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©2017 CVS Health and/or one of its affiliates: Confidential & Proprietary

Supply Chain Performance –On Time, In Full (OTIF)

June Webinar Recap

© 2017 CVS Health Confidential & Proprietary 1

SCP team hosted training in June to discuss the following:

Topic SummarySupply Chain Performance Objectives

Maximize efficiency and effectiveness of the supply chain in order to reduce the cost-to-serve customers by:• Improving Store In-Stock Levels• Optimizing Inbound Receiving and Dock Efficiency• Decreasing Leadtimes• Improving F&R Process

Administration of OTIF Program • Utilization of the CVS Supply Chain Performance Portal• The Timing of Purchase Order OTIF Assessments• Application of the OTIF Parameters • Performance Based Incentive Program• OTIF Charge Calculation• Vendor Visibility / Timing• High Level Disputes Process Walkthrough

Portal Administration • Setting Up New Users• Granting Access to Accounts• Accessing the Training Resources Available in the Portal

Timeline since June Webinar


• Vendor Portal went live in late June for User Access Administration and Training

• Performance data became visible in the Vendor Portal mid July

• The Supply Chain Performance Instructions were posted to CVS Suppliers Site & Vendor Portal

• July Chargebacks assessed during week of August 20th

• July PBC Report issued week of September 9th

Note:


• Copies of the slides from the June Webinar and the Supply Chain Performance Instructions can be found by accessing:• The Information and Documents page within the vendor portal

• Accessible through the Quick Links toolbar • Visiting www.cvssuppliers.com/supply-chain-performance• Copies of today’s slides will be available in the same location

during the week of September 17th

• Questions pertaining to these documents can be addressed to [email protected]

Agenda


OTIF Reporting Goals and Examples• Weekly OTIF Performance Summary• Weekly Compliance Summary• Monthly PBC Performance Summary

OTIF Performance Charges• Charge Listing• Dispute Submission• Dispute Administration

OTIF REPORTING GOALS


Weekly/Monthly OTIF Reporting

1. . Goal ReportProvide the vendor community performance data timely in order to understand and address efficiency opportunities

Weekly OTIF Performance Summary

Provide the vendor community timely chargeback data in order to investigate potential chargebacks.

Weekly Compliance Summary

Provide the vendor community with transparency regarding OTIF monthly performance and charges assessed.

Monthly PBC PerformanceSummary

GOAL: PROVIDE THE VENDOR COMMUNITY PERFORMANCE DATA TIMELY IN ORDER TO UNDERSTAND AND ADDRESS EFFICIENCY OPPORTUNITIES



• Includes performance data for all POs assessed during the prior week regardless of whether they are held accountable to penalties under OTIF

• Report is generated for all vendors regardless of whether vendor is held accountable to penalties under OTIF

• Does not include any chargeback amount

• Report is meant to provide vendors with an update on their performance for the prior week



Sample Sample



Sample Sample

• Summary of the Vendor’s Overall OTIF Performance for POs assessed during the prior week

• Recall from Prior Webinar: OTIF Effectiveness is a measure of total PO cost received on time to total PO Cost



OTIF Effectiveness

Total PO cost

PO cost associated with product received On Time

88.0%

$32,685.00

$28,747.44



Sample Sample

Relevant PO Data



Sample Sample

Individual PO Performance Data



Sample SampleFirst On Time Receipt Definition

Date of the first receipt made on PO meeting the OTIF program’s On Time requirements



First On Time Receipt DefinitionDate in which the first receipt was made on this PO that met

the OTIF program’s On Time requirements

OTIF On Time Requirements Each PO Receipt is evaluated for On Time against the following parameters:

PREPAID (Vendor Managed Freight):PO arrives on or before the STA date

‐OR‐A requested delivery date that falls within a 5 business day compliance window (PO STA date or 4 business days prior).

COLLECT (CVS Managed Freight):Compliant POs meet the following criteria:1) Shipping information is submitted to CVS at least 72 hours prior to available pickup (include business calendar M‐F), and2) Ample transit time is provided to CVS to meet the STA date upon pickup (transit times defined in Routing Guide).

