the lean transformation at cardinal health

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Transforming Cardinal Health

June 25, 2007

William OwadSVP, Operational ExcellenceCardinal Health

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Who we are

Cardinal Health is a global company dedicated to making healthcare safer and more productive

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Highlights

• Headquartered in Dublin, Ohio

• The leading provider of products, services and technologies supporting the health care industry:

• Develops, manufactures, packages and markets products for patient care

• Develops drug-delivery technologies

• Distributes pharmaceuticals and medical, surgical and laboratory supplies

• Offers consulting and other services that improve quality and efficiency in health care

• Annual revenues of $81 billion

• Ranked No. 19 on the Fortune 500

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Global presence

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How we support healthcare• Medical / surgical manufacturing

and distribution– Gloves, surgical gowns,

drapes, instruments

• Pharmaceutical distribution– Safe, efficient delivery of pharmaceuticals from

manufacturer to retail, independent and hospital pharmacies

• Nuclear pharmacy services– Capable of delivering radiopharmaceuticals

to 90% of U.S. hospitals within 3 hours

• Medical and supply automation products– Aid doctors and nurses in ensuring

patient safety, greater focus on patient care

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Healthcare Supply Chain Services

Market leader in medical supply, pharmaceuticals and nuclear pharmacy services

Medical Products Manufacturing

Leading manufacturer of products used in 50% of U.S. surgeries

Clinical Technologies and Services

Market leader with Pyxis® and Alaris®

products, and extensive clinical expertise

Pharmaceutical Technologies and Services*

Largest provider of contract services to pharma and biotech industry

93%revenue

2%revenue

3%revenue

2%revenue

*Cardinal Health sold its Pharmaceutical Technologies and Services segment to the Blackstone Group

Healthcare Supply Chain Services

Revenue greater than $75B

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Three Cardinal Health Priorities

• Organic growth through customer-driven innovation, expanding product offerings, and international expansion

• Leveraging our scale and operational excellenceto drive superior customer value and reduce non-value added costs

• Unleashing the power of our employees to achieve their full potential through thoughtful career planning, skill and capability building, in an engaging and inclusive work environment

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Operational Excellence is about execution

• A disciplined way of conducting business that consistently meets customer expectations at minimum cost and optimum speed

• A sustainable competitive capability that differentiates on the ability to execute

Source: SLT – October 2005

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Simple transforming idea

• Engage people at every level• Teach them to see the value stream• Provide them with the knowledge to

challenge and improve the value stream• Empower the people and managers close

to the value stream with the imperative to improve

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Original vision of Operational Excellence was transformational

• Not an event. This is the way we work, from now on

• A capability that defines us and creates competitive advantage

• A relentless pursuit of speed, efficiency, and effectiveness in everything we do

• Drives loyalty by improving what we do for our customers and each other

Source: Operational Excellence Executive Summit, December 2005

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Essential elements to an Operational Excellence enterprise

• Clear understanding of the organization’s customer value proposition

• Lean and consistent processes for delivering the value proposition

• Culture of relentless improvement by the people closest to the value stream

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Cultural objective• Drive the business from the customers’ point of view• Align projects and resources to key strategic drivers• Drive continuous improvement methods broadly into all areas of

the business (the way we work)• Embed common language / process thinking/skills /

methodology throughout Cardinal Health• Require Lean Six Sigma as a leadership

development tool• Achieve zealous leadership involvement and support

Deployment principles

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Operational Excellence accomplishments• Created an Operational Excellence infrastructure

– 29 Deployment Leaders and 18 Master Black Belts / Lean Masters– 149 LSS Black Belts and 840 Green Belts and Kaizen Leaders– 1600 Sponsors

• Built a pipeline of 1400+ projects• Delivered over $130M in total benefit, $110M Type 1 benefit• Expanded Operational Excellence into all businesses and

functions• Delivered projects that demonstrated the wide reach and power

of Operational Excellence• Gained wide exposure and recognition of Operational

Excellence– i.e., Town Hall meetings, Gallery walks, Innovation awards, GLT

meeting, Budget and QBR proces

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Key challenges

• We must achieve stability before we can achieve excellence

• Stability means:– Product

– Process

– Information flow

• We must become an operationally excellent company in order to become premier

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Enterprise transformational initiatives

• Provisioning / supply processes• Order-to-case process• Development processes• Cultural/mindset transformation

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Imperatives for the Operational Excellence team

• Pursue project portfolio that drives strategic value• Drive engagement and active participation by

Sponsors and middle management• Ensure resources and commitment to chartered

projects• Drive penetration in unproductive sites and

organizations• Establish a continuous improvement mindset

enterprise wide