As Intermountain Healthcare's top supply chain guy, Brent Johnson oversees the distribution of some 2.5 million medical items annually. And that's just part of his job.
Contributing Editor Toby Gooley is a writer and editor specializing in supply chain, logistics, and material handling, and a lecturer at MIT's Center for Transportation & Logistics. She previously was Senior Editor at DC VELOCITY and Editor of DCV's sister publication, CSCMP's Supply Chain Quarterly. Prior to joining AGiLE Business Media in 2007, she spent 20 years at Logistics Management magazine as Managing Editor and Senior Editor covering international trade and transportation. Prior to that she was an export traffic manager for 10 years. She holds a B.A. in Asian Studies from Cornell University.
As his title suggests, Brené T. Johnson, Intermountain Healthcare's vice president supply chain & support services and chief purchasing officer, oversees some areas that don't normally fall under a supply chain professional's purview. In addition to managing the company's $1.5 billion nonlabor spend, he's responsible for a number of other functions that are pivotal to the Utah-based health-care provider's success, such as laundry and linen services, sustainability, environmental services, clinical engineering, food and nutrition, information technology (IT) asset management, and printing.
Intermountain Healthcare's senior leadership views supply chain management as strategically important for the company, and it has supported major investments in labor and facility resources that bring added value, Johnson says. In 2012, the company demonstrated its commitment to supply chain excellence by opening the $40 million Intermountain Kem C. Gardner Supply Chain Center, a 327,000-square-foot distribution, warehouse, and office complex near Salt Lake City that employs more than 350 people. The facility, which has qualified for Gold LEED (Leadership in Energy and Environmental Design) certification, stocks and distributes more than 2.5 million medical items annually. The center brings together under a single roof programs and services that previously had been scattered across Intermountain's system.
To Johnson's mind there's good reason to place all that and more under the supply chain umbrella. The nonprofit's supply chain organization, he believes, has the expertise and problem-solving skills to improve many of the processes and activities that support Intermountain Healthcare's network of hospitals, clinics, pharmacies, and other health services. The more efficiently and cost-effectively they are managed, the better the outcome for patient and provider alike, he says.
In this interview, Johnson—who came to the health-care field from the electric utility industry—explains how this inclusive approach as well as best practices he's adopting from other industries will help the company reduce the cost of providing health services while maintaining its high standard of care.
Q: Whom does the new supply chain center serve? A: It was built to serve one company: Intermountain Healthcare. We're the largest company in Utah, with 33,000 employees, 22 hospitals, 185 clinics, and 26 retail pharmacies, plus a health plan. The distribution center will support all operations for all of the hospitals, the clinics, and our home-care service.
Q: What functional areas does the supply chain center handle, and what makes that unusual? A: The whole campus totals about 327,000 square feet of building space, but only 160,000 of that is the distribution center. The administrative building is 60,000 square feet, and there's a 40,000-square-foot materials management and logistics wing. We also have a 60,000-square-foot ancillary services building.
There are other, similarly large DCs in the health-care industry, but few are built adjacent to or combined with supply chain management functions the way ours is. Everything that's involved in managing our supply chain is in this one center: purchasing, accounts payable, sourcing, analytics, information systems, logistics—including our courier department, which has 140 people and 80 vehicles—distribution, and warehousing. We have a call center for supply chain functions and a medical-surgical recall management center. Sustainability also reports to supply chain.
We also put waste stream management, publishing services, and linen services under the supply chain function. For example, we have a central laundry that reports to me, and linen services is co-located in the same facility so that we are now cross-docking linens to hospitals. That's unique in health care, where they typically don't manage these types of activities as rigorously as other aspects of the business. Generally, if health-care providers have extra money, they spend it on clinical care. They don't realize that having poor technology and processes does impact clinical care.
We evaluated 12 to 15 other programs [for possible location at the supply chain campus]. We selected whichever ones had the best business case. Some we own, and some are outsourced but we control them.
Q: You expect savings of about $200 million over the first five years the supply chain center is in operation. Where will those savings come from? A: The savings will come from a number of areas, starting with managing the contracts for and distribution of our basic medical and surgical products. This includes over 200 contracts with 7,000 products. Some of the savings will come from lower pricing. More will come from efficiencies—fewer touches—and even more will come from increased service levels that will impact patient care and remove the supply burden from the nurses. Also, from one distribution center, we intend to reduce by one-third the 15,000 road miles we put on to deliver products and equipment to our facilities. We will cross-dock many other products from other supply chains that make sense—clinical, pharmaceutical, lab, IT, linen, food, MRO [maintenance, repair, and operations], etc.
