healthcare webinar slides

How do we Heal The Health Care Value Chain?

A Closer Look at Healthcare Providers

Supply Chain Insights LLC Copyright © 2013, p. 2

Presenters

Karen ConwayGHX

Lora CecereSupply Chain

Insights

Roddy MartinAccenture


Healthcare Value Chain Financial Metrics


Components of Cash to Cash


Supply Chain Organization:Three-Quarters Have a Formal Supply Chain Organization


Supply Chain Organization:7 Functions Report Through It on Average;Reports Primarily to Chief Financial Officer


Supply Chain Organization:Purchasing is Primarily Done Corporate-Wide


Hospitals: Measuring Value


Hospitals: Value Analysis


Value Analysis Group: Supply Chain is Primary Leader;

Changing/Adding Products are Most Common Decisions


Value Analysis Program


Focus: Negotiating Lower Prices


Current State


SHARED VISION

+ SKILLS + INCENTIVE + RESOURCES + PLAN + LEADERSHIP = CHANGE

SKILLS + INCENTIVE + RESOURCES + PLAN = CONFUSION

SHARED VISION

+ INCENTIVE + RESOURCES + PLAN + LEADERSHIP = ANXIETY

SHARED VISION

+ SKILLS + INCENTIVE + RESOURCES + LEADERSHIP =FALSE

STARTS

SHARED VISION

+ SKILLS + INCENTIVE + PLAN + LEADERSHIP = FRUSTRATION

SHARED VISION

+ SKILLS + RESOURCES + PLAN + LEADERSHIP =GRADUAL CHANGE

Source: J.P. Kotter

Collaboration: The Right Stuff


Applying the Supply Chain Index to Healthcare

A formulaic representation of how companies are trading off growth, profitability, cycle and

complexity performance on selected supply chain financial

metrics against market valuation.

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Step 1: Located data sources

Step 2: Selected core supply chain ratios from over 50 financial metrics

Step 3: Identified meaningful metrics per industry using regression analysis among selected ratios

Step 4: Constructed industry equation based on correlation of industry metrics to market capitalization values

Step 5: Determined company rankings within industry by applying 2012 company results to industry equation

Step 6: Analysis of peer group companies over the last decade

Step 7: Correlations to supply chain practices, technologies and organizational design

Supply Chain Index Methodology

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– Market capitalization data of public companies (Ycharts.com)

– Industry peer groups defined by Morningstar Sector (36)

– Financial ratios built from balance sheet and income statement data collected from OneSource

– Analysis of quarterly data using R (frequency 2006Q1 to 2012Q4)

Step 1: Located Data Sources

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Healthcare Value Chain


Value Chain

Source: Supply Chain Insights LLC

Metrics That Matter by Industry

Medical Care Industry Medical Distribution Pharmaceutical Major

Free Cash Flow Ratio Operating Margin Free Cash Flow Ratio

Working Capital Ratio Return on Invested Capital Return on Invested Capital

Operating Margin Free Cash Flow Ratio Altman Z

SG&A to COGS Ratio Working Capital Ratio Current Ratio

YoY Revenue Growth Return on Net AssetsDays of Payables

Outstanding

Current Ratio DPO/DSO Ratio

Days of Sales Outstanding Current Ratio

Days of Inventory Days of Inventory

Days of Payables Outstanding

0.73 0.84 78


Medical Care Equation

Ln(market cap) = 6.24 + 16.33(FCF) + 10.34(WC) + 5.72(OM) – 2.39(SGAC) + 1.09(YOY) – 1.01(CR) + 0.02(DSO) + 0.01(DOI) +

0.01(DPO)

Correlation Strength

NOTE: Full equation is Ln(market capitalization) = 6.241727 + 16.32968(free cash flow) + 10.33977(working capital ratio) + 5.72111(operating margin) – 2.38969(sga to cogs ratio) + 1.087475(revenue growth) – 1.00962(current ratio) + 0.022692(days of sales outstanding) + 0.013903(days of inventory) + 0.008173(days of payables outstanding)We utilized adjusted which accounts for the occurrence of large p values. Outliers values were defined and excluded as those 5 times larger than IQR.

Medical Care Equation


Medical Distribution Equation

Ln(market cap) = 6.04 + 33.39(OM) – 24.69(ROIC) + 15.23(FCF) – 11.11(WC) + 1.49(RONA) + 1.37(DPODSO) +

0.83(CR) + 0.02(DOI)


NOTE: Full equation is Ln(market capitalization) =6.036327 + 33.38703(operating margin) -24.6924(return on invested capital) + 15.23431(free cash flow ratio) -11.1125(working capital ratio) + 1.488203(return on net assets) + 1.371671(dpo/dso ratio) + 0.83093(current ratio) + 0.018224(days of inventory)We utilized adjusted which accounts for the occurrence of large p values. Outliers values were defined and excluded as those 5 times larger than IQR.

Medical Distribution Equation


Major Pharmaceutical Equation

Ln(market cap) = 14.00 + 5.75(FCF) + 5.14(ROIC) – 4.02(AZ) – 1.09(CR) – 0.003(DPO)


NOTE: Full equation is Ln(market capitalization) = 14.00234 + 5.748799(free cash flow ratio) + 5.141905(return on invested capital) -4.02167(altman z) – 1.08604(current ratio) – 0.00253(days of payables outstanding)We utilized adjusted which accounts for the occurrence of large p values. Outliers values were defined and excluded as those 5 times larger than IQR.

Major Pharma Equation


Heathcare Value Chain


Implantable Devices: 15 Manual Steps

Typical process today involves 15 manual steps that are oftenbased on inaccurate catalog, pricing and charge data.


GHX Case Xpert Automation

Automation and process improvement eliminates or reduces labor needed in process steps while significantly increasing accuracy and cycle-time.


• Redesign for value• Focus on outcomes• Management of end-to-end processes

How do we Heal the Healthcare Value Chain?


Our Focus

2-DAY PUBLIC TRAINING

Princeton – June 24-25Minneapolis – August 8-9

$1500

GLOBAL SUMMIT

PODCASTS

www.supplychaininsights.com

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PAST SUPPLY CHAIN INDEX WEBINARS:

AVAILABLE ON DEMAND• From September 24, 2012:

The Supply Chain Index, 20 Years in the Making: A Focus on Process Industries

• From October 26, 2012: The Supply Chain Index, 20 Years in the Making: A Focus on Discrete Industries

Webinars

www.supplychaininsights.com/upcoming-webinars

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UPCOMING WEBINARS• May 23 rd: Supply Chain Index, Update, Part II

• June 13th: Sales and Operations Planning: State of the Union

• July 11th: Big Data Supply Chains and the Future of Analytics

• August 15th: State of Supply Chain Talent: Missing Link in the Supply Chain

• August 29th: Digital Manufacturing

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