medical supply chain sourcing optimization initiative update

WARFIGHTER FOCUSED, GLOBALLY RESPONSIVE SUPPLY CHAIN LEADERSHIPWARFIGHTER FOCUSED, GLOBALLY RESPONSIVE SUPPLY CHAIN LEADERSHIP

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DEFENSE LOGISTICS AGENCYAMERICA’S COMBAT LOGISTICS SUPPORT AGENCY

DEFENSE LOGISTICS AGENCYAMERICA’S COMBAT LOGISTICS SUPPORT AGENCY

WARFIGHTER SUPPORT ENHANCEMENT STEWARDSHIP EXCELLENCE WORKFORCE DEVELOPMENTWARFIGHTER SUPPORT ENHANCEMENT STEWARDSHIP EXCELLENCE WORKFORCE DEVELOPMENT

Medical Supply ChainSourcing Optimization Initiative

Update

Presented to: Navy Medical Logistics Symposium

Nancy RichardsonTeam Lead, Joint Implementation Team

Medical Customer Operations DirectorateDLA Troop Support Forward Cell

June 6th, 2012


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Agenda

• Background and Overview of Sourcing Optimization Initiative

• Realized cost reduction update 2nd Qtr FY 2012

• Business Intelligence Plan prior to and during Gen IV transition

• Business Intelligence Plan post Gen IV transition

• Lessons Learned

• Approach To Future Cost Reduction Initiatives


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SOS Annual Dollar$ Annual OrdersOpen Market $8,817,701 277

MILSTRIP $13,872,023 36,447ECAT $26,548,764 91,241

PC $72,643,125 215,370PV $624,812,706 1,105,704

Totals $746,694,319 1,449,039

Optimization & Time Saving


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Background

• Genesis: FY 2010 Joint Logistics Board proposal

• Follow on initiative: “Sourcing Optimization”

– Determine opportunities to reduce delivered costs of medical materiel• Pharmaceuticals (Brand Name/AB-rated Generic)• Med/Surg Consumables (Identical)

• Joint Medical Team developed proposal containing 8 initiatives to reduce costs by $254M over the 2012-2016 FYDP

– 2 cost elements: Administrative and Product

• Approved by OSD and Services/Agency POMs adjusted accordingly

• Joint Medical Team implemented plan to realize cost reductions and report success

• Effort proceeding as planned…First and Second Quarter, 2012 results on target

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Medical/Surgical Prime Vendor and ECAT

Optimization Through Use of Medical/Surgical BI Tools ~$40M Price 100% ~$40M

Med/Surg MILSTRIP Orders

Redirect MILSTRIP Orders to Ecommerce ~$15M Price/~$85M CRR 100% ~$100M

Pharmaceutical MILSTRIP Orders

Educate Customers to use Ecommerce versus MILSTRIP ~$4M Price/~$16M CRR 100% ~$20M

Area Approach Projected 5 Year Cost Reductions

Probability Weighting Projected Realization 5 Year Reduction*

Pharmaceutical Prime Vendor

Optimization Through Use of Pharmaceutical BI Tools ~$120M Price 50% ~$60M

Ecommerce Expansion Add VA and GSA FSS Items To ECAT/PV ~$10.2M Price 50% ~$5.1M

VA FSS Pharmaceutical Prices

Compel VA to enforce its rules on use of Prime Vendor Clause

~$41.5M Price 50% ~$20.75M


Eliminate VA Industrial Funding Fee ~$60M Price 10% ~$6M


Pay Prime Vendors in 1 day versus 10 to 15 days ~$22.5M Price 10% ~$2.25M

High Probability of Full Implementation

Medium Probability of Full Implementation

Low Probability of Full Implementation

*Note: Anticipated Realization Of Reductions: Year 1—10%; Year 2—15%; Year 3—25%; Year 4—25% and Year 5—25%

Sourcing Optimization – 8 Initiatives


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• Initial Cost Tracking Prototype up and functioning as designed– Base: 4th Quarter, FY2011…data loaded

– Target: 1st Quarter, 2012…data loaded

• Process produces 6 key “excursions” to aid in tracking cost reductions – 1. Pharm Cost reductions 5% or greater based on CPOC* recommendations

– 2. TMOP Cost reductions 5% or greater based on CPOC recommendations

– 3. Pharm Cost reductions of 5% or greater based on independent actions

– 4. TMOP Cost reductions of 5% or greater based on independent actions

– 5. Med/Surg cost reductions of 5% or greater based on eZSAVe

– 6. Med/Surg cost reductions of 5% or greater based independent actions

• Reports available at various levels from DoD to individual DODAAC

• Drill down capability to DODAAC/order level

• Cost reduction logic is very conservative leaving room for adjustment based on Service/TMOP confirmation 6* CPOC: Customer Pharmacy Operations Cell

