OPERATIONALIZING

THE EVENT-DRIVEN

SUPPLY CHAIN

1

THE EXTREME VARIABILITY AND VOLATILITY

OF THE A SUPPLY CHAIN

The business world has put new emphasis on taking cost out of manufacturing and delivering

products. Take Wal-Mart’s mandated supplier RFID program, Toyota’s lean manufacturing

principles and numerous quality methodologies like Six Sigma, Total Quality Management

(TQM) and Business Process Re-Engineering.

Yet healthcare has not achieved the same level of process

improvement and data integration as players in the

manufacturing and retail environments. Very few providers

have taken advantage of the estimated 3-9% in supply

savings left untouched in most healthcare organizations’

supply chain operations today. i

Much of the reason lies in the complexity of the healthcare

supply chain itself. In the U.S., the healthcare supply

chain involves more than 650,000 different organizations

including manufacturers, distributors, carriers, GPOs,

hospitals, users and patients.ii And there’s a level of

unpredictability to the healthcare environment not

experienced with manufacturing or retail — you never know

exactly how many patients will come through your ED

doors next Saturday night, let alone what their ages, acuity

and diagnoses will be — so you need to remain in a constant

state of preparedness for multiple scenarios.

To demonstrate this complexity, we need only follow a

fictitious patient. We’ll call him Joe C. Joe comes into the

ER with chest pain and pressure, with pain radiating to the

left arm. He is assessed by the triage nurse and then the ER

physician. An EKG, chest x-ray and blood work are ordered.

The diagnosis — Joe has suffered a myocardial infarction

brought on by a coronary occlusion. He is taken to the cath

lab for an angiogram which shows four coronary arteries

are blocked 90-100%. Joe receives a coronary artery bypass

graft. After a successful procedure, Joe recovers in cardiac

intensive care. When his condition stabilizes, Joe is moved

to a standard room. Because of severe heart damage, Joe is

kept in the hospital for 6 days. He continues to be seen by

the cardiologist and is assessed by a cardiac rehabilitation

nurse. Joe is released with prescriptions for medication and

appointments with the cardiac surgeon, the cardiologist

and the cardiac rehab nurse.

So let’s review. In a single hospital stay, Joe was treated

in the ER, cath lab, OR, coronary intensive care and on a

nursing floor. He had tests from the lab and x-rays from

radiology. His care team included three shifts per day of

hospital nurses, nurses’ aids and technicians, as well as

contracted physicians and specialists.

Throughout his entire stay, he was medicated,

monitored and tested. Those supplies and equipment

were requisitioned/ordered by physicians, nurses and

the materials management department. Supplies were

contracted through the GPO, or were on consignment, but

were sent from the manufacturers. Floor stock items were

used from different types of inventory venues —

par-levels, stockless and point-of-use cabinets/shelves

— with supplies delivered through the hospital’s internal

supply chain or directly to the location needed from outside

vendors.

And now all of the services, equipment and medications

provided to Joe must be properly billed by the hospital

and the other separate entities working within the hospital

(such as the ER physician, the cardiologist, labs and

radiology).

And where will the payment come from? That varies as

well. It could be Medicare or Medicaid, patient insurance

or the patient himself, with rates set — not by competitive

market conditions — but by the government and sometimes

even by the dominant insurance company in that area.

Given the sheer number of players, supplies, departments/

locations and diagnoses, it is easy to understand how

inefficiencies and errors can occur along the healthcare

supply chain. Examples can be seen in almost every

functional area — FTE hours wasted on manual ordering

or justification of POs, high inventory carrying costs as

nurses hoard and keep safety stock, clinicians wasting

time searching for “lost” equipment, or underutilized use

of surgical rooms and equipment. And inefficiencies and

errors can compromise patient care if the right supplies are

not available or if there are errors in patient medications or

identities.

