Opportunities in Clinical Supply Chain Innovation Michael Hobbs Vice President Clinical Supply...
Transcript of Opportunities in Clinical Supply Chain Innovation Michael Hobbs Vice President Clinical Supply...
Opportunities in Clinical Supply Chain Opportunities in Clinical Supply Chain InnovationInnovation
Michael HobbsVice President Clinical Supply Solution
Owens & Minor, Inc.
September 10th, 2008
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Owens & MinorCopyright Owens & Minor, Inc. 2008
Agenda
• Clinical Market – Devices & Implants
• Supply Chain Issues
• Elements of a Solution
• Opportunities for Diversity
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Expense Growth Rates2002-2004
SuppliesSupplies have overtaken labor as the have overtaken labor as thefastest growing line itemfastest growing line item..
Source: The Advisory Board Company 2005
Total Operating
Cost
SalaryExpense
Benefits Expense
Supply Expense
Supply expense
increasing 64% faster than total operating
costs
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25%
Supply chain management Supply chain management expenditures will reach 45% of total expenditures will reach 45% of total
costcost
Labor
Supplies
Logistics & Distribution
Others
Total
* Figures based on HFMA estimates. Labor cost includes salaries, wages and benefits based on average of leading hospitals in the U.S. and Others is inclusive of profits to the hospitalsSource: S&P Industry Surveys: Healthcare Facilities; HFMA; industry reporting; Pipal Research analysis
Supply Chain Management
100%
45%
15%
15%
Total Cost Incurred by Hospitals
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Medical Supply Industry - USMedical Supply Industry - US
Acute Care US $58B
Acute Care US $58B
Med-Surg Supplies US $76B
Med-Surg Supplies US $76B
Non-AcuteUS $18B
Non-AcuteUS $18B
Commodity$20B
Commodity$20B
Devices &Implants
$38B
Devices &Implants
$38B
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Clinical/Direct supply chain is 4 to 5 times Clinical/Direct supply chain is 4 to 5 times lessless efficient than the distributed supply efficient than the distributed supply
chainchain
InventoryTurns
Cost perPO
NursingCost per
PO
DeliveryCost per
Line
ElectronicOrder
Fulfillment
4
18
$12
$60
$0.70
$3
$2
$9
25%
75%
1x
2x
3x
4x
5x
Commodity Device & Implant
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What drives this model?What drives this model?
• Customer intimacy
• High industry gross margins
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MD&I suppliers experience certain MD&I suppliers experience certain
challenges in servicing this challenges in servicing this market…market…
• Poor sales visibility
• Small order size
• High order frequency
• High freight charges
• High front-office cost
• Manual order process
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Suppliers have issues with Suppliers have issues with consignment…consignment…
% of respondents citing issue as significant or highly % of respondents citing issue as significant or highly significantsignificant
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
ExcessiveInventory/ Overstock
New ProductIntroductions
Timeliness ofConsumption Data
Obsolete Products
Managing Recalls,Tracking & traceability
Inventory Visibility
Poor Communicationwith Customer
Source: Archstone Consulting, “Medical Device Supply Chain Council Consignment Survey Results”, January 6, 2006
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Owens & MinorCopyright Owens & Minor, Inc. 2008
Medical device manufacturersMedical device manufacturerscash cycle is 4x slowercash cycle is 4x slower than than
O&MO&M
*Note: Lower numbers are betterSource: CFO Magazine 2006 Working Capital Survey
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……and, customers experience and, customers experience substantialsubstantialsupply chain costssupply chain costs with MD&I. with MD&I.
1st Time Order
Accuracy
Lines/Order
Turns Expiration
Target Performance
78.8%
1.5
2.1x
5%
GA
P
EDI%
25%
ChargeCapture
75%
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“Having RNs and techs manage product databases, manipulate inventories to avoid expiration, cross level stock, analyze physician utilization patterns, etc. is at best a profound distraction from their clinical value.”
Thad MacKrell, O&M, as quoted in Healthcare Purchasing News, December 2006
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Clinical supply chain componentsClinical supply chain components& savings opportunity& savings opportunity
ORGANIZATIONAL ENABLERS / ADMINISTRATIVE SPONSORSHIP
(Change Management/Communication/Performance Management/Commitment)
SUPPLY EXPENSE MANAGEMENT
VALUE ANALYSIS
(Optimizing Value in Selection, Specification & Utilization, Including
Clinically Sensitive Products)
SOURCING
CONTRACTING
Vendor Relationship Management
INVENTORY MANAGEMENT and REPLENISHMENT
Forecasting Demand; Requisitioning & Replenishment;
Managing Supply Availability and
Inventory
PURCHASING & PAYMENT CYCLE
Order Placement, Three-way Match Accuracy, Timely
Payment
TRANSPORTATION & LOGISTICS
ExternalLogistics, Receiving, Internal Distribution
(5) KEY ELEMENTS OF A WELL PERFORMING SUPPLY CHAINOptimum Performance = Lower Non-salary Cost, Dependable Service Delivery and Improved Productivity
TECHNOLOGY DRIVERS(Contract Management, Cost Control, Asset Management, Performance Mng, Revenue Performance)
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Resources (On-site & Off-site Normalize Data,
and Analyze Spend Data)
What Clinical Departments Need
Inventory/Order
Supply Mgt.(Visibility, Expiration, and
product recalls)
Collaboration
(Business Reviews)
Price Mgt. (Tier Maximization, Digitize Contracts)
+ + +
Clinical Supply Chain Services Managed or Monitored Solutions
Revenue/Clinical
Utilization Mgt. (100% charge capture)+
Equals a 3-4 Return On Investment
Not Software
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O&M Specialty 3PL Offering
Value-added Services 1. Transportation Optimization2. ePedigree Compliance / Track and
Trace3. Cross Docking / Order Consolidation4. Asset tagging / Custom Packing /
Kitting5. Product Recall Management / Reverse
Logistics6. ISO Certification7. Management of Global Distribution
and Logistics8. Integration to Demand Planning and
CRM Systems
Basic 3PL Services • Shared Warehousing Management• Inventory Management• Transportation Management• Order to Cash Systems
• Order Management• Accounts Receivable• Chargeback Processing• EDI
• Outsourced Order to Cash Processes• cGMP Regulatory Compliance
Distribution Network
Hospital
Distributor / Wholesaler
PhysicianOffice
Patient
Specialty CenterOr Department
SalesAgent
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Our solution is working in…
• Over 100 clinical departments nationwide including:– The Cleveland Clinic
– Yale New Haven Hospital
– The Ohio State University Medical Center
– Stanford University Hospital
– Thomas Jefferson University Hospital
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Services for Clinical Supply Chain
Hospitals
• IT Services (RFID, Interfaces etc.)
• Clinical staffing services (RN/RT)
• Educational Services (CME, CEU etc..)
• Clinical Outcomes services (tie supply chain to outcomes, utilization review)
• Supply Spend Analytics
• Contract Management service
• Reimbursement Services (Billing/Coding)
• Direct Bill services
• Recall Management Services
Supplier Service
• Customer Service
• Direct Bill Services
• Clinical outcomes post market entry
• Research and Development (New Product development)
• Recall Management
• Clinician Educational Services