UPS Delivers New Level of Healthcare Supply Chain Flexibility for ConvaTec

When you're one of the world's largest providers of ostomy products that patients rely on for the rest of their lives, ConvaTec can tell you that customer service is critical. ConvaTec "does not sell boxes to a distributor," explains ConvaTec USA President Michael Steadman; it "gets products to patients that have an impact on their life."

In addition to the patients that use ConvaTec products, ConvaTec's direct customers are the more than 129 distribution partners that get their products to market. These companies look to ConvaTec not only for its leading products but also to help them with their own planning in terms of inventory management and cost containment. This requires a flexible supply chain.

The desire for greater flexibility and a higher degree of customer service spurred almost-30-year-old ConvaTec, with $1.6 billion in sales, to re-examine its supply chain strategy.

A Need for Speed

One major supply chain challenge for ConvaTec was improving order turn-around times, which were averaging two-to-four days, while also reducing inventory days on hand. ConvaTec manufacturing sites are located in the Dominican Republic and the U.K., with one U.S. location in Greensboro, N.C., meaning that many products have a long way to go before reaching end customers. In addition, since ostomy products are considered medical devices with a Class 1 qualification in the U.S., they are regulated by the FDA and must adhere to strict guidelines.

Faster order turn-around times were essential to enabling the company to continue to provide top-quality customer care. At the same time, ConvaTec was experiencing issues on the back-end of the supply chain that were costing them valuable time and money. One area in need of improvement was the collections process. ConvaTec's Days Sales Outstanding (DSO) were slightly above the industry norm, an average that certainly had room for improvement.

After examining its current distribution processes and needs, ConvaTec determined that it needed a new solution – and soon made the decision to outsource its supply chain to UPS.

From Order to Cash: The UPS Solution

With the new UPS solution, all supply chain functions – from order entry and processing to warehousing, distribution and global transportation to call center service, accounts receivable and chargebacks – are now coordinated by UPS. This allows ConvaTec to focus on its product development, marketing, production and sales.

To speed products to market, UPS first assembled global air and ocean freight services to and from ConvaTec manufacturing facilities to the UPS campus in Louisville. The UPS solution also included fulfillment, outbound small package and UPS Freight distribution to ConvaTec's wholesalers and retailer distribution centers. Customs brokerage services and supply chain visibility solutions were included in the solution to ensure that products moved on time.

After experiencing early success with UPS freight and distribution services, ConvaTec began taking advantage of UPS's Order to Cash^SM services, which enable healthcare companies to outsource front- and back-end supply chain functions such as order processing, customer service, invoicing, accounts receivables collection and chargebacks as well as many other services to UPS. For ConvaTec, UPS acts as the company's customer service center, taking telephone orders directly from ConvaTec's distributor customers and then ensuring that those orders are fulfilled. UPS also processes customer invoices and coordinates all retailer discount chargebacks for ConvaTec.

Last, but certainly not least, UPS's solution for ConvaTec included rigorous training for UPS employees in the UPS Louisville, Ky. Healthcare Logistics Center to learn about ConvaTec's products. During the initial training, UPS employees were so inspired by ConvaTec's care for its patients that they created a new motto for UPS healthcare operations: "It's a Patient, Not a Package." Shortly after UPS started working with ConvaTec, employees at the facility designed a banner with those very words – as a reminder to all employees of the significance of the timely and sensitive delivery of healthcare products to customers around the world.

Prescription Fulfilled: Solution Pays Off for ConvaTec

Working with ConvaTec to develop a new distribution solution, UPS was able to reduce ConvaTec's order turn-around time from the initial two-to-four days down to just one to one-and-a-half days. Today, ConvaTec can react immediately to order requests received prior to 2 p.m. Eastern, with UPS processing orders and shipping products out that day. Orders received after 2 p.m. can still be guaranteed for delivery by the next day. 

The UPS solution also allows ConvaTec to take emergency orders as late as 10 p.m. for delivery anywhere in the U.S. as early as the next day. Bill Binder, associate director of customer service and operations, reports that ConvaTec is currently receiving about six to 10 of these emergency orders per week – requests it can now easily fulfill.

UPS has also helped ConvaTec offer a higher degree of service to its distributor customers. Now that these customers know exactly how long it will take products to come from Louisville, they can plan ahead to keep their own inventory costs down, a major advantage for distributors.

As for the back-end of the supply chain, since UPS began functions such as customer service, order entry and accounts receivable for ConvaTec, the company's DSO has decreased by 30 percent – a significant improvement.

Another major benefit that ConvaTec has gained since outsourcing its supply chain to UPS is the ability to take advantage of UPS's Louisville Healthcare Logistics Center. "This is an outstanding facility in terms of quality," says Binder, who reports that ConvaTec often brings its own customers to Louisville to show them how the center operates. "It's a major advantage for us with our customers to be able to bring them in and show them the UPS facility," adds Binder. "They are very impressed when they see everything that happens there."

According to Steadman and Binder, the biggest advantage of working with UPS is the amount of flexibility ConvaTec has gained. "We have a very flexible supply chain now," reports Steadman, who adds that flexibility was one of the main reasons they outsourced their supply chain in the first place. This new level of flexibility has allowed ConvaTec to reduce inventory days on hand, speed new product launches, increase customer responsiveness and accelerate cash flow. Now, that's a healthy supply chain.