While healthcare organizations won’t ever be able to control

all the variables, they can eliminate many inefficiencies and

errors by creating a more integrated and automated supply

chain. The way to accomplish this? Implement an Event-

Driven Supply Chain.

2

ELIMINATING INEFFICIENCIES AND

IMPROVING SAFETY WITH THE EVENT-

DRIVEN SUPPLY CHAIN

In the Event-Driven Supply Chain, separate actions from

disparate departments, locations are connected into one

contiguous healthcare-based supply chain. A patient care

or clinical event from any department/location and from

any point along the supply chain can serve as the “trigger”

to drive the other necessary actions along the supply chain

process. For example, the scheduling of a procedure drives

the ordering of the case cart and the scheduling of the

appropriate resources — the people, supplies room and

equipment — needed to perform the procedure.

Only McKesson offers this comprehensive, integrated

supply chain approach through our Event-Driven Supply

Chain. We’ve used our in-depth understanding of the

supply chain to develop department-level solutions that

meet the day-to-day needs of clinicians, administrators, and

HR/payroll and financial personnel.

But just as critical as having the right solutions is creating

interoperability and interdependence between the solutions

so they can work together and “talk” to one another.

Our system integration facilitates the smooth flow of

processes, information and supplies within each facility

and throughout an integrated delivery network. Errors are

reduced. Efficiencies and effectiveness are increased. And

communication is improved.

Our system integration gives you a global perspective of

your entire clinical supply chain — from hiring, training

and scheduling staff; to ordering, tracking and billing

supplies; to monitoring costs and performance. This allows

you to gather comprehensive data on your organization’s

true resource utilization, clinical outcomes and financial

position so you can optimize performance — both clinically

and financially.

Benefits of the Event-Driven Supply Chain

Facilitates more informed decision making:

Provides a true picture of outcomes by

integrating and aggregating usage, clinical and

financial data

Reduces supply costs:

Improves resource standardization, increases

contract compliance and reduces clinician

preference through better data

Streamlines workflow:

Increases transactional efficiencies, reduces

errors and cuts FTE hours; allows managers to

reallocate FTEs to performance improvement

efforts; frees clinicians to focus on patient care

Improves inventory management:

Reduces stock-outs, minimizes safety stock

and lowers carrying costs

Enhances financial picture:

Reduces waste and captures charges more

quickly and accurately

Enhances performance improvement efforts:

Combined with advanced analytics, provides

accurate, comprehensive data for appropriate

organization-wide and service line performance

management

The integrated system approach of The Event-

Driven Supply Chain offers new process

efficiencies and provides the information needed

to drive new business initiatives that increase

profitability, while at the same time, helping to

maintain and improve positive clinical outcomes.

The Event-Driven Supply Chain

Scheduling the procedure reserves the appropriate resources Completing the procedure triggers charge and inventory functions

A patient care or clinical event triggers other necessary actions along the supply chain

3

OFFERING HOSPITALS FLEXIBLE

ORDERING OPTIONS

As we’ve reviewed earlier, the healthcare supply chain is

very complex. Each department, area or role has unique

needs and may have multiple ways of obtaining supplies.

For example, a single nursing floor may utilize point-of-use,

stockless and requisitioning simultaneously. This can cause

a great disconnect within the supply chain if these disparate

systems cannot communicate and share information with

the MMIS.

McKesson offers a variety of modes to match varying needs.

What combination you use depends upon the flexibility

your staff needs and the control you require with your

product and patient mix.

Following is a summary of the common supply

methodologies and how The Event-Driven Supply Chain

facilitates efficient ordering and replenishment:

Requisitioning

The advantage of McKesson’s Event-Driven

Supply Chain is that once nurses request

non-floor stock products from either an internally sourced

area (i.e., a warehouse) or externally sourced area (i.e.,

an outside vendor), they can easily check the status of the

requisition at any given point. No more phone calls to the

materials department.

