mike hobbs owens
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Opportunities in Clinical Supply Chain Opportunities in Clinical Supply Chain InnovationInnovation
Michael HobbsVice President Clinical Supply Solution
Owens & Minor, Inc.
September 10th, 2008
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Owens & MinorCopyright Owens & Minor, Inc. 2008
Owens & Minor Today
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Agenda
• Clinical Market – Devices & Implants
• Supply Chain Issues
• Elements of a Solution
• Opportunities for Diversity
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Expense Growth Rates2002-2004
SuppliesSupplies have overtaken labor as the have overtaken labor as thefastest growing line itemfastest growing line item..
Source: The Advisory Board Company 2005
Total Operating
Cost
SalaryExpense
Benefits Expense
Supply Expense
Supply expense
increasing 64% faster than total operating
costs
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Owens & MinorCopyright Owens & Minor, Inc. 2008
25%
Supply chain management Supply chain management expenditures will reach 45% of total expenditures will reach 45% of total
costcost
Labor
Supplies
Logistics & Distribution
Others
Total
* Figures based on HFMA estimates. Labor cost includes salaries, wages and benefits based on average of leading hospitals in the U.S. and Others is inclusive of profits to the hospitalsSource: S&P Industry Surveys: Healthcare Facilities; HFMA; industry reporting; Pipal Research analysis
Supply Chain Management
100%
45%
15%
15%
Total Cost Incurred by Hospitals
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Medical Supply Industry - USMedical Supply Industry - US
Acute Care US $58B
Acute Care US $58B
Med-Surg Supplies US $76B
Med-Surg Supplies US $76B
Non-AcuteUS $18B
Non-AcuteUS $18B
Commodity$20B
Commodity$20B
Devices &Implants
$38B
Devices &Implants
$38B
Clinical Supply Chain Issues
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Clinical/Direct supply chain is 4 to 5 times Clinical/Direct supply chain is 4 to 5 times lessless efficient than the distributed supply efficient than the distributed supply
chainchain
InventoryTurns
Cost perPO
NursingCost per
PO
DeliveryCost per
Line
ElectronicOrder
Fulfillment
4
18
$12
$60
$0.70
$3
$2
$9
25%
75%
1x
2x
3x
4x
5x
Commodity Device & Implant
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What drives this model?What drives this model?
• Customer intimacy
• High industry gross margins
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Owens & MinorCopyright Owens & Minor, Inc. 2008
MD&I suppliers experience certain MD&I suppliers experience certain
challenges in servicing this challenges in servicing this market…market…
• Poor sales visibility
• Small order size
• High order frequency
• High freight charges
• High front-office cost
• Manual order process
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Owens & MinorCopyright Owens & Minor, Inc. 2008
Suppliers have issues with Suppliers have issues with consignment…consignment…
% of respondents citing issue as significant or highly % of respondents citing issue as significant or highly significantsignificant
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
ExcessiveInventory/ Overstock
New ProductIntroductions
Timeliness ofConsumption Data
Obsolete Products
Managing Recalls,Tracking & traceability
Inventory Visibility
Poor Communicationwith Customer
Source: Archstone Consulting, “Medical Device Supply Chain Council Consignment Survey Results”, January 6, 2006
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Owens & MinorCopyright Owens & Minor, Inc. 2008
Medical device manufacturersMedical device manufacturerscash cycle is 4x slowercash cycle is 4x slower than than
O&MO&M
*Note: Lower numbers are betterSource: CFO Magazine 2006 Working Capital Survey
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……and, customers experience and, customers experience substantialsubstantialsupply chain costssupply chain costs with MD&I. with MD&I.
1st Time Order
Accuracy
Lines/Order
Turns Expiration
Target Performance
78.8%
1.5
2.1x
5%
GA
P
EDI%
25%
ChargeCapture
75%
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“Having RNs and techs manage product databases, manipulate inventories to avoid expiration, cross level stock, analyze physician utilization patterns, etc. is at best a profound distraction from their clinical value.”
Thad MacKrell, O&M, as quoted in Healthcare Purchasing News, December 2006
Elements of a Solution
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Clinical supply chain componentsClinical supply chain components& savings opportunity& savings opportunity
ORGANIZATIONAL ENABLERS / ADMINISTRATIVE SPONSORSHIP
(Change Management/Communication/Performance Management/Commitment)
SUPPLY EXPENSE MANAGEMENT
VALUE ANALYSIS
(Optimizing Value in Selection, Specification & Utilization, Including
Clinically Sensitive Products)
SOURCING
CONTRACTING
Vendor Relationship Management
INVENTORY MANAGEMENT and REPLENISHMENT
Forecasting Demand; Requisitioning & Replenishment;
Managing Supply Availability and
Inventory
PURCHASING & PAYMENT CYCLE
Order Placement, Three-way Match Accuracy, Timely
Payment
TRANSPORTATION & LOGISTICS
ExternalLogistics, Receiving, Internal Distribution
(5) KEY ELEMENTS OF A WELL PERFORMING SUPPLY CHAINOptimum Performance = Lower Non-salary Cost, Dependable Service Delivery and Improved Productivity
TECHNOLOGY DRIVERS(Contract Management, Cost Control, Asset Management, Performance Mng, Revenue Performance)
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Resources (On-site & Off-site Normalize Data,
and Analyze Spend Data)
What Clinical Departments Need
Inventory/Order
Supply Mgt.(Visibility, Expiration, and
product recalls)
Collaboration
(Business Reviews)
Price Mgt. (Tier Maximization, Digitize Contracts)
+ + +
Clinical Supply Chain Services Managed or Monitored Solutions
Revenue/Clinical
Utilization Mgt. (100% charge capture)+
Equals a 3-4 Return On Investment
Not Software
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Owens & MinorCopyright Owens & Minor, Inc. 2008
O&M Specialty 3PL Offering
Value-added Services 1. Transportation Optimization2. ePedigree Compliance / Track and
Trace3. Cross Docking / Order Consolidation4. Asset tagging / Custom Packing /
Kitting5. Product Recall Management / Reverse
Logistics6. ISO Certification7. Management of Global Distribution
and Logistics8. Integration to Demand Planning and
CRM Systems
Basic 3PL Services • Shared Warehousing Management• Inventory Management• Transportation Management• Order to Cash Systems
• Order Management• Accounts Receivable• Chargeback Processing• EDI
• Outsourced Order to Cash Processes• cGMP Regulatory Compliance
Distribution Network
Hospital
Distributor / Wholesaler
PhysicianOffice
Patient
Specialty CenterOr Department
SalesAgent
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Our solution is working in…
• Over 100 clinical departments nationwide including:– The Cleveland Clinic
– Yale New Haven Hospital
– The Ohio State University Medical Center
– Stanford University Hospital
– Thomas Jefferson University Hospital
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Services for Clinical Supply Chain
Hospitals
• IT Services (RFID, Interfaces etc.)
• Clinical staffing services (RN/RT)
• Educational Services (CME, CEU etc..)
• Clinical Outcomes services (tie supply chain to outcomes, utilization review)
• Supply Spend Analytics
• Contract Management service
• Reimbursement Services (Billing/Coding)
• Direct Bill services
• Recall Management Services
Supplier Service
• Customer Service
• Direct Bill Services
• Clinical outcomes post market entry
• Research and Development (New Product development)
• Recall Management
• Clinician Educational Services
Thank You!