But we expect four other areas, from our ancillary services that are co-located at the supply chain center, to generate more value and savings. The first is pharmacy services. We installed a 20,000-square-foot pharmaceutical fulfillment center and invested in $8 million to $10 million worth of robotic equipment. We buy pharmaceuticals in bulk and use the robots to break them down and prepackage orders. That way, every hospital doesn't have to buy in bulk, which means they don't have to buy more than they need. This system helps us manage expiration dates, too. We expect to reduce pharmaceuticals inventory for hospitals and our 26 retail pharmacies, many of them in our clinics, by 40 percent. We have a pharmacy call center on site, and we can take advantage of the warehouse and courier services being located together on the same campus.
Number two is printing. Before, printing was being done all over the place. Now, we print 800 million pieces a year coordinated from this one location for the whole company. The supply chain function manages it, and we see lots of opportunities to reduce costs.
Third is IT asset management. We have centralized the storage and shipping of equipment, and we use our own couriers to deliver things like laptops, printers, and copiers. We ship out about 1,200 devices a month. All of the used assets come back here for asset recovery.
And fourth is our ancillary imaging equipment service program. We have 2,000 or so imaging devices in our system. Rather than outsource that, we started hiring our own technicians and are managing it ourselves. They have their own call center and space for sourcing, repair, and storage here on the supply chain campus.
We are also saving a lot of money in procurement. We have the most robust purchasing card system in health care. By implementing about 5,000 "p-cards," we removed 250,000 transactions worth $70 million a year from our system, including travel, fleet management, and asset recovery.
Q: In what other ways is Intermountain's supply chain strategy different from most in the health-care industry? A: We have implemented Low Unit of Measure (LUM) technology in our medical-surgical distribution operations, where we bypass our own warehouses at the hospitals and deliver standardized products in LUM totes every night to every nursing floor and clinic. To do this, we have installed high-end technology conveyor systems and voice-directed picking to maximize efficiency and improve quality.
Another key to success was standardizing products across the system's 22 hospitals. This took extensive efforts working with nursing product committees. When you have to pay for the touch and inventory of every item, it becomes very important to you. Often, these costs are hidden behind distributors and other supply chain partners.
Q: Any other changes in the works? A: If you look at all the operations that make up Intermountain, you will see that there are a lot of supply chains. Medical and surgical supplies are only one aspect. We also have food and nutrition, IT, clinical engineering, and others. They all have their own supply chains, and they have their own way of getting supplies and materials in and out. We've gotten very good at managing medical supplies, which represents the largest volume. Now, we're looking at those other supply chains to see what value we can add by handling them.
This story first appeared in the September/October issue of Supply Chain Xchange, a journal of thought leadership for the supply chain management profession and a sister publication to AGiLE Business Media & Events’' DC Velocity.
For the trucking industry, operational costs have become the most urgent issue of 2024, even more so than issues around driver shortages and driver retention. That’s because while demand has dropped and rates have plummeted, costs have risen significantly since 2022.
As reported by the American Transportation Research Institute (ATRI), every cost element has increased over the past two years, including diesel prices, insurance premiums, driver rates, and trailer and truck payments. Operating costs increased beyond $2.00 per mile for the first time ever in 2022. This trend continued in 2023, with the total marginal cost of operating a truck rising to $2.27 per mile, marking a new record-high cost. At the same time, the average spot rate for a dry van was $2.02 per mile, meaning that trucking companies would lose $0.25 per mile to haul a dry van load at spot rates.
These high costs have placed a significant burden on the operations of trucking companies, challenging their financial sustainability over the last two years. As a result, 2023 saw approximately 8,000 brokers and 88,000 trucking companies cease operations, including some marquee names, such as Yellow Corp. and Convoy, and decades-long businesses, such as Matheson Trucking and Arnold Transportation Services.
More so than ever before, trucking companies need to get better at efficiently using their assets and reducing operational costs. So, what is a trucking company to do? Technology is the answer! Given the nature of the problem, technology-led innovation will be critical to ensure companies can balance rising costs through efficient operations.