Point-of-Use

Selecting from McKesson’s open point-of-use

bins and closed cabinets for high-cost items, a

nurse scans the item needed (a bandage, fluid, basin, etc.)

and marks it for patient — the item is automatically charged

to the patient through the financial system and replaced

with new inventory through the MMIS.

Case Carts

When a case is scheduled, a case cart is picked

to match the items listed. In McKesson’s

Event-Driven Supply Chain, clinicians are flagged to a

missing item ahead of time so they can place and monitor

the order (whether it’s non-stock items coming in or

stock items on order), and view the expected delivery

date. This allows staff to foresee that a case might need

to be rescheduled and to move cases to obtain the highest

capacity level.

Perpetual Inventory (from OR)

An Event-Driven Supply Chain helps nurses

verify what’s on the case cart and highlights

short-delivered items. When the case is completed, supply

usage is charted and bills are automatically generated for

patient-chargeable items. Unused items are returned to

central sterile and automatically updated in inventory so

they can be available for the next case.

Par Level

Throughout their shifts, nurses take needed

items and chart that each item is charged to a

specific patient. Materials Management batch-counts the

inventory on a daily basis and reorders the items needed

through the MMIS — this frees clinicians from ordering

duties and alleviates concern of stock-outs.

Supply Tracking

With our Fed-Ex style tracking capabilities,

McKesson provides facilities with yet another

level of vision into the order, allowing nurses to verify the

exact location of the needed supply — whether en route, at

receiving or on its way to the nursing floor.

Stockless

The MMIS tightly monitors stockless

inventories to verify that correct levels are

maintained, and to ensure that the hospital’s usage and

pricing synchs with the third-party vendor. This enables the

hospital to take full advantage of the benefits of stockless:

reduced carrying costs and maximized space — critical for

newer facilities with limited storage space or “penned-in”

organizations without room to expand.

Consignment

With The Event-Driven Supply Chain, you can

identify the location of a consignment item and

properly charge that item to the patient when it’s used in a

case. This helps your organization maximize the advantages

of the “pay-when-you-use” consignment structure: no

carrying costs, shortened waiting time between payment

and reimbursement and the ability to list supplies as an

expenditure, not a liability.

4

Departmental Overview of EventsClinical, patient and supply order events drive other processes within the supply chain.

Methodologies

5

For example, if a nurse needs a specialty brace to arrive the

next morning, she’ll spend time calling in the initial order

and may make numerous calls that next morning to verify

the brace’s progress and arrival time.

With McKesson’s automated requisitioning, the nurse

simply notes on the request that the brace is needed next

day air, and can also include other specific information such

as patient’s name, sizing requirements, known allergies, etc.

The next morning, the nurse logs into the requisitioning

application and it automatically tells her the expected

delivery on that item. Package Tracking can tell her if it has

been received; and if yes, where it is in the hospital, and if

already delivered, who signed for the item.

Automating main supply and billing functions through an

integrated, Event-Driven Supply Chain allows nurses to

focus more completely on patient care, not on paperwork.

Integrating Materials with Surgical Services for Accurate Forecasting

The advantage of an integrated, event-driven system is that

information flows seamlessly from the OR into the MMIS.

When a procedure is scheduled (i.e., the trigger event),

the items needed are fed directly into the MMIS from

the inventory location identified. This allows true supply

forecasting based on the schedule and the acuity of the

patient.

Accurate forecasting can save your organization significant

dollars, especially considering that OR supply inventory

accounts for 60–70% of all supplies used in a hospital.

Proper forecasting enables you to maximize inventory on-

hand to the case mix scheduled, so dollars aren’t wasted

on unneeded inventory. You can identify missing case cart

items up front so cases aren’t delayed on the day of surgery.

Rush and overnight

shipping charges

can be reduced.

Most importantly,

the seamless

integration of

information helps

ensure proper patient care. Forecasting means you can be

sure the right items are on the shelf when they’re needed.

