-digit inventory reductions within the first 90 days, achieving a full payback on the division's investment in the solution before the pilot project was even completed. In addition, the company was able to reduce its materials staff by two people since going live, even as Stryker's purchases grew by double-digit percentages in the three years following the implementation.
As important, the division has continued to increase its service levels to its end customers. Lincoln says that the TradeBeam solution cannot fully take credit for that result, but it has played a significant role in streamlining order processes between Stryker and its distribution centers internationally, with previously manual processes now handled using EDI through the system. And the system has helped Stryker's own suppliers improve their performance as measured, for example, by such metrics as "short parts" versus "green parts." "It hasn't eliminated stock outs and back order situations, but it has allowed us to identify those situations more quickly and focus on those exceptions a lot quicker than our old system," Lincoln says.
Looking back on the project, Lincoln believes that a key lesson to take away from the project is the importance of solid, long-term relations with the supply base when a company is attempting to quickly transform its supply chain. In Stryker's case, the collaborative relationship that the division had built with its suppliers allowed the different parties to work together to identify a suitable solution that met a shared set of requirements and that would benefit all sides. In this instance, that was important not just for the suppliers but for Stryker as well. "Because you're at the mercy of the supplier," Lincoln says, "It's true vendor managed inventory, so if you don't have the trust in them and they don't have the trust in you, you're setting yourself up for failure."
Sidebar: Best Practices
Build relationships early — Establish collaborative relations with suppliers before undertaking supply chain transformation.
Keep it simple — Don't try to solve all your problems at once.
Don't paint yourself into an ROI corner — Define your return on investment carefully so that overall positive results are not overshadowed by shortfalls on isolated metrics.
Inventory...........................................30 percent reduction
Inventory turns....................................16 percent increase
Expedited freight............................100 percent reduction