Transcript Slide 1
Supply Chain is a Strategy …
Not a Department
Gene Kirtser
President & CEO
Agenda
Introduction & Background
Supply Chain as it relates to…
• Past: a Key Tactical Enabler
• Present: a Performance Optimizer
• Future: an Enabler of the Future Care Model,
Industry Collaboration
Summary / Discussion
Mercy Footprint
31
4,400
38,000
200
1,500
600
Acute Care Hospitals
Licensed Beds
Co-workers
Outpatient Facilities
Integrated Physicians
Advanced Practitioners
Agenda
Introduction & Background
Supply Chain as it relates to…
• Past: a Key Tactical Enabler
• Present: a Performance Optimizer
• Future: an Enabler of the Future Care Model,
Industry Collaboration
Summary / Discussion
Mercy’s Transformational Journey
We began as
a
holding company in 1986
We have become an
an
operating company with extraordinary
competencies in execution
The cultural evolution began in 1999 with
supply chain as the “tip of the spear.”
Supply Chain Becomes Strategic
In 2000
Supply
Chain
became a
strategic
initiative
for Mercy
Supply Chain Touches Everyone
Hospital/Clinic – Senior Leaders
(C-Level, VP’s)
• Accountability
• Provider focused and based solutions – Assistance with
goals- respect, value, recognition
• Leadership Collaboration
Corporate Senior Leadership
(Corporate Staff)
• “Systemness”
• Relationship Management
• Leadership (corporate)
Future Customers
(Physicians, IDN)
Facility - Mid-Managers
• Value
• Respect
• Recognition
(Supervisors, Dir., Mgrs., VP’s)
• Harmonious with environment
• Communication, be heard, access to information
• Respect
Vendors
• Partnership Relationships
• Equal Opportunity
• Profitability
Clinicians
(Nurses, Pharmacists, Resp. – Lab tech)
• Efficiency of product access
• Involvement in product decision making
• Quality of patient care delivery/ patient safety
Industry Leaders
(Influencers, Publishers)
• Succinct Story
• Advanced knowledge, involvement
understanding the model – New ideas
• Reputable business model
Non-Integrated Physicians
• Autonomy
• Quality of life
• Quality of care/ Patient Safety
SC Co-workers
• Respect for individual input
• Compensation/benefits
• Tools to do the job
Traditional Models are Broken
Manufacturer
Traditional
Supply Chain
Model
Many
Manufacturer
Disintermediated
Supply Chain
Compressed
Integrated
Supply Chain
Manufacturer
Integrated
Processes
GPO
Distributor
Large
Silos
GPO
Provider
Commercial
Distributor
Direct
Contracting
GPO
Integrated
Contracting
Internal
Logistics
Distributor
Integrated
Logistics
Provider
Silos
Provider
Integrated
Processes
Service Complexity & Inconsistency
ISSUE: Complexity
Complexity of product
and information flow
within the traditional
healthcare supply chain.
Med/Surg Mfg.
Med/Surg Dist.
Pharma Mfg.
Pharma Dist.
Mercy Clinics
Lab Mfg.
Lab Dist.
Other Hospitals
Film Mfg.
Dietary Mfg.
Linen Mfg.
Radiology Dist.
Dietary Dist.
Linen Service
Mercy Hospital
Other Clinics
Retail Pharmacy
Home Health
Retail
Mass Merc.
Other???
ISSUE: Geographical Match
More than 90% of Mercy’s
volume is OUTSIDE of the
traditional distributors hub
distribution service area
Traditional Supply Chains Chase Pennies
Time
Spent
Area of Focus
Savings / Avoid
Opportunity
Examples
Suture
Gloves
Med/Surg
75%
Price
3% - 18%
10%
Volume
0% - 5%
Service line
expansion, new
physician
10%
Utilization
25% - 50%
Tubing Lengths
SCD Length
Drape
Technique
Generics
5%
Technology Adoption
CRM
100% - 500%
(cost avoidance) Spine
Ortho
Pharma
Supply Chain is a Strategy … Not a Department
VISION
RELATIONSHIPS
are tight and
trusting
PRODUCT FLOW
controlled by
Supply Chain
DATA
clean and controlled
by Supply Chain
BUSINESS STRATEGY
in sync with Mercy
CLINICAL: Good Patient Outcomes
OPERATIONAL: Happy Caregivers
FINANCIAL: Positive Bottom Line
FOUNDATION
Invest in Technology, Process Improvement, Talent
Make/But/Partner Decisions
What Works: Stakeholder Input, Leverage, Commitment, Compression, Metrics
Agenda
Introduction & Background
Supply Chain as it relates to…
• Past: a Key Tactical Enabler
• Present: a Performance Optimizer
• Future: an Enabler of the Future Care Model,
Industry Collaboration
Summary / Discussion
ROi’s Structure
Integrated Sourcing Solutions
Product and Services Contracting
Utilization Optimization
Contract Compliance Monitoring
Rebate Management
Pricing Administration
Member Services
Facilities
• Consolidated Services Center –
Springfield, MO
• Consolidated Distribution Center –
St. Louis, MO
Co-workers
Supply Chain Solutions
• Corporate Office – St. Louis
Warehousing and Distribution Services
Inventory Management
Transportation Management
Process Improvement
315 FTEs from varied clinical and
business disciplines (growing to 750+
FTEs with Unified Supply Chain)
Mission:
Manufacturing Solutions
Pharmaceutical Repackaging
Custom Procedure Tray Manufacturing
Print Operations
Integrated Business Solutions
Purchasing and Accounts Payable Services
Information Solutions
Account Implementation
Customer Service
We will transform the Clinical, Operational and
Financial performance of those we serve through an
integrated supply chain.