And integration with materials ensures that the right

products are used on the right patient. For example, if a

latex-sensitive patient is scheduled for an OR procedure,

latex-sensitive items are automatically substituted on the

ENHANCING WORKFLOW WITHIN

EACH DEPARTMENT AND

THROUGHOUT THE ENTERPRISE

As we’ve seen with our patient, Joe, there are numerous

departments/areas and players involved in the care cycle of

a patient. Each of these entities must operate successfully

on its own and as part of the entire healthcare network. The

department-specialized solutions provided by The Event-

Driven Supply Chain allow each area to effectively perform

its unique functions, improving workflow and increasing

financial performance.

Integration allows the smooth flow of information,

processes and supplies between each department/area.

This provides continuity along the supply chain, improving

efficiencies and eliminating the potential for error or lost

data. An proficient supply chain, in turn, helps ensure

continuity in care to improve patient outcomes.

Taking a Comprehensive Approach to Nursing Needs

The more ways we can ensure that nurses have the right

product in the right quantities at their fingertips, the more

efficiently clinicians can perform. McKesson is the only

vendor that can

offer the full range

of supply chain

options under

one umbrella,

with integration

that streamlines

processes and allows for easy exchange of data across

departments and job duties. Our point-of-use tightly

integrates with our materials system, that in turn integrates

with stockless and supply tracking. This provides broad

visibility into usage, while allowing measurement to a

minute level of granularity, all through a single report —

not multiple reports out of multiple separate systems that

need manual manipulation to reconcile.

Your organization can access critical data on key attributes:

fill rates, patient charges and usage, and verify supply

spend for each area, to compare revenue to cost. Accurate

data ensures that nurses have the right products available

in the correct quantities, optimizing limited supply space

(especially important in newer facilities with less supply

storage on nursing floors) and supporting proper patient

care. It lowers stock-outs. And it facilitates proper charge-

backs to the patient, including mark-ups.

By automating the ordering process, nurses are freed from

placing multiple phone calls to order, verify and track the

status of an order. This can be extremely time-consuming.

Accurate data ensures nurses

have the right products and

quantities, supporting proper

patient care.

Non-latex items are

automatically substituted on

the pick ticket for Latex-

sensitive patients.

6

pick ticket. The technician pulling that case doesn’t have to

perform the extra step of checking for sensitivity on the case

— he or she simply pulls the items listed. That’s ease-of-use

for the tech or clinician and an added safety measure for the

patient.

Integration between surgical and the MMIS offers other

advantages, as well. For open shelf point-of-use, the

surgical system tracks that the product is being used in the

case and feeds that information directly into the materials

system so inventory is automatically replenished. With

perpetual inventory, you can ensure that you have the right

products available and, through supply tracking, that the

right product is being sent if an item was shorted.

By automating much of the supply functions, personnel can

focus on maximizing usage of the room versus ordering and

verifying supply items.

Coordinating Supplies for Cath Lab and Specialty Areas

After the OR, cath lab and interventional radiology are the

most profitable centers for the hospital. As such, they have

a profound impact on the overall financial health of the

organization. The true benefit of The Event-Driven Supply

Chain is the capability to properly and cost-effectively plan

for your non-emergent cases, so personnel are freed from

day-to-day events to concentrate on emergent cases.

In specialty labs, the driving event is the scheduling of

a procedure or an emergent visit to the lab, such as for

diagnostic work, a stent or a CT scan. Scheduling drives the

procurement of needed resources — the supplies, room and

personnel.

Cath labs depend heavily upon consignment items. An

advantage of an integrated supply chain is that you can

properly identify where the consignment item is located and

who should be charged if it’s used — this is critical, as you

pay to replenish a missing stent regardless of whether or

not you receive compensation. For example, if the patient is

scheduled for a procedure because of a suspected problem

with an artery,

many different

sized guide wires

must be available.

