Chain Drug Review, February 12, 2018
Chain Drug Review February 12 2018 17 My Turn Chain Drug Review David Pinto Editor Jeffrey Woldt Vice President Editorial Director Phone 212 699 2326 Fax 212 725 4594 jwoldt@ racherpress com Geoff Walden Executive Editor 212 699 2313 gwalden@ racherpress com Mark Wolz Copy Editor 212 699 2330 mwolz@ racherpress com Russell Redman Desk Editor 212 699 2323 rredman@ racherpress com Brian Bossetta Senior Editor 212 699 2376 bbossetta@ racherpress com Bill Schiffner Senior Editor 212 699 2307 bschiffner@ racherpress com Susan Schinitsky Publisher Kevin Burke Vice President Group Advertising Director Phone 212 699 2335 Fax 212 725 4594 kburke@ racherpress com Rick Kolinsky Southeast Director Sales 908 884 4592 rkolinsky@ racherpress com Christopher Stanton Midwest West Director Sales Phone 512 829 5663 Fax 512 263 5886 cstanton@ racherpress com Andrea Fallin Northeast Director Sales 212 699 2321 afallin@ racherpress com Peggy Navarre Production Manager Phone 212 699 2371 Fax 212 725 4594 pnavarre@ racherpress com Pam Vandernoth Circulation Manager Phone 212 699 2362 Fax 212 725 4594 pvandernoth@ racherpress com Clare Green Art Director 212 213 6000 Bill Buckley Art Director 212 699 2331 bbuckley@ racherpress com Mike Allen Art Director 212 699 2397 mallen@ racherpress com Published by Racher Press Inc 220 Fifth Ave New York N Y 10001 212 213 6000 David Pinto President Susan Schinitsky Secretary Treasurer Beauty innovation only the start at CVS By Jeffrey Woldt The announcement by CVS Pharmacy president Helena Foulkes at last months National Retail Federation Big Show that the retailer will adopt standards that bring a new level of transparency Crowdsourced design transforms logistics By Balika Sonthalia Michael Zimmerman and Vishal Bhandari A perfect storm is brewing for drug retailers supply chain managers third party logistics suppliers 3PLs and the carriers they work with After U S logistics costs declined 15 in 2016 the first half of 2017 was flat due to lingering overcapacity and rate pressures that had shippers asking for and still getting rate reductions Costs rose markedly during the second half of the year however a trend that is expected to continue in 2018 There is less room for easy cost cutting now and the traditional areas where shippers look for more value warehousing and transportation show less potential as well As a result chain drug retailers are rethinking their supply chain networks as they consider alternate partners and distribution assets They are also grappling with rapidly changing consumer expectations and rising shareholder demands for efficiency Competing forces create the storm but there is a ray of sunshine An innovative approach to logistics network design benefits both shippers and suppliers Known as crowdsourced network optimization CNO it builds on traditional optimization taking it further with crowdsourcing techniques and advanced analytics and strategy A closer look at current conditions shows why a new approach benefits the industry Even as carriers and 3PLs improve margins achieving rate concessions grows more difficult Shippers can achieve new ground by shifting from transactional pricing to end to end performance improvement As market capacity tightens supply chains hesitate to change their mix of 3PLs to minimize operational risk Greater value across the enterprise and lower risk are possible through closer collaboration with internal functional partners and businesses especially when it occurs during the logistics planning process for the coming year At the same time shippers will need to upgrade their logistics cost and operationsmanagement strategy to deliver savings and hit higher performance targets A crowdsourced approach draws on each partys insights and strengths while it builds on optimization tools from the past Demands outpace past approaches to optimization During the last decade we have seen two logistics transformation approaches achieve various benefits First collaborative optimization where companies optimize spend a single mode at a time has brought 5 to 12 savings through expressive bidding instead of traditional auctions see figure 1 When a supply chain is transparent about its logistics requirements future demand and constraints the supplier can suggest pricing to meet its needs This approach brings good value for one mode at a time such as road warehousing or air but usually not multiple modes simultaneously Second network optimization where companies use benchmarks to rationalize footprint and transportation lanes and expedite design of future networks for sourcing has generated 8 to 15 savings It is often based on internal guestimates before talking to suppliers however Suppliers may come back with more efficient options for warehouse locations but time and insights can be lost on how to maximize the overall footprint In contrast using crowdsourcing to collaborate