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...