During the case,

clinicians use the

wires that best match the size and acuity of the patient. An

integrated point-of-use and materials system automatically

tracks what was pulled, what was used and should be

charged to the patient, and what should be returned to

inventory.

Depending upon the size and complexity of the organization,

perpetual inventories and point-of-use may both be used,

and preference lists built for certain procedures/physicians.

Typically, the supplies (such a guide wires, stents, pacemakers

and defibrillators) are already stocked based on the procedure

type performed in each lab. Because of the integration of

the Event-Driven Supply Chain, all reorders go through

the materials management system — replenishment is

automatically triggered by consumption.

Integration also gives your organization access to usage

and charge information. Additionally, clinicians can scan

expiration/serial lot information on an individual item,

such as a catheter, so that detailed product information is

available.

Helping Emergency Rooms Stay Prepared

Because of the urgent nature of the cases, the OR relies

primarily on par level inventory. Clinicians need to be

able to “grab and go” without taking time for point-of-use

systems or requisitioning. They need it now! And, as we’ve

reviewed in the

introduction of this

white paper, there’s

little way to predict

case mix and

patient acuity, so the ER needs to be well stocked to handle

a myriad of illnesses and injuries.

The integration provided by The Event-Driven Supply

Chain gives the ER a critical business advantage — the

ability to collect and analyze usage and trend data.

Analytics enable your organization to project what items to

have on hand and in what quantity, so items are available

when needed. One example is the “snow bird” phenomenon

in Florida. Hospitals in that state will see an influx in

hip injury cases during the winter months as many older

Midwesterners and Easterners travel south for the winter.

Analytics can be used to trend these injuries over time/

season to ensure the ER is properly stocked and staffed. Point-of-use and materials

integration automatically

tracks what was pulled, used

and returned.

Usage and trend data helps

project what supplies/

quantities to have on hand.

7

Giving Clinics the Ability to Easily Order and Receive Supplies

Clinics encompass urgent care centers, outreach programs

or specialty clinics such as orthopedics. Because clinics are

often located on a different campus than the main hospital

— up to 30 or 40 miles away — requisitioning and supply

tracking become their two most important supply chain

tools.

Clinics do not typically carry a large dollar amount of

supplies. Even a specialty clinic, such as an orthopedic

clinic, will carry only a limited number of high-cost

items such as braces or range of motion machines on a

consignment basis. So off-site locations need to have a way

to easily and effectively order and receive supplies.

The advantage of an integrated Event-Driven Supply Chain

is to provide each off-site location with its own receiving

and requisitioning capabilities so it can order and confirm

receipt of its own supplies. This ensures proper ordering of

needed items. And it facilitates proper payment. Too often

in today’s systems, supplies are ordered by the main facility

but shipped directly or by courier to the off-site location,

so the delivery is never confirmed. When an order falls

out of the system, it can be time-consuming for the central

facility when the invoice comes in — billing doesn’t have

confirmation that the product was ever received and must

take the time

to call to verify

receipt so the

proper charges

can be made.

Supply tracking

also becomes

very important to clinics so they can track the location of

an expected delivery online (including confirmation of

expected delivery time and acceptance signature), without

having to call central materials.

Providing Physicians with the Data They Need

Requisitioning is a physician’s most important supply chain

tool. Because physicians have strong product preferences,

they need to feel

comfortable that

they can easily

requisition and

quickly receive the

items they need.

The Event-Driven

Supply Chain gives the physician the flexibility to order

from anywhere within an Integrated Delivery Network —

the ER, the nursing floor, the doctor’s office or clinic — and

at any point during the process — from ordering diagnostic

tests, to ordering a procedure with specific preference

items, to ordering proper pain medication and antibiotics.

And The Event-Driven Supply Chain gives physicians the

comprehensive data they need for sound decision-making.

Having access to in-depth cost and efficacy data helps

physicians properly evaluate products for standardization

efforts, and helps physicians participate more fully in

quality improvement initiatives.

