Q. What is Baxter's biggest supply-chain challenge in the coming year?

A. We have a huge project called Operation Customer Connect under way right now. It's linking our customers, suppliers and business processes for inventory planning, manufacturing and relationship management. That whole project, along with process changes and new tools, is scheduled for implementation in the U.S. next year. It involves 13 plants that service the country in three of our major businesses, and the entire customer base associated with those businesses. It means significant process change within our company, and it's a key value driver for our customers, our company and our shareholders.

Q. What is the timetable for implementation?

A. It begins with demand planning and forecasting. We're in pilot now, and will be rolling that out to our three U.S. businesses during the first six months of the year. We will conclude the project with installing all of our production planning, new processes, new tools and MRP process changes, to be completed by the end of next year.

Q. Will you go global with it after that?

A. Absolutely. We're going to do it region by region. We have three large regions that we consider in our world: Europe, Latin America and Asia. Those will be the next three steps. We haven't sorted out what the sequence is going to be. We have intentionally said that we're going to do them sequentially, because it requires such systemic change in terms of how we go about our business. To do the Big Bang just doesn't work for us. We figure it's probably another two years before we get it fully rolled out after that.

Q. What kind of technological innovations do you foresee, either in connection with this project or generally?

A. As it relates to this project, we are implementing new IT tools to support it. We are installing a J.D. Edwards tool (formerly a Numetrix tool), and it fits very nicely with our J.D. Edwards ERP systems. That technology is going into place in support of our process changes.

In addition to that, we're looking at collaborative tools from a transportation point of view. We're also looking at really ratcheting up our e-commerce efforts with our customers, from the perspective of inbound order-processing, order status, and all the way through into the revenue cycle. That comes in an expanded role in EDI, and in web-based applications.

Q. What new kinds of training, expertise and skills do you believe will be needed to cope with these changes at Baxter?

A. It's one of the single largest things that we have to contend with. We can design all these processes, we can plan for all the tools, but if we don't have the right skill sets established with our people, and get the right training done, it just is not going to work. We have a major effort under way to build the right team training arrangements, to get everyone up to speed on what they're going to need to do differently. We're very much at the front end of defining that training makeup, but we've got a group coming together to support that effort. This is an enormous change-management effort at Baxter.

Q. How do you address the natural human tendency to resist such radical change?

A. The biggest thing is to get people involved early. Let them get a good participatory role in the outcome. Keep them well informed. Because a lack of information is dangerous - it just heightens the anxiety. This is nothing new or innovative, but there's huge fear connected with change: "Oh, my life is going to be so much different, am I going to have a job," and so on. Just getting people past that anxiety is real important. The best way to do that is keep them well informed and part of the process. This is far-reaching, not just across the supply-chain organization. It affects manufacturing, all of our businesses, all of our financial folks. It essentially affects the entire corporation.

Q. Do you have all the talent on board that you need to undertake this project?

A. We've got a fairly good group of folks here. I would say the majority of our talent is internal. And it's going to require some training, education, and help through the change-management process. From time to time, we'll look for people from the outside. We haven't really identified where in fact they might fit into the new organization yet. Over the last year, we've brought some new talent into the company in areas where we needed supplemental help. For example, we've brought in some good transportation and logistics thinking and talent. We had outsourced a lot of our logistics efforts to a company that we owned at one time. Then we spun off all of our talent and didn't have talent on board. So we had to go bring those people in.

We've also brought in a couple of new people in our whole planning area, which is critical for us. We had some folks who had been around for a good long while who really understood the business. We needed some new talent to supplement that, but it's been a very small group. We've not gone out and wholesale hired a lot of people - just in areas where we saw the need for some supplemental experience and expertise.

Q. Has any of this represented a reversal of the trend toward outsourcing logistics?

A. No. We still are with our partner, the company that we owned at one time, Allegiance. Particularly in the U.S.; in Europe we do a lot of our own logistics work. There, it's managed through our European organization and we own our own warehousing and distribution network. It's a mixed bag in Latin America.

Q. In the wake of Sept. 11, have you experienced any disruptions in your supply chain?

A. No, not really. As a matter of fact, things are perking along really well. What I will tell you is that we have implemented contingency plans and crisis management plans to address anything that happens in the future. Clearly, we want to make sure, since we're in the healthcare business, that we can continue to service our customers regardless of what happens. So we've got good, solid crisis management processes in place now.

Q. Does this mean a change of strategy with regard to inventory levels or safety stocks?

A. As a matter of fact, it doesn't. We are doing a much better job of planning for that. This is a question that our chairman was recently asked by one of the stock analysts. We are always committed to making sure we have the right inventory in the right place at the right time. Certainly as it relates to one of our large customers, the American Red Cross - we're working very closely with them, to make sure we understand their near-term and long-term needs, and their crisis management process, so that we can adequately protect the inventory to support their business.

Q. So you're finding ways to achieve better flexibility and communication, without falling back on additional inventory or facilities?