BACKHAUL (CVS Managed Freight): 1) 4 days is provided to CVS to meet STA date upon pickup (measured as days between Available for Pickup date and STA date)

Excerpt from June Webinar:



• POs with ‘No OT recpt’ have no receipts meeting the OTIF On Time Requirements• Original STA date, STA changes are N/A

• Results in OTIF Effectiveness of 0%0.00%

$1,672.56

$0.00


Weekly OTIF Performance Summary• POs with a receipt meeting the OTIF On Time Requirements but OTIF Effectiveness less

than 100% have some quantity that was not received on time• i.e. the PO did not ship in full (original ordered quantity, including PO cuts)• i.e. the PO shipped over multiple loads; not all loads met the On Time

Requirements

69.3%

$1,719.24

$1,191.96



• POs with OTIF Effectiveness of 100% were shipped in full and received on time 100.0%

$6,592.32

$6,592.32



Sample Sample

Chargeable Non-Comp DefinitionRepresents the portion of PO that was not received on time

Amounts in this column may be subject to penalties but do not reflect penalty amounts

Vendors can cross reference POs on this report to Weekly Compliance Summary to find out if one of these amounts is

subject to penalties

GOAL: PROVIDE THE VENDOR COMMUNITY TIMELY CHARGEBACK DATA IN ORDER TO INVESTIGATE POTENTIAL CHARGEBACKS



• Provides listing of all Potential Charges for every PO held accountable under OTIF

• At the time the report is issued, charges are in Pending status meaning no chargeback is being assessed at that time

• Vendors can lookup the details of the charge by utilizing the vendor portal and the charge number given



Sample



Sample

• Weekly Compliance Summary is a list of all chargebacks identified during the previous week

• Covers the same time period as the Weekly OTIF Performance Summary • Designed as a companion report to the Weekly OTIF Performance Summary

• Allows vendors to identify which POs could be assessed chargebacks

• Example/Excerpt:

• All OTIF Penalties References: • Rule Reference: 1947• Rule Description: OTIF non-compliance



Sample• Vendors will be able to understand which POs may be

assessed chargebacks by tying the purchase order number from the Weekly OTIF Performance Summary to the Weekly Compliance Summary

Sample Sample



Sample

• POs with a Chargeable Non-Comp amount that do not show up on the Weekly Compliance Summary will not be assessed a chargeback

• i.e. Exempt POs • Rationale: Vendors should understand performance for all

POs, not just POs that are susceptible to chargebacks

Sample Sample

PBC Compliance & Weekly Compliance Summary


• Recall from June Webinar: • Penalties for OTIF Performance are calculated monthly and are based on monthly

performance• Monthly performance is measured as Total OTIF Effectiveness for all POs

assessed for the month• Penalty amounts are assigned to all non-compliant portions of POs based on

assigned performance tiers

PerformanceMeasurement Vendor Performance is assessed according to OTIF Effectiveness.

OTIF Effectiveness

Total invoice cost

Invoice cost associated with product received On Time

Assign Performance Tier

OTIF Effectiveness Penalty Offset

At or Above 95% Exempt

Below 95% and at or above 85% 1.5%

Below 85% 3.0%

Excerpt from June Webinar:



Sample

• Challenge: Penalty amount for a PO is not known at the time the Weekly Compliance Summary is generated

• Monthly OTIF Effectiveness has not been calculated• As such, all OTIF penalties are calculated as 3.0% of non-compliant cost

• Portion of PO cost not received on time• Penalties are not assessed until after the monthly assessment as been completed

• Chargebacks are put in Pending status until charges are issued at the end of the month

• Example/Excerpt:



Sample

15.823.0%$527.28

GOAL: PROVIDE THE VENDOR COMMUNITY WITH TRANSPARENCY REGARDING OTIF MONTHLY PERFORMANCE AND CHARGES ASSESSED


Monthly PBC Performance Summary

• Includes performance data for every PO assessed during the month

• Allows visibility to the PBC monthly assessment and the assigned performance tier

• Provides vendors the status of any PO disputes resolved prior to PBC assessment

• Provides vendors with chargebacks amounts for each PO after PBC assessment

• NOTE: PBC = Performance Based Compliance – refers to performance incentives

Monthly PBC Performance SummaryRecap from June Webinar: Calculation of Charges

PerformanceMeasurement

Assess Monthly Performance

Drive vendor performance in critical business metrics (On Time and In Full) and reward vendors providing best in class service with reductions or exemptions in COGs offsets.

