SynCore Consulting helped a fast growing pharma retail chain, bogged down by snags in its distribution model, improve stock accuracy from 60 per cent to 99 per cent+ as well as move from selling products to being a true healthcare partner, by adopting a service based business model. In this case study, Javin Bhinde, MD and CEO and Vivek Acharya, Principal Consultant, SynCore Consulting illustrate the importance of balancing rapid growth with building a robust supply chain and IT-business alignment to support existing operations
XYZ is a pharmaceutical retail chain operating around different metros around the country. They have a traditional distribution model consisting of one mother warehouse, regional warehouses and 14 pharmacies, dealing with an average of 2,500 SKUs on a daily basis. After meeting with success in the initial periods, XYZ is now facing a challenging phase with slow growth and a myriad of operational issues.
- Scaled too fast, processes unable to support ongoing operations
- IT-Business alignment lacking
- Large scale stock mismatches
- Put the company firmly back on the growth trajectory
- Improve process efficiency and effectiveness
- Improve performance in key measurements
- Increase customer loyalty and share of spending
- Moving from selling products to being a true healthcare partner
Analysis of problem
In the first few periods of the business, the emphasis was purely on growth and adding more number of stores and product range, without much attention to demand estimation and operational efficiency. Problems with respect to unavailability, customer dissatisfaction and high staffing costs did not receive much attention of the management and these were addressed by increasing resources (manpower and inventory and warehouse space) thus increasing costs.
As the business matured and consolidated, attention was focused on key business success factors like inventory and working capital management which had a direct impact on profitability and cash flow. This focus brought to light a myriad of issues. Addressing these problems would involve conceptualising, designing and implementing new solutions, business processes that would not only be able to create sustained growth, but also deliver tangible business results i.e. profit and cash while minimising business risk.
At the start of the engagement, a holistic view was adopted and SynCore performed exhaustive due diligence across the value chain, geographies and business processes to highlight to the management the following:
- Weaknesses in the existing process
- Root cause analysis
- Identification of key levers to address the weaknesses
The team performed primary interviews with a carefully chosen representative sample set across the company. Inputs obtained were anonymously verified through data as well as subsequent interviews with different stakeholders.
Designing the change intervention
It was evident during the research process that managing the change from legacy processes to rigorous new ones would require extensive change management. With this in mind, the team analysed the formal and informal power structures existing in the company. The team also developed cross-functional task forces and leadership teams to demonstrate seriousness and break down the communication and decision barriers within the company.
Priming up for change
The team developed a series of workshops intended to educate the team on the problems faced and their solution using a Socratic method. These sessions were designed to educate the participants in business problem solving and solution development and were guided towards arriving at the proposed processes on their own rather than issuing a series of pre-designed SOPs.
Implementing the change
Some of the principles that SynCore employs in most of its engagements are as follows:
- Organisations are complex systems, but even complex systems can be significantly influenced by relatively few key levers.
- Individuals and all that they bring with them, profoundly
influence organisational performance.
- Resources, processes and values are increasingly difficult to change in that order and influence organisations in the same increasing order.
In SynCore’s experience, the successful change efforts are the ones which are able to visualise the human nature hidden behind behaviours and are able to leverage them to achieve the following:
- Buy-in to the proposed change
- Remove conflicts across departments, people, measurements, targets and forecasts
- Empower people to drive the change
Keeping this in mind, SynCore recast XYZ from being a retailer of pharmaceuticals to being a caring partner in healthcare for its customers. This was achieved through the “We help people live better lives” campaign. The senior management highlighted (through multiple interactions with team members) the renewed focus on “helping people live better lives through better health”. Factors like very high availability of medicines, range of products and quality of services and use of IT to deliver all these points of value led from the core objective “We help people live better lives.”
SynCore also revised the roles and responsibilities and KRAs to enable rapid change as well as a smoother transition:
- Removal of conflicting measures for different departments/ people and their replacement with simple measurements directly relating to organisational goals
- Clear decision making responsibility allocated to reduce decision paralysis as well as the other extreme i.e. decision apathy
SynCore rolled out the implementation in keeping with a plan to choose the functions having minimum dependency on other functions (i.e. related changes in other functions were at a minimum) and had the potential to deliver some quick wins. In the case of XYZ this was found to be the stock accuracy problem and the digitisation of all information consistently across all points in the value chain.
- The stock accuracy was improved from 60-70 per cent to 99 per cent while simultaneously implementing digitisation and streamlining of the entire upstream process. This set the stage for subsequent improvements like rapid replenishment, improved availability and reduced shortages.
- Manpower capacity planning was taken up simultaneously to ensure staffing was in lock-step with the new processes.
- Finally a series of dashboards were developed at different levels of the organisation for management to assess and take superior decisions in the fastest possible time.
- XYZ was able to improve the stock accuracy across all touch points to beyond 99 per cent consistently.
- Availability (both in warehouse and stores) which was not measured previously was deployed as a key measurement and was able to achieve the target of 98 per cent within eight weeks of the implementation.
- The number of inventory turns achieved by XYZ improved by 60 per cent. The average age of the inventory also dropped sharply.
- Customer satisfaction feedback study conducted from week 16 to week 20 of the engagement showed significant improvement over the feedback received before the start of the engagement.
- Employee morale improved as both attrition and absenteeism at the stores as well as offices were seen to reduce.
All names have been disguised to protect the identity of the client in keeping with client requests.
All numbers have been scaled to protect client interests.