Opportunities in Clinical Supply Chain
Innovation
Michael Hobbs
Vice President Clinical Supply Solution
Owens & Minor, Inc.
September 10th, 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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Supplies have overtaken labor as the
fastest growing line item.
Expense Growth Rates
2002-2004
Total
Operating Cost
Salary
Expense
Benefits
Expense
Source: The Advisory Board Company 2005
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Supply
Expense
Supply expense
increasing 64%
faster than total
operating costs
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Owens & Minor
Supply chain management
expenditures will reach 45% of total cost
Total Cost Incurred by Hospitals
15%
15%
25%
45%
Labor
Others
Logistics &
Distribution
100%
Total
Supplies
Supply Chain
Management
* 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 hospitals
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Source: S&P Industry Surveys: Healthcare Facilities; HFMA; industry reporting; Pipal Research analysis
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Medical Supply Industry - US
Commodity
$20B
Acute Care
US $58B
Devices &
Implants
$38B
Med-Surg
Supplies
US $76B
Non-Acute
US $18B
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Clinical Supply Chain Issues
Clinical/Direct supply chain is 4 to 5 times
less efficient than the distributed supply chain
$60
5x
18
$9
$3
4x
75%
3x
2x
4
$12
$0.70
$2
25%
1x
Inventory
Turns
Cost per
PO
Commodity
Device & Implant
Nursing
Cost per
PO
Delivery
Cost per
Line
Electronic
Order
Fulfillment
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What drives this model?
• Customer intimacy
• High industry gross margins
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MD&I suppliers experience certain
challenges in servicing this market…
• Poor sales visibility
• Small order size
• High order frequency
• High freight charges
• High front-office cost
• Manual order process
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Suppliers have issues with consignment…
% of respondents citing issue as significant or highly significant
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Excessive
Inventory/Overstock
New Product
Introductions
Timeliness of
Consumption Data
Obsolete Products
Managing Recalls,
Tracking & traceability
Inventory Visibility
Poor Communication
with Customer
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Source: Archstone Consulting, “Medical Device Supply Chain Council Consignment Survey Results”, January 6, 2006
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Medical device manufacturers
cash cycle is 4x slower than O&M
*Note: Lower numbers are better
Source: CFO Magazine 2006
Working Capital Survey
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…and, customers experience substantial
supply chain costs with MD&I.
Target Performance
75%
GAP
78.8%
2.1x
1.5
1st Time
Order
Accuracy
Lines/
Order
25%
5%
Turns
Expiration
EDI%
Charge
Capture
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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
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Elements of a Solution
Clinical supply chain components
& savings opportunity
(5) KEY ELEMENTS OF A WELL PERFORMING SUPPLY CHAIN
Optimum Performance = Lower Non-salary Cost, Dependable Service Delivery and Improved Productivity
SUPPLY EXPENSE
MANAGEMENT
SOURCING
INVENTORY
MANAGEMENT and
REPLENISHMENT
VALUE ANALYSIS
CONTRACTING
(Optimizing Value in
Selection, Specification
& Utilization, Including
Clinically Sensitive
Products)
Vendor Relationship
Management
Forecasting Demand;
Requisitioning &
Replenishment;
Managing Supply
Availability and
Inventory
TRANSPORTATION
& LOGISTICS
External
Logistics, Receiving,
Internal Distribution
PURCHASING &
PAYMENT CYCLE
Order Placement,
Three-way Match
Accuracy, Timely
Payment
TECHNOLOGY DRIVERS
(Contract Management, Cost Control, Asset Management, Performance Mng, Revenue Performance)
ORGANIZATIONAL ENABLERS / ADMINISTRATIVE SPONSORSHIP
(Change Management/Communication/Performance Management/Commitment)
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What Clinical Departments Need
Clinical Supply Chain Services
Not
Software
Managed or Monitored Solutions
Inventory/Order
Supply Mgt.
(Visibility, Expiration, and
product recalls)
+
Price Mgt.
(Tier Maximization,
Digitize Contracts)
Revenue/Clinical Resources Collaboration
Utilization Mgt. (On-site & Off-site (Business Reviews)
+
(100% charge capture)
+
Normalize Data, and
Analyze Spend Data)
Equals a 3-4 Return On Investment
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+
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Owens & Minor
O&M Specialty 3PL Offering
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
Value-added Services
1.
2.
3.
4.
5.
6.
7.
8.
Transportation Optimization
ePedigree Compliance / Track and Trace
Cross Docking / Order Consolidation
Asset tagging / Custom Packing / Kitting
Product Recall Management / Reverse Logistics
ISO Certification
Management of Global Distribution and Logistics
Integration to Demand Planning and CRM Systems
Hospital
Specialty Center
Or Department
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Patient
Distributor /
Wholesaler
Sales
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Agent
Physician
Office
Owens & Minor
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
Supplier Service
• IT Services (RFID, Interfaces etc.)
• Customer Service
• Clinical staffing services (RN/RT)
• Educational Services (CME, CEU
etc..)
• Direct Bill Services
• Clinical outcomes post market entry
• Clinical Outcomes services (tie
supply chain to outcomes,
utilization review)
• Research and Development (New
Product development)
• Supply Spend Analytics
• Clinician Educational Services
• Recall Management
• Contract Management service
• Reimbursement Services
(Billing/Coding)
• Direct Bill services
• Recall Management Services
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Thank You!