Technology In Supply Chain Management At Cvs

Technology in Supply Chain Management at CVS

Strategic Supply Chain Management OSC300

University of Phoenix

Technology in Supply Chain Management at CVS

With more than 40 years of dynamic growth in the retail pharmacy industry, CVS (NYSE:CVS), a $22 billion company, is the nations largest pharmacy retailer with over 6,200 stores in 38 states. CVS/pharmacy fills one of every eight retail prescriptions in America. Furthermore, their ExtraCare program boasts over 50 million cardholders, making it the largest and most successful retail loyalty program in the country. Both through acquisitions of other chains, and internal development, CVS has exploded in store count to become the nation's largest drug chain, supported by nine distribution centers in the eastern, north central and southern U.S. regions.

Year-to-date, CVS total sales for the thirty-nine week period ended October 1, 2005, were $27.3 billion, compared to $21.7 billion in 2004. Same store sales for the thirty-nine week period increased 6.5% over the prior year period. Pharmacy same store sales increased 7.3%, while front-end same store sales increased 4.6%. (CVS/pharmacy, 2005)

With a company expanding as fast as CVS, keeping track of shipments when the company is paying the freight and directly controlling their carriers. But CVS/pharmacy had the additional complication of accepting most of its inbound deliveries on a prepaid basis. Nevertheless, the company needed to get a handle on where its shipments were -- and where things were most likely to go wrong.

Rapid growth in the retailer's network made it imperative that CVS achieve better supply-chain visibility. Since 1997, the company had nearly tripled in size, mostly through acquisitions. In just a few years, the number of distribution centers ballooned from three to nine. Faced with a variety of disparate information systems, CVS urgently needed a way to unify the reporting procedure in support of its 4,100 stores. "We really had no way of understanding where a particular purchase order was in its lifecycle," says Tom McHugh, director of supply-chain process and technology.

CVS acquired inbound visibility through Descartes Systems Group Inc.'s Global Visibility and Inventory Control software. The tool is a variant on the rapidly growing set of applications known as supply-chain event management (SCEM).

Increasingly, companies are looking for ways to track both product and data throughout the supply chain. That process has become more critical with the winnowing of inventories through lean manufacturing and just-in-time delivery strategies, coupled with the global nature of many modern-day supply chains.

With the help of Descartes, CVS was able to move toward standardized communications, largely through the internet. Instead of being inundated with updates on thousands of SKUs from some 22,000 origin points, managers could query the system about any given item. Suppliers were also in the loop, so that all parties know when an item was picked up, where it is, and when it's due to arrive. The corresponding documents and transactions are generated each step of the way.

When CVS set out to acquire SCEM software, there were no companies performing best practices in that area to serve as a guide. "In 1999," says McHugh, "supply-chain visibility was just emerging as a topic." Wal-Mart Stores was the shining example of operational excellence for most retailers, but its systems were mostly built in-house, and the giant merchandiser manages its own freight. So a "best practice" in SCEM became whatever a user like CVS managed to achieve in unfamiliar territory.

The potential benefits of SCEM are significant, Lora Cecere, vice president of marketing with Descartes, says users can realize inventory reductions of between 15 and 18 percent on highly perishable items. They save even more by reducing markdowns or write-offs on obsolete merchandise.(Global Logistics & Supply Chain Strategies [GLSCS], 2002)

CVS launched the collaborative planning, forecasting and replenishment (CPFR) program in a bid to boost customer service while also delivering benefits to its suppliers.

CVS, went live with JDA Software Group's Portfolio E3 private exchange solution following an implementation that lasted less than seven weeks, and the pharmacy has already begun collaborating with one of its largest suppliers in the health care industry. CVS expects to aggressively expand the CPFR program with other strategic suppliers. The CPFR program is instrumental to CVS' corporate mission to provide superior customer service as well as to deliver significant benefit to its suppliers, according to Leo Hartnett, vice president of efficient customer response at CVS. JDA's collaborative framework helps provide simplicity, security, accessibility and a proven methodology. As a result CVS has been able to rapidly adopt the principles of CPFR to achieve the supply chain benefits expected in a collaboration environment, assisted by a new data-driven inventory management system called AIM (Assisted Inventory Management).

"By strategically extending the collaborative opportunity to the right partners, CVS and its suppliers will achieve a [return on investment] that delivers unmistakable competitive advantages," JDA's Fred Baumann, senior director collaborative business solutions and member of the Voluntary Inter-industry Commerce Standards (VICS) Committee's CPFR advisory board.(Supply & Demand Chain Executive Editorial Staff, 2005)

As senior vice president of Supply Chain and Logistics for CVS, Kevin Smith sees his department as similar to that of the Chunnel, the storied tunnel under the English Channel. Instead of connecting England with Europe, the logistical team at the nation's largest drug chain is charged with aligning the massive, constantly shifting inventory needs of the chain's 5,000-plus drug stores with the flood of product coming into the distribution centers on the procurement side.

Using the new AIM data-driven inventory management system, Smith and his team are working to link supply and demand in a seamless, highly efficient loop. "I describe that as the Chunnel--when the builders got to the middle under the English Channel, they were 16 inches off, which is impressive. If we're within 16 inches when we get the supply and demand pieces matched up, I'll feel pretty good about it."

Smith is responsible, in his words, for "all activities like distribution centers, transportation,