A. That's exactly it. What it's done for us, quite honestly, is bring us closer to the customer side of the business. One of the things that is absolutely important in our large projects is becoming a much more collaborative business partner with our customer base. That's the name of the game going forward. If we can get that done, we're well on our way. We see it as a win-win for the customer and the company.

Q. How are the internet and e-commerce figuring into your strategies for all aspects of the supply chain?

A. The health- care industry seems to be behind on the e- commerce side, both in internet use and EDI. We've got a very strong program to increase our participation in the EDI side. We're also a large member of the Global Healthcare Exchange, which is a portal for our customer base, owned and operated by a number of large companies like ourselves. It's much like Neoforma and all those other portals that are going to provide good access by a broad array of customers doing business with ourselves and other healthcare providers. We see that growing in importance, and we want to be able to service our business 24/7. And the internet really provides that vehicle. It will take cost out of the supply chain, through the availability of information and services to our customers.

Q. Does it add a new selling channel, or is it more of a business-to-business application?

A. It's more a B2B application. Certainly we would like it to mean a new selling channel, but we're too early in that process to say that's how it's going to turn out.

Q. Will you be participating with more of your suppliers through this exchange mode?

A. We certainly want to be able to do that. We talk a lot about working with our end customer, but there is another customer on the other side. That's how I view our suppliers - we really want to get engaged from an e-commerce point of view. We've done OK with that, but we intend to ratchet up the level of importance of e-commerce with our supplier base as well.

Q. Are there any unique requirements of the healthcare supply chain, with respect to government regulation, that must be accounted for in e-commerce strategies?

A. In terms of the outbound selling side, no. In terms of the inbound supplier base, there's an awful lot of information that gets transmitted to suppliers, particu- larly as it relates to label copy and product specifications that we'd be able to transmit in an e-commerce fashion. It has always been a challenge in this industry because of tight Food and Drug Administration requirements. I think that in the next year or so, that's going to go away. We're planning new and innovative ways to solve it. Our way of coping with the requirements will improve.

Part of it is just making sure that we and the supplier base have a clear understanding of what we're communicating. How do we make sure that that takes place? How do we make sure that when we say it's specification XYZ, they see it the same way? In my past experience in the healthcare business, when you placed a purchase order with the supplier, you sent a huge pile of material along with it which included the details of every item. The good news about using the web today is the fact that we can transmit that as an attachment electronically. That's making the application on the web, and through e-commerce, a much more viable option with regard to supplier relationships.

Q. How has the economic slowdown affected your supply-chain reengineering program?

A. The good news for us in the healthcare industry is that we're pretty much economic influence-free. People are going to continue to need healthcare services regardless of how the economy goes. We'll see some impact due to discretionary surgeries and those kinds of things, but generally speaking we are not seeing any impact at all.

Q. It hasn't affected your purchase of information technology?

A. Absolutely not. We have a major effort going on within our corporation to improve our operational excellence. That means heavy investment in process change and the technology to support it.

Q. Of all the various aspects of IT, is there any one that you believe is especially vital to corporate survival today?

A. ERP is one of those historical things, from my perspective. We needed to do that a few years ago. Today, the name of the game is customer relationship management and advanced planning and scheduling. That combination is important for us. We have initiatives on both fronts. We're piloting a CRM process in Canada and Europe right now, with the plan to do a global rollout. So we've got two huge projects going on - the APS thing, and this large project which is starting in the U.S. and involves a lot of process and organizational change. Along with a CRM project that's driving a whole different look at customer relations in the company. These will come together globally over the course of the next couple of years.

Q. What is the weakest link in the supply chain today?

A. That's a tough question. I would say that, at least from our perspective, we've been fairly internally focused in the past several years. The weakest link today is building ongoing trust and working relationship with our customers. That's the key to success in the long term. We've absolutely got to continue building the foundation.

We've got a good start. We have been very successful in our relationships with customers. Everyone will admit today that those relationships are changing. Everybody's focusing on how we do business differently, whether it's e-commerce or taking costs out of supply chains. We're all having to work together in a different way. That's new news for everybody. It requires a different level of collaboration than has ever been there, particularly on the healthcare side.

Q. What's the most important task confronting you as a supply-chain executive today?

A. It's the focus on people. That's what makes this whole thing come together. Making sure that we continue to understand what talent we have, the things that we need to do to improve that talent, and make it an even better asset for our companies. We get so focused on process and systems that many times we leave the people to the last possible moment. In my book, I always feel that ought to be the number-one thing we're paying attention to. If there's anything I feel is the most important thing, it's valuing our talent, understanding exactly what we need, where the gaps are, and how we bring our talent to close that gap.

Q. So because you're not that affected by the slow economy, you're in a good position to focus on people?

A. Don't misunderstand me - we are definitely focused on taking cost out of the supply chain. That's going to come out of a combination of process change, technology implementation, and the people aspects of our business. You get all those really working well, you drive toward operational excellence, and you drive toward improved service at the right balance of cost. That's where we're headed. We clearly have some significant targets in terms of cost savings - but not at the expense of hurting our business, and most importantly, our customers.