After Carestream Health was sold to a new owner, the medical imaging company had to design its own, stand-alone distribution network. Modeling software helped supply chain managers make the right decisions.
As any first-year college student can tell you, it's not easy to go out on your own after sharing space with family members for so many years. Perhaps that's how supply chain managers at Carestream Health Inc. felt when their company was sold by Eastman Kodak Company to Onex Corporation a year and half ago.
Prior to the sale, Carestream had shared warehouses and transportation services with Kodak. After joining a new "family," however, the medical imaging company could no longer piggyback on a parent's distribution network. Now it would have to develop a stand-alone network that included warehousing and transportation facilities and services.
But Carestream's managers did not simply re-create what the company had during the Kodak years. They took advantage of a rare opportunity: the chance to design an economical and efficient distribution network from the ground up.
One is not enough
Carestream makes a variety of products that are sold to hospitals and medical distributors. These include medical and dental film, chemistry and printing systems, digital and analog X-ray imaging systems, molecular imaging systems, and health care information solutions. In 2007 the company netted about US $2.5 billion from sales of its products in more than 150 countries.
Carestream began its life as the Health Group of Eastman Kodak, a Rochester, New York, USA-based company that is best known for the cameras and film it manufactures for the consumer, professional, and industrial markets. In May of last year, Eastman Kodak sold the Health Group to Onex, an industrial conglomerate based in Toronto, Ontario, Canada. The Health Group, renamed Carestream, retained its headquarters in Rochester.
To serve the U.S. market, Kodak Health Group had used four warehouses in the United States that were owned by Kodak. One was located in Windsor, Colorado, near a manufacturing plant that made most of its flagship product, medical x-ray film. Another was in Rochester, New York, near Kodak's corporate headquarters. The group also shared warehouses in Georgia and California with Kodak's consumer goods business.
The sale to Onex meant that the former Kodak Health Group would have to strike out on its own when it came to transportation, warehousing, and distribution. In preparation for the change of ownership, the medical imaging company adopted what appeared to be a simple solution: serve all of its U.S. customers from one location.
"Prior to the split from Kodak, we tried to get everything into one warehouse," recalls Mark Ewanow, worldwide network design and inbound logistics manager. "We quickly recognized that it wasn't the best strategy."
The company had chosen the Colorado location as its central distribution point. That worked well for products that were manufactured at the nearby plant. But Carestream also manufactured some products in Rochester and was sending to Colorado—in the western half of the country—products that would later be shipped back to the U.S. Northeast. Clearly, having a single distribution point was neither efficient nor cost-effective. It was time for Carestream to rethink its plans.
Into the pool
Fortunately for Carestream, Kodak had by that time sold its Rochester warehouse to a third-party logistics company, which was willing to provide storage and handling for Carestream. The company now would be able to use that warehouse and the one near its manufacturing plant in Colorado as distribution centers and thus avoid unnecessary shipments. But that was just a first step in the process of redesigning its network. The company would also have to analyze and revise its transportation patterns.
During the Kodak years, the medical imaging unit had saved money on transportation by consolidating customer orders into full truckloads whenever feasible and delivering them to "pool points." These were locations where truckloads were broken down into less-than-truckload (LTL) shipments for final delivery to customers. The pool points were based on a network that included Kodak's four warehouses, and the truckloads were built with orders from both the Health Group and its parent company.
Now that Carestream had two warehouses instead of four—and no Kodak products to help fill the trucks—the company needed to identify pool locations that would optimize its new outbound product flow, Ewanow says. To conduct that analysis, Carestream's managers needed specialized software. After evaluating a number of packages, the company selected Supply Chain Guru, a network-design tool from Llamasoft Inc. that models a supply chain network, identifies the optimal structure, and then runs test scenarios to predict operational performance.
Accurate network modeling requires a significant amount of information, both current and historical. "The first step is modeling the existing network and getting the model in line with costs and inventory that we saw in history," says Ewanow.