When each location performs

its own receiving and

requisitioning, it ensures

proper ordering and payment.

Access to comprehensive

cost and efficacy data helps

physicians properly evaluate

products for standardization.

8

ANALYTICS AND THE

EVENT-DRIVEN

SUPPLY CHAIN: TYING

IT ALL TOGETHER

Event integration, combined with McKesson Analytics,

provides a powerful business advantage: your organization

gains a global perspective of your entire business — your

true resource utilization, clinical outcomes and financial

performance by patient, by procedure, by physician, by

day/month/year. Global business metrics give visibility into

the inter-relationship of clinical and financial outcomes,

helping you maximize financial performance, while at the

same time maintaining or improving clinical performance.

Analytic tools such as dashboards and scorecards

alert managers to areas needing immediate attention.

Benchmarking allows managers to track and compare the

results against your own historical data and/or the results

of similar organizations across the country.

A critical area for the use of McKesson Analytics is the

OR. As the key profit center, understanding costs and

clinical efficacy is crucial. Analytics helps your organization

determine the true clinical- and cost-effectiveness of

different procedures, products and physicians. For example,

McKesson Analytics can help you compare two different

physicians with a similar case mix — one using a drug-

eluting stent and the other using a standard stent — taking

into account the total cost-per-procedure by physician,

the acuity of the patients, and the clinical performance,

( i.e., the outcomes of the stents). This provides concrete

information so you can determine if the use of drug-eluting

stents make sense clinically and financially. And the case

example allows your management to use it as a forecasting

model.

Analytics also helps alleviate a common objection from

physicians regarding comparisons: that evaluating

physicians on supply usage costs alone does not tell the

whole story. With McKesson Analytics, your organization

can not only compare supply costs, but also compare

patient outcomes. It may be that one physician has lower

supply costs but actually costs the hospital more in the

long run because his patients have more complications

and extended lengths of stay (for which the hospital does

not get adequately reimbursed). Without a way to connect

and compare both the clinical and financial outcomes, your

organization may reach the wrong conclusions.

By knowing actual, true costs for procedures or physicians,

your organization will no longer need to rely on average

patient costs, which can be inaccurate and misleading.

An average patient supply cost might be $175/day, yet an

appendectomy patient may have no supply costs and a burn

patient may have daily specialty bandage costs that run into

the thousands.

With McKesson’s advanced Analytics, administrators

can gain insight into the root causes of inefficiencies and

expenses so improvement efforts can be targeted to produce

the most impact.

Maximizing Service Lines

With increasing competitiveness

from specialty facilities and with

consumers becoming more and more

value conscious, hospitals will have to make changes —

such as reorganizing around a narrower range of clinical

activity, and differentiating themselves on quality and

service.

McKesson Analytics give you the unique ability to

determine profitability and outcomes by service line.

Although some organizations (such as community

hospitals) may not be in a position to eliminate unprofitable

service lines, each organization should know which of

its service lines are most profitable — and why. It helps

identify problem areas, facilitates long-range planning and

highlights areas that might bring in additional revenues.

And if you have “losing” service lines that still must be

maintained, you can better understand how to compensate

for those losses with extra effort and investment in your

more profitable lines.

With McKesson Analytics, your organization can obtain the

global information you need for sound decision-making and

planning. From the time a patient walks in the door until he

or she leaves, you can know the cost for that engagement,

by patient, by DRG. Managers can access information from

all the integrated solutions (point-of-use, the OR, clinicals,

materials, clinical ordering, even pharmaceuticals), plus

each location, (whether it be the cath lab, the nursing floor

or a remote facility). Combined, this gives a true picture of

the entire patient event, with exact costs and outcomes for

that specific patient and stay.

Global data knowledge helps your healthcare system

identify areas where costs are out of line with similar

facilities across the country. You can use benchmarks to

compare cost-per-procedure, -per-physician, -per-patient,

taking into account any differences in patient mix/acuity.