One technology that could be the answer to many of the trucking industry’s issues is the concept of digital twins. A digital twin is a virtual model of a real system and simulates the physical state and behavior of the real system. As the physical system changes state, the digital twin keeps up with the real-world changes and provides predictive and decision-making capabilities built on top of the digital model.
DHL, in a 2023 white paper, suggests that—due to the maturation of technologies such as the internet of things (IoT), cloud computing, artificial intelligence (AI), advanced software engineering paradigms, and virtual reality—digital twins have “come of age” and are now viable across multiple sectors, including transportation. We agree with this assessment and believe that digital twins are essential to radically improving the processes of fleet planning and dispatch.
THE NEED TO AUTOMATE
Outside of attaining procurement efficiencies, trucking companies can achieve lower costs by focusing on critical operational levers such as minimizing deadheads, reducing driver dwell time, and maximizing driver and asset utilization.
However, manual methods of planning and dispatch cannot optimally balance these levers to achieve efficiency and cost control. Even when planners work very hard and owners strive to improve processes, optimizing fleet planning is not a problem humans can solve routinely. Planning is a computationally intensive activity. To achieve fleet-level efficiencies, the planner has to consider all possible truck-to-load combinations in real time and solve for many operational constraints such as drivers’ hours of service, customer windows, and driver home time, to name just a few. These computations become even more complex when you add in the dynamic nature of real-world conditions such as trucks getting stuck in traffic or breaking down or orders getting delayed. This is not a task humans do best! For these sorts of tasks, technology has the upper hand.
When a company creates a digital twin of its trucking network, it has a real-time model that factors in truck locations, drivers’ hours of service, and loads being executed and planned. Planners can then use this digital model to assess possible decisions and select ones that increase asset utilization, improve customer and driver satisfaction, and lower costs.
For example, a digital twin of the network can offer significant insights and analysis on the state of the network, including exceptions such as delayed pickups and deliveries, unassigned loads, and trucks needing assignments. Backed by AI that takes business rules into account, digital twins can allow companies to optimize their fleet performance by finding the most efficient load assignments and dynamically adjusting in real time to changes in traffic patterns and weather, customer delays, truck issues, and so on.
With a digital twin, carriers can optimize the matching of assets, drivers, and freight. Typically, an investment in this innovative technology results in a 20%+ increase in productive miles per truck, while also improving driver pay and significantly decreasing driver churn. Drivers get paid by the miles they run, so when they run more, they are able to make more money, resulting in less need to chase the next job in search of better pay.
ADDITIONAL BENEFITS
Digital twins also combat deadheading, another source of driver dissatisfaction and cost inefficiencies. On average, over-the-road drivers spend 17%–20% of road miles driving empty. Using a digital twin, a company can search across several freight sources to find a load that perfectly matches the deadhead leg without impacting downstream commitments. These additional revenue miles will help drivers to maximize their earnings on the road and carriers to maximize their asset utilization and profitability.
The traditional manual dispatch planning model is becoming increasingly outdated—each planner and fleet manager tasked with overseeing 30 to 40 vehicles. Carriers try to manage this problem by dividing the fleet into manageable chunks, which results in cross-fleet inefficiencies. Such a system isn’t scalable. A digital twin acts as an equalizer for small and mid-sized fleets. It enables carriers to expand by venturing beyond the fixed routes and network they were forced to run out of fear of additional logistical complexity.
A digital twin can also give an organization the transparency and visibility it needs to find and fix inefficiencies. A successful carrier will leverage the technology to learn from the hitches in its operations. While this visibility is beneficial in its own right, it also provides the first step toward a seamless, digitized operation. “Digital revolution” is a buzzword frequently heard at transportation conferences. Yet not too many organizations are dedicated to digitizing their operations past the visibility stage. The end goal should be using decision-support systems to automate key elements of the system, thus freeing up planners from their daily rote tasks to focus on problems that only humans can solve.
Finally incorporating a digital twin can also help trucking companies work toward the broader trend of creating greener supply chains. Because they have lower deadhead and dwell times, trucking companies that have adopted a digital twin can be more attractive to shippers that are looking for more efficient operations that meet their environmental, social, and governance (ESG) goals.