To do this, the company needed to create a single picture of historical activity. This meant that Carestream had to pull all sorts of data from its corporate information system, including SAP applications inherited from Kodak Health, and then get that information into a format the modeling software could use. Among the data required were product types, the weights and quantities bought by its 2,000 or so customers at each of their receiving locations, and the frequency of shipments to each location.
Ewanow and his colleagues knew that indiscriminately loading all of the company's historical data into the model would skew the results. Instead they had to filter that information to some extent. Otherwise a shipping lane that was used once as an exception might be treated as a routine run in the analysis.
Soon they had the information they needed to conduct the analysis and run operational scenarios. "Getting a 'steady state' representation of history is difficult," Ewanow says. "But when you do, that gives you the confidence that the results from the software reflect the savings from any future network design."
Savings all around
When Ewanow completed the modeling exercise at the end of 2007, the results suggested that Carestream use six pool points, as opposed to the nine it had when it was Kodak Health Group. By using facilities operated by its motor carriers in Pennsylvania, Georgia, Texas, California, the U.S. Northeast, and the U.S. Midwest, Carestream could minimize its costs for shipping to all of its U.S. customers. Breaking down truckloads into LTL shipments in those geographic areas would also allow Carestream to obtain better truck utilization, Ewanow says.
Modeling Carestream's U.S. supply chain network validated the earlier decision to operate distribution centers in Rochester, New York, and Windsor, Colorado. That assessment was based not just on outbound considerations but also on inbound costs and service factors. The model showed that the distribution centers were situated properly not only for the products that it manufactured in Colorado and New York but also for those that it sourced from plants in Oregon, Mexico, and China. "One of the things that surprised some folks was that the locations we chose were pretty good locations because of the impact on inbound logistics costs," Ewanow says.
On the outbound side, Carestream could clearly see how costly it would be to serve the entire country from one point; as Ewanow puts it, the model quantified "the number of trucks we wouldn't have to run out of Colorado to serve the United States."
The medical imaging company also used the model to analyze its truck routings and shipments—and found that it was wasting resources in many cases. "We saved on the elimination of hundreds of truck movements per year," Ewanow says.
The combination of two distribution centers and the six pooling points allowed Carestream to shave US $1 million dollars from its US $50 million annual transportation budget. Those savings would have been considerably greater if fuel costs had not risen so high over the past year, Ewanow says.
Modeling beyond borders
Indeed Ewanow says that supply chain modeling and analysis will become a regular exercise for Carestream, partly because high energy prices will make transportation costs a concern for the foreseeable future. He sees a number of potential applications beyond transportation and warehousing analysis; his next exercise will be determining optimal inventory holdings and locations in the United States.
The medical imaging company also plans to apply supply chain modeling outside of the United States, using the software to analyze the optimal locations for serving its many international customers. Its first target is Europe, where Carestream has just begun examining its delivery network. Making changes in Europe will take longer than it did in the United States, Ewanow says, partly because Carestream has customers in so many countries and partly because it is constrained by thirdparty logistics contracts there that it inherited from Kodak HealthCare.
Ewanow believes that supply chain modeling will allow Carestream to "right-size" its global network and look for better ways to distribute its specialized products, taking into account the medical equipment market's shift from traditional imaging to digital technology. At the same time, modeling will help Carestream respond to changing economic trends. "We will continue to look for network opportunities as our customer base changes and fuel costs increase," Ewanow says.
Container imports at U.S. ports are seeing another busy month as retailers and manufacturers hustle to get their orders into the country ahead of a potential labor strike that could stop operations at East Coast and Gulf Coast ports as soon as October 1.
Less than two weeks from now, the existing contract between the International Longshoremen’s Association (ILA) and the United States Maritime Alliance covering East and Gulf Coast ports is set to expire. With negotiations hung up on issues like wages and automation, the ILA has threatened to put its 85,000 members on strike if a new contract is not reached by then, prompting business groups like the National Retail Federation (NRF) to call for both sides to reach an agreement.