9

It also helps you make accurate determinations of which

service lines to invest in. For example, let’s consider the

profitability of adding two more rooms to your cath lab,

designated specifically for more invasive procedures such

as installing pacemakers and defibrillators. McKesson

Analytics can tell you whether it makes financial sense to

make the capital investment. And our Analytics can tell you

if you’re maximizing utilization and revenues from the stent

rooms you already have in operation.

By harnessing the power of McKesson Analytics, your

organization can truly gain control over its strategic

planning. This is comprehensive information that goes

beyond just red, yellow, green dashboards — it gives your

decision-makers in-depth knowledge of where and how

your organization is successful, and where improvements

need to be made.

THE HEALTHCARE SUPPLY CHAIN:

FUTURE STATE

Moving forward, the healthcare supply chain will offer even

more integration and automation, and increased power of

analytics, eliminating manual “hand-offs” of information

and allowing your organization to better anticipate case/

supply needs.

Improved technologies, such as RFID and/or Wi-Fi,

will continue to improve the granularity of information

available for each item — including item history, specific

case/lot/expiration information and tracking of the exact

item location. This would allow for automated item tracking

and recall, with a central product recall repository — a data

base of detailed information on each item — so devices,

implants and other specialty items could be instantly

located in the event of a recall.

Integration with physician orders would automatically

trigger a requisition in the MMIS and delivery to the proper

location. Orders entered by the physician that have a

pharmaceutical component would trigger the order with the

pharmacy.

And advanced analytics would allow the system to predict

the items needed. Based on your last six-month usage your

integrated system could provide an automatic assessment

and recommendation on par levels. And based on the

current census and diagnosis, the system could provide

recommendations on what supplies will be needed. For

example, if a high number of burn patients come in and

several are sent to an overflow floor that only occasionally

handles burn patients, the system would automatically

bump up burn supplies on that floor to accommodate the

new patients.

CONCLUSION

The pressures facing today’s healthcare organizations

will only continue to grow. In order to retain and increase

profitability, you need to manage your hospital or

healthcare system as a business, understanding why and

how you are profitable and where you are failing.

Only McKesson offers you the comprehensive data, the

healthcare-specific products and the integration you need to

effectively run your healthcare system. Because McKesson

is focused only on healthcare, it has the breadth of products

and services needed to aggregate all of the information,

all along the healthcare supply chain — including the OR,

point-of-use automation (cath lab, radiology), Pharma,

materials, financials, HR/Payroll and distribution.

McKesson is uniquely positioned to incorporate data

from both internal systems (such as materials, financial

and clinical) and other disparate sources (i.e., GPOs,

manufacturers, distributors or data companies), to help

your organization gain a comprehensive view of its total

supply spend, driving effective contract negotiations,

standardization efforts and overall performance

improvement.

By harnessing McKesson’s Analytics and the integration

of The Event-Driven Supply Chain, you can better manage

all aspects of your business. You gain process integration

between departments, players and locations to improve

efficiencies. You expand the depth, breadth and quality

of information. You gain the visibility to understand how

your entire supply chain is operating — each area, each

physician, each patient, each product — enabling you to

improve both your profitability and your clinical outcomes.

With McKesson, you can answer critical questions

regarding your organization’s current performance and

future opportunities — such as knowing which of your

service lines provide the best return, which of three drug-

eluting stents provides the best clinical/financial outcome

or even which nursing shifts typically have the most

absenteeism.

By improving efficiencies and communications between

disparate departments, locations and players, you can

better ensure the safety of your patients. Clinicians are

alerted about missing case cart items, and items are

automatically substituted for latex-allergy patients.

Improved processes streamline and automate manual

processes, and provide automatic double-checks and alerts.

Ultimately, the Event-Driven Supply Chain frees clinicians

to do what they do best — provide quality care for their

patients.