THE FUTURE IS HERE
It is important to note that the benefits described here are not dreams for the future; digital twin technology is already here. In fact, choosing a digital twin can seem daunting because there are already a spectrum of options out there. First and foremost, an organization must ensure that the digital twin it selects aligns with both the goals and the scope of its operation.
Additionally, the ideal digital twin should:
Operate in near real time. A digital twin should be able to refresh as often as the network changes.
Be able to factor in specific customer delivery requirements as well as asset- and operator-specific constraints.
Be computationally efficient and comprehensive as it considers thousands of permutations in milliseconds. The digital twin should be able to reoptimize an entire fleet’s schedule of multi-day routes on the fly.
Before implementing a digital twin, carriers need to make sure that they have robust data management processes in place. Electronic logging devices (ELDs), customers’ tenders, billing, shipments, and so on are already inundating carriers with a glut of data. However, the manual nature of operations in many carriers leads to poor data quality. Carriers will need to invest in data management approaches to improve data quality to support the generation and use of high-fidelity digital twins. Otherwise, the digital twin will not be representative of reality and companies will run into an issue of “garbage in, garbage out.”
REINVENTION AND TRANSFORMATION
While data management is critical, change management through the ranks of dispatch operations is often a harder task. In fact, the largest roadblock carriers face when undergoing a digital transformation is the lack of willingness to change, not the technology itself. Many carriers cling to outmoded planning methods. Planners, used to operating based on well-worn business rules and tribal knowledge, could be wary of the technology and resistant to change. They may need to be assured that, while it is true that every trucking network is uniquely complex, digital twins can be set up to model the intricacies of their specific dispatch operations and drive value to the network. A significant amount of time and resources will need to be expended on change management. Otherwise even though trucking companies may invest in cutting-edge technology, they won't be able to fully capitalize on the added value it can provide.
As the truckload industry works through the current freight cycle, it is important to realize that change is inevitable. Carriers will need to reinvent their operations and invest in technologies to ride through the busts and booms of future freight cycles. Recent global events point to the many ways that wrenches can be thrown into global transportation networks, and the fact that such volatility is here to stay. Digital twins can provide companies with the visibility to navigate such changes. But above all, an operation that uses the digital twin to drive decisions can make customers and drivers happy, and help the carriers keep their heads above water during times such as now.
More than half of home deliveries to U.S. online shoppers arrive either late, damaged, or at the wrong address, totaling 53% of orders with one of those issues, according to a study from e-commerce software vendor HubBox.
Specifically, almost one in three (27%) home delivery packages are currently delivered late, while almost one in six (15%) online orders are delivered to the wrong address. The results come from Atlanta-based HubBox, which works with networks and carriers to provide retailers with pickup access to over 400,000 locations worldwide.
Furthermore, the survey of more than 1,000 U.S. shoppers revealed consumers’ top five home delivery pain-points: 1. Orders delivered to the wrong house or block (37%), 2. Packages left with neighbors they don’t like or don’t speak to (30%), 3. Item arriving damaged (28%), 4. Delivery is late (27%), and 5. Having to wait at home for deliveries (25%).
According to HubBox, those frustrations have pushed nearly half (49%) of shoppers to consider out-of-home delivery collection points to overcome poor delivery service.
“Shoppers expect seamless experiences throughout their buying journey – and nowhere more so than in delivery and the last mile where shoppers’ anticipation of receiving their order is highest,” HubBox CEO Sam Jarvis said in a release. “Retailers that offer flexible and convenient delivery experiences, such as pickup points or BOPIS, (Buy Online Pick Up in Store) stand a better chance, and, if they can’t meet these expectations, they risk significant lost sales and future loyalty.”
In addition, more shoppers now expect compensation for late deliveries; over half (53%) expect money off their next order if a delivery is delayed, while 63% expect delivery charges to be waived and another 54% expect a free delivery code for their next order.
“Late deliveries don’t just erode hard-won customer loyalty. Increasingly, as retailers are having to compensate customers for delayed orders, they eat away at already slim margins – and this at a time when the cost of fulfilment is rising and some carriers are charging additional fees for home deliveries,” Jarvis said. “By diversifying fulfilment options, such as adding local pickup, retailers can ensure demand can be met across their network even during peak trading periods such as Black Friday and the Christmas holidays while ensuring consumer experience is maintained.”