But until such an agreement is reached, importers are playing it safe and accelerating their plans. “Import levels are being impacted by concerns about the potential East and Gulf Coast port strike,” Hackett Associates Founder Ben Hackett said in a release. “This has caused some cargo owners to bring forward shipments, bumping up June-through-September imports. In addition, some importers are weighing the decision to bring forward some goods, particularly from China, that could be impacted by rising tariffs following the election.”
The stakes are high, since a potential strike would come at a sensitive time when businesses are already facing other global supply chain disruptions, according to FourKites’ Mike DeAngelis, senior director of international solutions. “We're facing a perfect storm — with the Red Sea disruptions preventing normal access to the Suez Canal and the Panama Canal’s still-reduced capacity, an ILA strike would effectively choke off major arteries of global trade,” DeAngelis said in a statement.
Although West Coast and Canadian ports would see a surge in traffic if the strike occurs, they cannot absorb all the volume from the East and Gulf Coast ports. And the influx of freight there could cause weeks, if not months-long backlogs, even after the strikes end, reshaping shipping patterns well into 2025, DeAngelis said.
With an eye on those consequences, importers are also looking at more creative contingency plans, such as turning to air freight, west coast ports, or intermodal combinations of rail and truck modes, according to less than truckload (LTL) carrier Averitt Express.
“While some importers and exporters have already rerouted shipments to West Coast ports or delayed shipping altogether, there are still significant volumes of cargo en route to the East and Gulf Coast ports that cannot be rerouted. Unfortunately, once cargo is on a vessel, it becomes virtually impossible to change its destination, leaving shippers with limited options for those shipments,” Averitt said in a release.
However, one silver lining for coping with a potential strike is that prevailing global supply chain turbulence has already prompted many U.S. companies to stock up for bad weather, said Christian Roeloffs, co-founder and CEO of Container xChange.
"While the threat of strikes looms large, it’s important to note that U.S. inventories are currently strong due to the pulling forward of orders earlier this year to avoid existing disruptions. This stockpile will act as an essential buffer, mitigating the risk of container rates spiking dramatically due to the strikes,” Roeloffs said.
In addition, forecasts for a fairly modest winter peak shopping season could take the edge off the impact of a strike. “With no significant signs of peak season demand strengthening, these strikes might not have as intense an impact as historically seen. However, the overall impact will largely depend on the duration of the strikes, with prolonged disruptions having the potential to intensify the implications for supply chains, leading to more pronounced bottlenecks and greater challenges in container availability, " he said.
A coalition of freight transport and cargo handling organizations is calling on countries to honor their existing resolutions to report the results of national container inspection programs, and for the International Maritime Organization (IMO) to publish those results.
Those two steps would help improve safety in the carriage of goods by sea, according to the Cargo Integrity Group (CIG), which is a is a partnership of industry associations seeking to raise awareness and greater uptake of the IMO/ILO/UNECE Code of Practice for Packing of Cargo Transport Units (2014) – often referred to as CTU Code.
According to the Cargo Integrity Group, member governments of the IMO adopted resolutions more than 20 years ago agreeing to conduct routine inspections of freight containers and the cargoes packed in them. But less than 5% of 167 national administrations covered by the agreement are regularly submitting the results of their inspections to IMO in publicly available form.
The low numbers of reports means that insufficient data is available for IMO or industry to draw reliable conclusions, fundamentally undermining their efforts to improve the safety and sustainability of shipments by sea, CIG said.
Meanwhile, the dangers posed by poorly packed, mis-handled, or mis-declared containerized shipments has been demonstrated again recently in a series of fires and explosions aboard container ships. Whilst the precise circumstances of those incidents remain under investigation, the Cargo Integrity Group says it is concerned that measures already in place to help identify possible weaknesses are not being fully implemented and that opportunities for improving compliance standards are being missed.
By the numbers, overall retail sales in August were up 0.1% seasonally adjusted month over month and up 2.1% unadjusted year over year. That compared with increases of 1.1% month over month and 2.9% year over year in July.
