Supply Chain ContinuumPresented by Mike Morrelli
Owens & Minor
Market dynamics and the developing trends.
What is the Supply Chain continuum?
How to baseline & the benefits of moving towards best practice.
Supply Chain as an Evolving Model.
Agenda
3
Market Dynamics - Questions
• Health reform impact on Supply Chain?
• Future of Supply Chain?
• External ways to increase efficiencies in our organizations?
• How to improve quality and reduce costs?
• Optimize the different distribution channels?
Model of the Future
Proactive Supply Chains
Aggregation
?
Market forces are accelerating industry-wide change:
◦ Future driven by Payors and payment structure
◦ Margin pressures increasing significantly across all trading partners
◦ Competitive lines are blurring
4
Developing Trends & Topics
Supply Chain Continuum Aggregation Opportunities
Common
Needs
PharmLinen
Office
Med/SurgDevices
MRO/Jan-San
- Bulk- Pallet Architecture- Cross Docking
- JIT / Totes- Par Optimization- 3PL model
- Clinical Inventory- JIT to the OR
Joint/Self Contracting
Supply Chain Continuum
Labor Activity Savings
Labor Activity Savings
Supply Savings
Supply Savings
Supply Savings
- Bill-Only (Implant) Management
Labor Activity Savings
- Transportation- Physician Clinics/
Non-Acute
7
Supply Chain Continuum
ISC
Integrated Service Center
How to Baseline
Executive Scorecard - SummaryDescriptions Base Proposed Impact FTEs 33.00 Expense 20.80 Expense (12.20) ExpenseWages & Benefits $1,639,145 $1,032,850 ($606,295) Overtime & Benefits $5,150 1,725 (3,426) Wages, OT & Benefits $1,644,295 $1,034,574 ($609,721)Inventory Investment $7,166,972 $5,842,462 ($1,324,510) Cost of Capital $430,018 $350,548 ($79,471) Inventory Shrinkage $179,174 $87,637 (91,537) Inventory Carrying Cost $609,193 $438,185 (171,008)Freight Expense $420,000 $200,000 (220,000)Additional Expense (AOP Par Ex) $0 $71,400 71,400 Facility Expense $1,363,250 $1,363,250 0 Other Facility, equipment $337,000 $337,000 0 Total Expense $4,373,738 $3,444,409 ($929,329) Distribution Cost Plus $475,000 $660,000 $185,000 Activity Fee $0 $110,000 110,000 Other Distribu.- Cost Plus $128,250 $228,250 100,000 Other Distributors' - Fees $0 $0 0 Distribution Expense 603,250 998,250 395,000 Fully loaded customer & distributor costs $4,976,988 $4,442,659 ($534,329) One-Time Inventory Savings $7,166,972 $5,842,462 ($1,324,510) Ongoing process savings $4,976,988 $4,442,659 ($534,329)
How to Baseline
Supply Chain as an Evolving Model
Why
• Reduced supply spend
• Optimized labor
• Elimination of inventory
• Improved profitability per procedure
Example: Perioperative Locations
Supply
Chain
Demand
Chain
Patient
Schedule
PreferenceCard
Assemble
Use
Adjust
GoalTransform from a reactive
supply chain to a proactive demand chain
12
Traditional Market was Clearly Defined…
Distributor Model
• High volume• <$800/unit • Low complexity• Nearly 100% - GPO
contracting• Uncomplicated use• Private label• Minimal direct sales
Manufacturer Direct• Low to moderate volume• >$800/unit • High to very high
complexity• Direct sales force• High prevalence of local
contracting• Complicated use• Mostly sold direct
2012 O&M research, estimates AHA, Gartner Research, 2011
Supply Mode of Purchase
35% 65%
By volume: 75% Distribution / 25% Direct
13
But the Delivery Dynamics are Changing Rapidly…
2012 O&M research, estimates
2013-2015
40%
Distributor Model + Fee for Service• Manufacturers
increased reliance on more effective supply chains to service providers
• Increase Flexibility• Lower Cost• Improve Visibility
60%
Manufacturer Direct• Downward pressure
on revenues /margins forces re-evaluation of
SG&A inventory & DSO elements
• Address changing customer needs
AHA, Gartner Research, 2011
14
Questions & Answers
• Health reform impact on distribution?
• Future of distribution?
• External ways to increase efficiencies in our organizations?
• How to improve quality and reduce costs?
• Optimize the different distribution channels?
Identify logistics service partners; separate out manufacturers/wholesalers
Invest in technology & interfacesto connect schedule, care & replenishment
Eliminate ownership as a condition of management; consider novel investments