Realized Cost Reduction Tracking Tool


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Medical/Surgical Prime Vendor

Optimize Use of Med/ Surg Business Intel Tools

$1.2M

Med/Surg & Pharm MILSTRIP Orders

Redirect MILSTRIP Orders to Ecommerce

$2.5M

Area ApproachRealized Reductions

2nd Qtr. 2012


Optimize use of Pharm Business Intel Tools

$9.1M

Ecommerce Expansion

Add VA and GSA FSS Items To ECAT/PV

$0.05M



$0.0


Eliminate VA Industrial Funding Fee

$0.0


Pay Prime Vendors in 1 day versus 10 to 15 days

$0.0




* Anticipated realization of reductions: Year 1—10%; Year 2—15%; Year 3—25%; Year 4—25% and Year 5—25%

$12.8M

Medical Supply Chain Sourcing Optimization Initiative

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2nd Quarter 2012 Realized Cost Reductions

1ST QTRRealized

Reductions$9.9 million


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Medical/Surgical Prime Vendor

Optimize Use of Med/ Surg Business Intel Tools

$4.0M $1.5M 37%

Med/Surg & Pharm MILSTRIP Orders

Redirect MILSTRIP Orders to Ecommerce

$12.0M $4.4M 36%

Area ApproachFY 2012

Projected ReductionsYear

Realized ReductionsFY 2012 To Date

Percent of GoalYear.


Optimize use of Pharm Business Intel Tools

$6.0M $16.7M 279%

Ecommerce Expansion

Add VA and GSA FSS Items To ECAT/PV

$0.51M $0.095M 19%



$2.1M $0.0 0%


Eliminate VA Industrial Funding Fee

$0.6M $0.0 0%


Pay Prime Vendors in 1 day versus 10 to 15 days

$0.22M $0.0 0%




* Anticipated realization of reductions: Year 1—10%; Year 2—15%; Year 3—25%; Year 4—25% and Year 5—25%

$25.41M $22.7M 89%

Medical Supply Chain Sourcing Optimization InitiativeCost Reductions Projected vs. Actual To Date

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1st and 2nd Quarter 2012 Cost Reductions By ServiceMedical Supply Chain OSD Cost Reduction Initiative

INITIATIVE 1:

Customer Projected Yr 1Projected QTRs 1&2

Realized Q1 Realized Q2 Realized FYTD% Target Achieved

(Q1 & Q2)% Target

Achieved (FYTD)

Air Force $1,127,600 $563,800 $33,578 $144,823 $178,402 32% 16%Army $1,947,200 $973,600 $172,063 $587,520 $759,583 78% 39%Navy $824,800 $412,400 $135,165 $420,910 $556,076 135% 67%

Marines $100,400 $50,200 $299 $14 $313 1% 0%Sub Total: $4,000,000 $2,000,000 $341,106 $1,153,268 $1,494,374 75% 37%

INITIATIVES 2/3:



(Q1 & Q2)% Target

Achieved (FYTD)

Air Force $3,382,800 $1,691,400 $142,329 $342,119 $484,448 29% 14%Army $5,841,600 $2,920,800 $790,194 $1,198,550 $1,988,744 68% 34%Navy $2,474,400 $1,237,200 $774,250 $785,277 $1,559,527 126% 63%

Marines $301,200 $150,600 $202,735 $132,895 $335,630 223% 111%Sub Total: $12,000,000 $6,000,000 $1,909,508 $2,458,841 $4,368,349 73% 36%

INITIATIVE 4:



(Q1 & Q2)% Target

Achieved (FYTD)

Air Force $1,734,600 $867,300 $975,702 $1,282,718 $2,258,420 260% 130%Army $2,996,400 $1,498,200 $1,082,368 $1,385,932 $2,468,300 165% 82%Navy $1,269,000 $634,500 $456,890 $693,344 $1,150,234 181% 91%

Marines Not defined Not defined $0 $193 $193 N/A N/ATMOP Not defined Not defined $5,125,024 $5,735,328 $10,860,353 N/A N/A

Sub Total: $6,000,000 $3,000,000 $7,639,984 $9,097,516 $16,737,500 558% 279%

INITIATIVE 5:



(Q1 & Q2)% Target

Achieved (FYTD)Air Force $147,441 $73,721 $5,325 $6,838 $12,162 16% 8%

Army $254,694 $127,347 $10,201 $10,742 $20,943 16% 8%Navy $107,865 $53,933 $29,702 $31,763 $61,465 114% 57%

Sub Total: $510,000 $255,000 $45,228 $49,343 $94,571 37% 19%

INITIATIVE 6-8



(Q1 & Q2)% Target

Achieved (FYTD)

SubTotal $2,900,000 $1,450,000 $0 $0 $0 0% 0%

Total $25,410,000 $12,705,000 $9,935,826 $12,758,968 $22,694,794 179% 89%

VA FALSE POSITIVES, IFF and FASTER PAYMENT

OPTIMIZE USE OF MEDICAL/SURGICAL BUSINESS INTELLIGENCE TOOLS

REDIRECT MEDICAL/SURGICAL and PHARM MILSTRIP ORDERS to ECOMMERCE

OPTIMIZE USE OF PHARMACEUTICAL BUSINESS INTELLIGENCE TOOLS

ADDING FSS ITEMS TO ECAT AND PRIME VENDOR


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Business Intelligence ToolsPrior to and During Gen IV Transition

• All users continue to use Best Pharm and National Contract Compliance reports for pharmaceuticals

• Sites transitioning in June and beyond– Review eZSAVe recommendations through month prior to transition– Validate key recommended items using Medical Master Catalog

(MMC) portal to confirm availability in GEN IV post transition• All sites

– No eZSAVe Med/Surg recommendations available the month of and month after transition to Gen IV• Allow GEN IV catalog and receipt data to be collected and analyzed

• MedPDB will continue to be available before/during/after Gen IV transition– MedPDB useful to research items for:

• Product Sourcing Requests for items not in Medical Master Catalog• Commercial items pricing benchmarks• Functional equivalents• Available items at other sites• Packaging and pricing data


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Business Intelligence ToolsPost Gen IV Implementation

• All users continue to use Best Pharm and National Contract Compliance reports for pharmaceuticals

• DMLSS users: DMLSS-Retail Sourcing Optimization tools– Best Med Report for Med/Surg items

• Identifies lower priced PVON for identical item

• Recommends equivalent items (requires clinical review)

• Phase I … manual build of sourcing record upon selection

• Phase II…system automatically builds sourcing record upon selection

– DLA Sourced NSN – Commercial Sourcing Pending Action

• Identifies commercial sources for NSN items

– Automatically builds sourcing record upon selection

– eZSave provides supplemental sourcing optimization functionality

• TEWLS users continue to use eZSAVe for Sourcing Optimization of Med/Surg items

• MedPDB will continue to be available after Gen IV transition


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1212Leading the effort allows us the opportunity to control our own destiny

• Data-driven, Collaborative Effort– DLA - Enabled, Service - Executed

• Proactive, Forward-leaning Engagement– Services empowered to focus efforts where greatest potential returns

• Clinically-driven Decisions– No decrement to quality of medical care

• Transparency in Data and Processes– Mission partners enjoined in achieving unified goals

• Goals based on empirical data versus theoretical projections – Set realistic expectations early in the process

• Measure and publish actualized results to leadership – Maintain Accountability, Grow Credibility, Prepare Responsibly

for next budget challenge

OSD Cost Reduction – Lessons Learned

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• Prepare now– Formalize Joint Medical Team…Expand current strategies/explore new

– Continue to invest in and leverage Business Intelligence tools to identify opportunities to further reduce costs

– Assign best and brightest to the DLA Customer Optimization Office to refine its capabilities and effectiveness and return expertise to Services

• Further reduce DoD materiel costs– Maximize use of Ecommerce

– Optimize transition to less expensive equivalents

– Increase agility to exploit market changes…expiration of patents, etc.

– Optimize pharmaceutical channel bandwidth (retail, mail order, MTF)

– Improve, track and recognize discipline, accountability and management

• Level spending across the fiscal year

• Manage and use of Prime Vendor credits

Approach To Future Cost Reduction Initiatives

DLA…your mission Partner for quality optimized Medical Supply Chain solutions 13


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• eZ SAVe– Follow eZ SAVe SOP on NMLC Web Page– Take action on monthly eZ SAVe

recommendations, top 20 or all >$1,000 PPR

• Best Pharm Report– Have pharmacist download, review, and make

changes, top 10 recommended changes

• National Contract Compliance Report,– Realign item or sourcing for non-compliant

purchases, top 10 PPR recommendations

What to do at MTF


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Questions

medical supply chain sourcing optimization initiative update

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