August’s core retail sales as defined by NRF — based on the Census data but excluding automobile dealers, gasoline stations and restaurants — were up 0.3% seasonally adjusted month over month and up 3.3% unadjusted year over year. Core retail sales were up 3.4% year over year for the first eight months of the year, in line with NRF’s forecast for 2024 retail sales to grow between 2.5% and 3.5% over 2023.
“These numbers show the continued resiliency of the American consumer,” NRF Chief Economist Jack Kleinhenz said in a release. “While sales growth decelerated from last month’s pace, there is little hint of consumer spending unraveling. Households have the underpinnings to spend as recent wage gains have outpaced inflation even though payroll growth saw a slowdown in July and August. Easing inflation is providing added spending capacity to cost-weary shoppers and the interest rate cuts expected to come from the Fed should help create a more positive environment for consumers in the future.”
The U.S., U.K., and Australia will strengthen supply chain resiliency by sharing data and taking joint actions under the terms of a pact signed last week, the three nations said.
The agreement creates a “Supply Chain Resilience Cooperation Group” designed to build resilience in priority supply chains and to enhance the members’ mutual ability to identify and address risks, threats, and disruptions, according to the U.K.’s Department for Business and Trade.
One of the top priorities for the new group is developing an early warning pilot focused on the telecommunications supply chain, which is essential for the three countries’ global, digitized economies, they said. By identifying and monitoring disruption risks to the telecommunications supply chain, this pilot will enhance all three countries’ knowledge of relevant vulnerabilities, criticality, and residual risks. It will also develop procedures for sharing this information and responding cooperatively to disruptions.
According to the U.S. Department of Homeland Security (DHS), the group chose that sector because telecommunications infrastructure is vital to the distribution of public safety information, emergency services, and the day to day lives of many citizens. For example, undersea fiberoptic cables carry over 95% of transoceanic data traffic without which smartphones, financial networks, and communications systems would cease to function reliably.
“The resilience of our critical supply chains is a homeland security and economic security imperative,” Secretary of Homeland Security Alejandro N. Mayorkas said in a release. “Collaboration with international partners allows us to anticipate and mitigate disruptions before they occur. Our new U.S.-U.K.-Australia Supply Chain Resilience Cooperation Group will help ensure that our communities continue to have the essential goods and services they need, when they need them.”
A new survey finds a disconnect in organizations’ approach to maintenance, repair, and operations (MRO), as specialists call for greater focus than executives are providing, according to a report from Verusen, a provider of inventory optimization software.
Nearly three-quarters (71%) of the 250 procurement and operations leaders surveyed think MRO procurement/operations should be treated as a strategic initiative for continuous improvement and a potential innovation source. However, just over half (58%) of respondents note that MRO procurement/operations are treated as strategic organizational initiatives.
That result comes from “Future Strategies for MRO Inventory Optimization,” a survey produced by Atlanta-based Verusen along with WBR Insights and ProcureCon MRO.
Balancing MRO working capital and risk has become increasingly important as large asset-intensive industries such as oil and gas, mining, energy and utilities, resources, and heavy manufacturing seek solutions to optimize their MRO inventories, spend, and risk with deeper intelligence. Roughly half of organizations need to take a risk-based approach, as the survey found that 46% of organizations do not include asset criticality (spare parts deemed the most critical to continuous operations) in their materials planning process.
“Rather than merely seeing the MRO function as a necessary project or cost, businesses now see it as a mission-critical deliverable, and companies are more apt to explore new methods and technologies, including AI, to enhance this capability and drive innovation,” Scott Matthews, CEO of Verusen, said in a release. “This is because improving MRO, while addressing asset criticality, delivers tangible results by removing risk and expense from procurement initiatives.”
Survey respondents expressed specific challenges with product data inconsistencies and inaccuracies from different systems and sources. A lack of standardized data formats and incomplete information hampers efficient inventory management. The problem is further compounded by the complexity of integrating legacy systems with modern data management, leading to fragmented/siloed data. Centralizing inventory management and optimizing procurement without standardized product data is especially challenging.
In fact, only 39% of survey respondents report full data uniformity across all materials, and many respondents do not regularly review asset criticality, which adds to the challenges.