Vendor Performance is assessed according to OTIF Effectiveness.

OTIF Effectiveness

Total invoice cost

Invoice cost associated with product received On Time

Assign Performance Tier

OTIF Effectiveness Penalty Offset

At or Above 95% Exempt

Below 95% and at or above 85% 1.5%

Below 85% 3.0%

Calculate Penalty Offsets

Vendor performance is assessed monthly at the PO vendor level.

Apply penalty offset above to portion of any PO deemed non compliant.

Monthly OTIF Compliance SummaryRecap from June Webinar: Calculation of Charges


Example PO # 1Item Units Ordered Unit Cost Invoice Cost OTIF Compliant OTIF Non Compliant OTIF Compliant ($) OTIF Non Compliant ($) Chargeable Non Comp

SKU A 100 1$ 100$ 50 50 50$ 50$ 50$ SKU B 100 1$ 100$ 100 0 100$ ‐$ ‐$ SKU C 100 1$ 100$ 95 5 95$ 5$ ‐$ SKU D 100 1$ 100$ 90 10 90$ 10$ 10$ Total 400 400$ 335 65 335$ 65$ 60$


SKU A 100 1$ 100$ 0 100 ‐$ 100$ 100$ SKU B 100 1$ 100$ 0 100 ‐$ 100$ 100$ SKU C 100 1$ 100$ 0 100 ‐$ 100$ 100$ SKU D 100 1$ 100$ 0 100 ‐$ 100$ 100$ Total 400 400$ 0 400 ‐$ 400$ 400$


SKU A 100 1$ 100$ 95 5 95$ 5$ ‐$ SKU B 100 1$ 100$ 100 0 100$ ‐$ ‐$ SKU C 100 1$ 100$ 100 0 100$ ‐$ ‐$ SKU D 100 1$ 100$ 95 5 95$ 5$ ‐$ Total 400 400$ 390 10 390$ 10$ ‐$

Performance Tier PenaltyTotal Invoice Cost 1,200$ 95% 0.0%OTIF Compliant Cost 725$ 85% 1.5%OTIF Effectiveness 60.42% < 85% 3.0%

Monthly Penalty CalculationTotal Chargeable Non Comp 460$ Penalty Tier 3.0%Monthly Penalty 13.80$

OTIF Effectiveness Calculation

Includes only lines with OTIF less than 95% of original order quantity



Sample Sample



Sample Sample

Performance Tiers of the PBC

Monthly OTIF Effectiveness Calculation

PBC Score



Sample Sample

Relevant PO Data



Sample Sample

Initial Performance Data:• Prior to Disputes • Includes all POs (including exempted POs)



Sample Sample

PO Disposition: • Changes to original performance data

• i.e. Disputes (indicated as Adj to 100% OTIF)• i.e. Exemptions (indicated as Exemption)



Sample Sample

Performance Data used in PBC Calculation:• Amounts used in actual determining monthly OTIF Effectiveness

• Performance data adjusted for any dispositions



Sample Sample

Note: • POs with approved disputes will be updated with reason:

• Adj to 100% OTIF• The PO is then adjusted to reflect 100% OTIF Effectiveness



Sample Sample

Pre-Adjusted Charge Amounts: • Charge amounts prior to be any adjustments for performance• Agrees to Weekly Compliance Summary



Pre-Adjusted Charge Amounts: • Charge amounts prior to be any adjustments to performance• Agrees to Weekly Compliance Summary

Excerpt from Weekly Compliance Summary



Sample Sample

PBC Adjusted Charge Amounts: • Charge amounts are updated here to reflect monthly

performance using performance tiers• Charges are moved to Approved status• Chargebacks are assessed against vendor’s account in the

form of invoice offsets



Sample Sample

PBC Adjusted Charge Amounts: • Charges were updated to this vendor to be calculated as 1.5%

of non-compliant PO Cost • Monthly OTIF Effectiveness fell within >=85%, <95% tier



Sample Sample

Example of Vendor with <85% OTIF Effectiveness• Charges were remain unchanged• Monthly OTIF Effectiveness fell within <85%



Sample Sample

Example of Vendor with >=95% OTIF Effectiveness• Charges are eliminated• Monthly OTIF Effectiveness >=95%