Vision:
We will be a recognized leader in supply chain management
through innovation and application of the best People,
Processes and Technologies.
Values:
Service, Excellence, Dignity, Alignment, Accountability
Integrated Business Model
• One of the
largest GPOs
in the U.S.
• Highest $
penetration
per bed
• Single Source
negotiation
strategy
• 500+ contracts
($800 million)
• International
focus
• Demonstrated
results in
reducing cost
• Efficiency
based sourcing
• Provider
Integration
• 1st Provider
based Private
Label program
in the US
• Largest Provider
based CPT
manufacturing
operation in US
• Top 10 Volume
Distributor
according to
HIDA
• 80+ Vehicles
• Growing
interest
with other
providers
• FDA Registered
• Med/Surg
• Print Services
• Rx
• Every location
every day
• Rx Unit Dose
Repackaging
• Office
• Print Services
• Instrument
Repair
• +2.3 million
miles per year
• Back-haul
common carrier
• Courier, TL
and LTL
ROi Supply Chain Operation
Springfield, MO
101,000 Square Feet
Climate controlled
Refrigerated and Frozen Storage
Controlled Substance Cage and
Vault
Suitable for all Healthcare supply
storage needs in one facility
Private Fleet (80+ vehicles) reduces
third party transportation expenses
Shortened Order Cycle to 12 hours
66% increase in acute care Med/Surg
deliveries
42% Reduction in hospital inventory
Elimination of 3,000 material service
failures (stock-outs) per week
Unique Programs
Private Label
Sourcing Strategy - Private Label
RATIONALE:
End user design and ownership –
pride in ownership
Reduces variation and
proliferation of SKU’s.
Platform for provider collaboration
Significant $ value
PRODUCTS:
Basic Wound Care
Pneumatic Compression Devices
Can Liners
Patient Positioning Products
Cold Therapy Products
Disposable Minor Procedure Kits
IV Start Kits
Isolation Gowns
Hand Sanitizer
Sterilization Supplies
Disposable Blood Pressure Cuffs
Patient Slipper Socks
Alcohol Prep Pads
Medical Tapes & Adhesive Bandages
Orthopedic Soft Good Line
Patient Bathing & Wipe Products
Surface Disinfection
Instrument Reprocessing Solutions
Sterile Equipment Drapes
Surgical Masks
Surgical Apparel
IV Tubing Sets
OR Towels, Laps, Markers, Needle Ct
OR Turn Over Kits
DME - Canes, Crutches, Chairs, Walkers
ER Disposable Curtin System
Special Procedure Kits
Birthing & Neonatal Portfolio
Non Acute Care Products Portfolio
Mercy Meds – Rx Repackaging & Distribution
Custom Packs - Why Change?
Traditional Custom Pack Model:
•
Lack of cost containment
•
Inconsistent pack utilization
•
Unauthorized changes
•
Inferior product quality
•
Waste
•
End-use mistrust
Who is paying
for all of this
extra material ??
ROi Custom Pack Manufacturing
FDA Regulated, provider owned
Activity based costing model - complete pricing transparency
Objectives aligned:
No unauthorized substitutions
No commission for volume growth
5.5 sigma manufacturing quality
Disaster Responsiveness – Joplin
Industry Recognition
The Healthcare Supply Chain Top 25
Essential to the larger strategy
Transparent
Desire to do what is right – for all
Significant bottom line contributor
Leadership Engine for Mercy
Integration is key distinction
Financial Contribution
FINANCIAL PERFORMANCE:
Mercy Supply Chain - Value Report – FY12
ROi - Customer Value Category
Mercy Value
Fee Elimination ……………………………………………………………………. $3,222,850.
Centralization / Consulting ….…………………………………………….… $5,109,250.
Contracting / Rebates …………………………………………………………..$21,549,560.
Total Supply Chain Contribution ……………………………………………$29,881,660.
Centralization Fee (to ROi from Hospitals) ……………………………. ($6,711,810.)
Net Financial Benefit to Customer (6.4:1) .……………………….… $23,169,850.
ROi Net Income …………………………………………………………………… $9,205,000.
Total Net Financial Benefit ………………………………………………….. $32,374,850.
Agenda
Introduction & Background
Supply Chain as it relates to…
• Past: a Key Tactical Enabler
• Present: a Performance Optimizer
• Future: an Enabler of the Future Care Model,
Industry Collaboration
Summary / Discussion
Changing Healthcare Business Model
BC - 1950
1950 - 2000
2000 - ?