Regular online readers of DC Velocity and Supply Chain Xchange have probably noticed something new during the past few weeks. Our team has been working for months to produce shiny new websites that allow you to find the supply chain news and stories you need more easily.
It is always good for a media brand to undergo a refresh every once in a while. We certainly are not alone in retooling our websites; most of you likely go through that rather complex process every few years. But this was more than just your average refresh. We did it to take advantage of the most recent developments in artificial intelligence (AI).
Most of the AI work will take place behind the scenes. We will not, for instance, use AI to generate our stories. Those will still be written by our award-winning editorial team (I realize I’m biased, but I believe them to be the best in the business). Instead, we will be applying AI to things like graphics, search functions, and prioritizing relevant stories to make it easier for you to find the information you need along with related content.
We have also redesigned the websites’ layouts to make it quick and easy to find articles on specific topics. For example, content on DC Velocity’s new site is divided into five categories: material handling, robotics, transportation, technology, and supply chain services. We also offer a robust video section, including case histories, webcasts, and executive interviews, plus our weekly podcasts.
Over on the Supply Chain Xchange site, we have organized articles into categories that align with the traditional five phases of supply chain management: plan, procure, produce, move, and store. Plus, we added a “tech” category just to round it off. You can also find links to our videos, newsletters, podcasts, webcasts, blogs, and much more on the site.
Our mobile-app users will also notice some enhancements. An increasing number of you are receiving your daily supply chain news on your phones and tablets, so we have revamped our sites for optimal performance on those devices. For instance, you’ll find that related stories will appear right after the article you’re reading in case you want to delve further into the topic.
However you view us, you will find snappier headlines, more graphics and illustrations, and sites that are easier to navigate.
I would personally like to thank our management, IT department, and editors for their work in making this transition a reality. In our more than 20 years as a media company, this is our largest expansion into digital yet.
We hope you enjoy the experience.
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In this chart, the red and green bars represent Trucking Conditions Index for 2024. The blue line represents the Trucking Conditions Index for 2023. The index shows that while business conditions for trucking companies improved in August of 2024 versus July of 2024, they are still overall negative.
FTR’s Trucking Conditions Index improved in August to -1.39 from the reading of -5.59 in July. The Bloomington, Indiana-based firm forecasts that its TCI readings will remain mostly negative-to-neutral through the beginning of 2025.
“Trucking is en route to more favorable conditions next year, but the road remains bumpy as both freight volume and capacity utilization are still soft, keeping rates weak. Our forecasts continue to show the truck freight market starting to favor carriers modestly before the second quarter of next year,” Avery Vise, FTR’s vice president of trucking, said in a release.
The TCI tracks the changes representing five major conditions in the U.S. truck market: freight volumes, freight rates, fleet capacity, fuel prices, and financing costs. Combined into a single index, a positive score represents good, optimistic conditions, and a negative score shows the opposite.
A coalition of truckers is applauding the latest round of $30 million in federal funding to address what they call a “national truck parking crisis,” created when drivers face an imperative to pull over and stop when they cap out their hours of service, yet can seldom find a safe spot for their vehicle.
According to the White House, a total of 44 projects were selected in this round of funding, including projects that improve safety, mobility, and economic competitiveness, constructing major bridges, expanding port capacity, and redesigning interchanges. The money is the latest in a series of large infrastructure investments that have included nearly $12.8 billion in funding through the INFRA and Mega programs for 140 projects across 42 states, Washington D.C., and Puerto Rico. The money funds: 35 bridge projects, 18 port projects, 20 rail projects, and 85 highway improvement projects.
In a statement, the Owner-Operator Independent Drivers Association (OOIDA) said the federal funds would make a big difference in driver safety and transportation networks.
"Lack of safe truck parking has been a top concern of truckers for decades and as a truck driver, I can tell you firsthand that when truckers don’t have a safe place to park, we are put in a no-win situation. We must either continue to drive while fatigued or out of legal driving time, or park in an undesignated and unsafe location like the side of the road or abandoned lot,” OOIDA President Todd Spencer said in a release. “It forces truck drivers to make a choice between safety and following federal Hours-of-Service rules. OOIDA and the 150,000 small business truckers we represent thank Secretary Buttigieg and the Department for their increased focus on resolving an issue that has plagued our industry for decades.”