|Q&A With David Hatch, Aberdeen Research Group|
David Hatch is senior vice president and general manager for Aberdeen Group. He recently responded to a series of questions on implementation of GLN and other data standards.
Q. Some people say there’s no return on investment (ROI) for implementing standards. However, many best-in-class companies implement standards and even drive standards development in their industries. How can medical device manufacturers justify such activities and how do they attain an ROI on standards investments?
A. Our research has shown that best-in-class companies justify an investment in implementing standards by being able to correlate the use of a standards approach with actual measurable operational efficiencies gained. For example, medical products suppliers and distributors surveyed in 2008 and 2009 reported varying degrees of adoption of data standards. Aberdeen has established a set of operational performance benchmarks through the measurement of meaningful key performance indicators (KPIs), such as year-over-year percent reduction in excess inventory, percent decrease in order-to-delivery cycle time, and effectiveness rating of customer satisfaction for order fulfillment.
The findings show that best-in-class companies—those performing in the top 20% across all of these metrics—are far more likely to adopt data standards (either industry-driven standards or customer-driven standards) versus their counterparts that perform in the bottom 80% of all respondents. Indeed, 96% of the best-in-class performers have adopted some form of data standards implementation, while 47% of the remainder of respondents have no plans to implement a standards approach.
Q. What are the business benefits of standards, specifically GLN enumeration for manufacturers?
A. The GLN provides a globally unique standardized location identification number for providers, manufacturers, and distributors. It promotes efficiency by accelerating the use of electronic transmittal of information (via EDI and XML for example). Industry-driven standards, such as the GLN enumerator created by the GS1 organization, offer some other important benefits that companies operating in the medical products space should consider from a strategic perspective. The GLN standard offers various benefits, as follows:
It is a global standard that does not require trading partners to assign any internally unique numbers or codes. Codes are self-assigned by participants and once recorded in the registry are available to all users.
It enables time and cost savings because the GLN number follows the product through all levels of the supply chain. This allows for in-process tracking and visibility to the value-chain that has been impossible in the past.
It allows users to leverage the full functionality of the GS1 system. GLNs can be encoded in GS1-128 bar codes and physically marked onto products to identify the parties involved in the transaction (buyer, supplier), transport units (consignor and consignee), and physical locations (place of delivery, place of departure and point of storage).
Aberdeen research shows that increased supply chain visibility, as enabled by a standard, has a dramatic effect on overall supply chain performance. Respondents who have adopted a strategy to improve supply chain visibility are 28% more likely to have achieved decreased inventory carrying costs since implementing a standards approach.
Q. So the GS1 standards are implemented in multiple industries, healthcare being one. How has the implementation of GLNs specifically affected those industries and what key insights have those manufacturers gained through the implementation of GLNs?
A. The automotive replacement parts industry, for example, is driven by two primary factors. First, by the profit margins associated with replacement parts are high (this can also be said of several medical products categories). Second, they are driven by customers who demand immediate shipment due to the mission-critical nature of their business (also true within the healthcare industry).
In fact, availability of replacement parts plays an important role in the customer satisfaction and customer service level metrics. It also has a direct affect on the sale of new equipment. Aberdeen data show that improving inventory visibility is a key strategic action being taken by reseller-oriented organizations. It is also an area of weakness for these companies. Only 15% of respondents in a recent industry sample segment indicated that they have the ability to view end-to-end inventory while providing available-to-promise service levels. Given the large number of drop-ship special orders that are sent out by distributors and wholesalers, this lack of end-to-end inventory visibility is a critical barrier to achieving improved customer service levels.
The industry players that have adopted a data standards approach to this challenge are seeing drastic performance advantages related to customer loyalty and retention. When a supplier can tell the end-customer the status of the order based on visibility to that information, expectations can be set based on reality and not simply saying “yes” to the customer time-to-delivery demand when it was never possible to begin with. This allows all parties to more effectively manage on-hand inventory, and reduce associated costs.
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