with suppliers during network optimization can help chain drug retailers realize savings of 10 to 20 on spend across all modes even as they face unprecedented complexity Companies in this sector commonly spend 2 to 6 of sales on logistics making it a common target for cost cutting Todays multilayered and global supply chain networks are more complicated with their multiple transportation modes and legions of 3PLs carriers warehouse companies and other vendors Continually changing customer requirements and competitive disruptions compound the intricacy as shippers face ever faster and more demanding delivery expectations that affect factors such as in stock rates inventory visibility rapid to the images used to promote its beauty business caused a stir in the category and triggered a long overdue discussion about the impact of such imagery on women and girls Although the change in policy which is detailed in a story beginning on page 1 received the lions share of attention following Foulkes appearance at one of the Big Shows main stage sessions she had a lot more to say about the direction of CVS Health and the thinking of the people who guide it CVS has a history of being purpose led noted Foulkes who was recognized by NRF as one of the people shaping retails future In 2014 we announced that we were getting rid of tobacco in all of our stores As you can imagine that was an incredibly hard decision We walked away from 2 billion in sales But as a health care company serving people every day and helping people on their path to better health we knew that was the right decision Weve made other moves around healthy food and trans fats and chemicals Just a few months ago we talked about the opioid crisis So I would say that this is an ongoing iteration for us and I think were in an incredible moment of womens empowerment right now CVS Pharmacy is intent on keeping pace with the consumer Under Foulkes leadership it has adopted a test and learn model to help direct the evolution of its offer After a period of experimentation with new formats the drug chain is ready to reinvigorate its store base One of these formats is even more intensely focused on health and beauty and healthy foods thats really where CVS has the right to win and its connected to our pharmacy Well have close to 1000 stores that are reset in this format coming up this year she said Weve got another format that is much more value oriented that were adding We also have some really great work going on for the Hispanic customer We bought a small retailer in Miami a few years ago called Navarro It was a 33 store chain focused on the Hispanic customer and we learned a ton We learned that we need to really reorient the store the products the service experience We actually have over 500 stores in our fleet where 50 or more of the population is Hispanic and so weve been testing with the Navarro team this new format and its gone really well Well also be rolling that out Well be resetting thousands of stores this year at all of those formats Its the largest investment in stores that weve made in terms of really revamping and reflecting where the consumer is going Foulkes indicated that openness to new ways of doing things is a prerequisite for any retailer that intends to flourish in a marketplace where established patterns have been upended by digital technology and new methods of distribution Theres a tremendous amount of change going on in retail she said Thats why Ive always loved it Its a fastpaced business Were dealing with disruption and chaos and the consumer is in some way surging forward We need to keep leapfrogging and serving her and doing things that make her life better more fun more beautiful more inspiring So all of us are feeling the bar going up and it can be stressful but to me thats whats exciting The people who are winning right now are integrating their digital services with their stores Health Care is of course CVS primary mission and Foulkes noted that the companys stores will play a pivotal part in the wake of its pending merger with Aetna We hope to use this as a way to transform the consumer experience around health care Health care is hard its too expensive its too complicated As consumers were all bearing a bigger burden of health care because of things like high deductible health plans explained Foulkes who is an executive vice president at CVS Health The idea would be how do we leverage the 9700 stores that we have the digital expertise the consumer expertise along with Aetnas clear clinical and data expertise to serve consumers better Those who heard Foulkes speak came away with the sense of a company and an executive well on the way to reimagining health care and drug store retailing The people who are winning right now are integrating digital services stores Drug chains are rethinking their supply chain Continued on page 18
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