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September

Reporting Timing - Examples

Issued Reports:Weekly OTIF Performance Summary


Data includes POs assessed in the prior week

Weekly Reports are issued every Monday through e-mail distribution

Monthly PBC Summary available the second Friday of the following month

Ex. September Monthly PBC Performance Summary will be issued on October 12’th


Investigating OTIF Performance Charges in the Portal

Charge Investigation

• Charges are available to view in the vendor portal once they appear on the Weekly Compliance Summary

• In order to view charges, vendors can access the Find Charges webpage • Find the navigation toolbar on the left

section of the home page• Click on Vendor Tools• Find Charges is available from the drop

down menu



The following ‘Search’ page is loaded and vendors have numerous search options at their disposal to view their charges.


Investigating OTIF Performance Charges in the Portal Vendors may view charges by entering values into any field in the

menu then clicking Search. Additionally, vendors may also run an “open” or blank search by not entering any values in the search fields and clicking Search.

Notes: 1) Searching by Vendor refer to the PO Vendor Number2) Rule Num refers to the supply chain performance rule being violated

OTIF is 1947 and is the only option available for search



Vendors seeking to investigate charges for a particular PO from any of the reports provided should utilize the Purchase Order or Charge # fields. As previously mentioned, these numbers are available on the reports provided.



Note: OTIF Charges are deducted from vendors as individual invoice offsets. The payment details for OTIF charges have a check description that begins in SCP followed by six digits. These six digits represent the charge number. Vendors can search for OTIF charges by typing this six digit charge number in this field.

Example: Check Description: SCP123456Charge Number: 123456



Sample search results have been provided below. Vendors can export a listing of charges by utilizing the Export to CSV or Export to Excel options. Details about the chargeback are available by clicking on the Charge Number.



Clicking on the Charge Number will provide the vendor with the charge details illustrated below. The Charge Comments field below will provide the vendor with information on the number of ordered units and units received on time.

Vendor Portal

Vendors

Supply Chain

Performance Team

Dispute Process


• All disputes will be managed in the new vendor portal• Disputes will not be accepted

over e-mail

• Dispute period is 90 days from distribution of Monthly PBC Performance Summary

• Vendors also have the ability to dispute charges prior to the monthly PBC assessment• Charges denied (i.e. approve

disputes) will show up on report as “Adj to 100% OTIF” as previously discussed

Dispute Process


Valid Reasons to submit a dispute: 1. Portal data is inconsistent with Vendor’s data causing an invalid

dispute• i.e. Delivery receipt indicates order was received in full

2. A charge was assessed for a PO with an approved exemption3. Inadequate leadtime provided for delivery

• i.e. Outside of quoted leadtime4. Delays in shipment caused by CVS 5. Other circumstances in which CVS caused a violation to occur

Dispute Process


Invalid reasons to submit a dispute: 1. Carrier delays or failures (prepaid freight terms)

• Weather• Trapped freight

2. Product availability • Item cuts• Supplier delays

3. DC Appointment Delays• Program parameters prevent DC Appointment Delays from

triggering non-compliance (i.e. performance based on appointment request)


Dispute Process

Vendors may submit disputes into the vendor portal by clicking Create after searching for a charge in the vendor portal.


Dispute Process

Vendors must fill out the Comments field when submitting a dispute detailing the reason for their dispute. Additionally vendors are required to attach supporting documentation (i.e. POD) used to substantiate their dispute.


Dispute Process

Vendors can check the status of disputes by clicking on Find Disputes in the Vendor Tools toolbar. The search window can be utilized to find a specific dispute or an “open” search can by run by leaving all search criteria blank and clicking Search.


Dispute Process

Click the Dispute number to open the dispute Status of dispute is

displayed here

Dispute Status Definitions: Submitted – Dispute has been submitted but has not been reviewed

Approved Charge – Dispute has been denied, Charge has been approved & chargeback will be assessed if applicable

Denied Charge – Dispute has been approved, Charge has been denied & no chargeback will be assessed

Please note, vendors have one opportunity to dispute. Once a dispute has been assessed, vendors will no longer have the option to dispute the charge.

THANK YOU


Thank you for attending today’s session

Any questions can be addressed to:

[email protected]