10

More and more executives are recognizing the

pivotal role proper supply chain management has

on their financial viability. And it’s no wonder. In

the most resource-heavy area of the hospital — the

OR — materials account for 40% of an average

annual OR budget, with capital equipment and

instrumentation making up another 18%.iii Labor

is the other big resource cost, accounting for more

than 60% of total healthcare expenses.iv

And costs continue to increase each year. Supply

costs are still skyrocketing, with one study showing

a 23% increase in supply expense over a three-year

period.v Increasing turnover, rising vacancy rates

and temporary agency utilization all contribute to

increasing labor expenses.

Other issues also add cost and time to the

healthcare supply chain.

Hospitals can have difficulty tracking their

supplies and assets. Each year, 5%–15% of hospital

inventory is written off because it can no longer

be located, or more importantly, serviced.vi In

addition, hospitals can lose upwards of $1 million a

year in medical thefts alone.vii

A further issue is bad data. The Coalition for

Healthcare e-Standards estimates that hospitals

waste 24%–30% of supply administrative time

each day correcting data errors — at a cost of

$60–$80 per correction.viii

Part of the reason for manual rework is decades

of underinvestment in healthcare IT, representing

only about 2.5% of overall health expenditures, a

percentage which is less than half of that in other

industries.ix Many organizations continue to utilize

manual processes and disparate information

systems. For example, current use of electronic

data interchange (EDI) represents only 31% of

eligible transactions; yet, as much as 85% of all

purchase orders and invoices could be converted to

electronic.x

Disparate systems mean data is held in separate

silos, making it difficult, if not impossible, for

healthcare organizations to obtain accurate cost,

usage and outcome data. This means organizations

can’t correlate their financial and clinical outcomes

to understand their true profitability and patient

success.

When the right IT solutions and processes are not

in place, patient care can also suffer. A study from

the Institute of Medicine pointed the finger not

at the caregivers but at the environment in which

they work. The study cites that more commonly,

errors are caused by faulty systems, processes and

conditions that lead people to make mistakes or fail

to prevent them.xi

With all these pressures converging — combined

with falling reimbursement, decreasing capacity

and a growing elderly population — providers must

find ways to manage their business more efficiently

and cost-effectively, but without compromising

their quality of care.

Integrating and automating process and

information flows through an Event-Driven Supply

Chain will help organizations maintain profitability

and gain a competitive advantage.

THE SUPPLY CHAIN AS A STRATEGIC ENABLER

11

i “Are you sure you’re really practicing value analysis? Or are you

doing something else and simply calling it that?” Robert T. Yokl,

Healthcare Purchasing News, April 2007.

ii “Transforming the Global Health Care Supply Chain,” MIT Center

for Transportation and Logistics, Dr. Mahender Singh, James B.

Rice, Jr., and David Riquier; July 28, 2006, pg. 2.

iii Surgical Services Reform, Clinical Advisory Board, 2001, pg. vii.

iv “Seven Steps Toward Gaining Control of Your Labor Costs,” Jill

Schwieters, David Harper; HFMA, 2007.

v “Supply costs for hospitals show substantial three-year rise,”

HFM, 2005.

vi Frost & Sullivan, as quoted in AHRMM presentation, “Improving

Patient Safety with RFID,” March 2006.

vii HCPros Healthcare Marketplace as quoted in AHRMM

presentation, “Improving Safety with RFID,” March 2006.

viii

Supply Chain Solutions Newsletter, “e-Procurement: What Savings

Opportunities Remain to be Squeezed?” July 2006.

ix

The Business of Healthcare Innovation, Cambridge University

Press, edited by Lawton Robert Burns, articles by Jon Northrup

et al., 2005.

x

“The Value of eCommerce in the Healthcare Supply Chain,”

Andersen, June 2001, pg 6.

xi

“To Err is Human: Building a Safer Health System,” Institute of

Medicine, November 1999, pg 2.

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