Foot, Covered Wagon
Interstate Highway System
Air Travel, Internet
Local
Regional
Virtual
Today Healthcare is simultaneously
Local, Regional, and Virtual
Supply Chain’s Future Evolution
By Providing access to multiple
touchpoints of care and reducing
barriers, the redefined model will
ease the path our customers take
through the care process.
Inpatient
care
Day surgery
Endoscopy and
outpatient
procedures
Medical Home
Home
monitoring
Disease
management
Chronic
Disease
management
Mobile/
Electronic
access
Convenient or
retail care
Self-directed health
management will be
supported by the care
model.
Home care
Traveling nurse
or care
coordination
Imaging and
other tests
in many of
the care venues
SG&A Comparison
Retail vs. Healthcare Suppliers
RETAIL
HEALTHCARE
29.3%
Opportunity
(15.2%)
14.1%
Healthcare
Retail
Source: Average of group as per public company financials.
The Cost of Doing Business
Cost Breakdown of a Major Trading Partner with Mercy
Spend Breakdown of Mercy
$51,396,800
$50
$45
$40
$10.2
NI (19.8%)
$3.6
Tax/Other (7.1%)
$16.4
SG&A (32.0%)
$5.8
R&D (11.3%)
$35
$30
$25
Observations:
▶ Company SG&A is…
▶2.8 X R&D
▶1.1 X COGS
▶1.6 X Net Income
▶ Mercy spent $16,447,000 for this
company to sell us your
products…
▶ Only 3 of Mercy’s 26 hospitals
make more Net Income than this
companies SG&A from our
business.
$20
$15
$10
$5
$0
$15.3
COGS (29.8%)
Are we the problem?
SG&A is an efficiency measure of
the trading partner relationship
We have the ability to impact
this… let us
SOURCE: Company financials as reported in Reuters ProVestor Plus Company Report, December 27, 2009
Industry Leadership & Transformation
• 30% reduction in payables outstanding resulted in additional
early pay discounts from faster payment that required less manual
intervention.
• 73% reduction in discrepancies, includes a complete elimination of
vendor part number and unit of measure (UOM) discrepancies by
supplanting part number and UOMs with GTIN on purchase order.
• Improved sourcing of product by use of a single scan of a barcode
to determine the right product and product UOM to reorder.
• Less calls to customer service in the sourcing process.
• Fewer stock outs due to the inherent simplicity offered to nursing staff
of scanning barcodes at the bedside.
For more information go to www.roiscs.com
• Better charge compliance resulting from scanning as a surrogate to
traditional practices
Industry Leadership & Transformation
Mayo Clinic
Intermountain
Healthcare
Mercy
Geisinger
Kaiser
► Formed in December of 2010
► Adoption of GS1 standards and improve operations through best practices
► Unified voice of well respected brands to uniformly move the industry to
adoption
► Work with trading partners to assure there is value for all
► Agree reduce variation in practice where ever possible in our trading
transactions
► Linking standards adoption of improved tracking of clinical effectiveness
Industry Dynamics
The Problem
The healthcare industry is facing a crisis. External forces will strain providers
operating margins. Providers will look for ways to operate more efficiently and cost
effectively to remain relevant.
Our Aspiration
To reform the healthcare industry through collaboration by optimizing the Supply
Chain.
Agenda
Introduction & Background
Supply Chain as it relates to…
• Past: a Key Tactical Enabler
• Present: a Performance Optimizer
• Future: an Enabler of the Future Care Model,
Industry Collaboration
Summary / Discussion
Benefits of an Integrated Supply Chain
Proven method to reduce cost.
Proven method to improve patient safety.
Proven method to integrate physicians and
clinicians in product decision making.
Proven service enhancement model that is a
key satisfier for nursing.
Proven method to unite culture.
Secrets to Our Success
Stick to Guiding Principles
Take Risks to Innovate
Buy-In (at all levels)
Experienced Talent
Dedicated Resources
Strong Business Cases
Metrics Driven
Systems Investments
Industry Collaboration
Questions for Providers to Consider
CLINICAL: Can your supply chain be positively linked to
better care?
OPERATIONAL: Is your supply chain known for
improving patient or caregiver satisfaction?
FINANCIAL: Does your supply chain materially
contribute to your bottom line?
STRATEGIC: Is your supply chain considered a
department or a strategy?
Questions for Suppliers to Consider
CLINICAL:
Do your products/services have a documented clinical
improvement in outcomes – science behind the marketing?
Are your solutions addressing needs in all patient care settings?
OPERATIONAL:
Is your company efficient for providers to work with?
Provider Supply Chain leaders are becoming more – are you
adjusting accordingly?
FINANCIAL:
Does your product/service improve the provider’s bottom line?
Questions for Suppliers to Consider
STRATEGIC:
Suppliers are homogenized – are you differentiated?
Are you selling “your box” or a solution to your customer’s
needs?
Lines between GPOs, Distributors and Providers are blurring.
How are you responding?
Are you strategically aligning with providers that will survive
future industry consolidation?