Terumo Cardiovascular Systems saves $1 million in one year with Demand Solutions

Terumo Cardiovascular Systems (Terumo CVS) is a global manufacturer and distributor of a wide spectrum of products for the medical industry. The company has more than 1500 finished good SKUs comprising hardware such as heart-lung machines, disposables such as blood oxygenators, and a steady flow of custom tubing pack orders. Due to the delicate nature of the industry, products undergo strict quality testing and sterilisation. Terumo CVS' level of precaution to keep end users safe requires a complex supply chain.
 
A single tubing pack used during open-heart surgery, for example, is manufactured in Ashland, Massachusetts then shipped to New York for sterilisation. From New York, the tubing pack travels to Maryland to be incorporated with another component and then packaged. The finished product is then sent to one of the company's five distribution centres. From the DC, it is finally shipped to a hospital and used on a patient.
 
With so many product variations and steps in the supply chain, it is easy to understand the challenges inherent in Terumo CVS' supply and demand planning. The company previously used another forecasting system, which reportedly made tracking the many plants and distribution centres and accounting for the seasonality of its products difficult.
 
Seasonality
"Believe it or not, even medical products are seasonal," explained Kevin Doughty, director of supply chain management at CVS. "Our three biggest sales months are October, January and March because people avoid having surgery during the holiday season." Terumo CVS implemented Demand Solutions Forecast Management (DS FM) and Requirements Planning (DS RP) back in 2006 to provide visibility into its multiple plants and distribution centres, and to forecast the unique seasonality of its products.
 
Demand Solutions quickly helped the company achieve its main business objectives while pleasantly surprising management with additional, unanticipated benefits. "In one fiscal year, Demand Solutions has saved us $1 million by reducing our inventory by 36 per cent," said Doughty. "We experienced a rapid return on investment just with the inventory reduction, not to mention what we've saved in backorders, write-offs and obsolete inventory."
 
Along with reducing inventory by more than one third, Demand Solutions has increased Terumo CVS' inventory turns from 3.1 to 4.1. The company's fill rates were good before Demand Solutions 97.5 per cent in fiscal year 2006 but escalated to 99 per cent for fiscal year 2007.
 
Managing by exception
With an average shelf life of three to five years and little visibility, Terumo CVS' obsolete inventory was dragging down profits. Unlike most software companies, Demand Solutions develops its planning tools with the underlying philosophy that people are smarter than software. "My favorite functionality in Demand Solutions Requirements Planning (DS RP) is the ability to manage by exception," commented Doughty. "Now that we can use statistical formulas along with our own gut instincts, we can do our jobs better."
 
The executives at Terumo CVS hold monthly Sales & Operations Planning (S&OP) meetings to make strategic decisions based on the forecasts from Demand Solutions. "Prior to Demand Solutions, I could not defend my forecast reports," said Doughty. "Now, not only do I trust the reports from Demand Solutions, but the executives do too. Our meetings are much smoother now and we have reliable information necessary to make top-line decisions."
 
Dan Baksa, senior account manager for Demand Solutions, added: "Having visibility into the supply chain creates a ripple effect of benefits. Terumo CVS is an excellent example of a customer that had specific goals in mind when it implemented Demand Solutions and has been pleased with the added benefits of tightening its planning."