Supply Chain is a Strategy … Not a Department Gene Kirtser President & CEO Agenda Introduction & Background Supply Chain as it relates to… • Past: a Key Tactical Enabler • Present: a Performance Optimizer • Future: an Enabler of the Future Care Model, Industry Collaboration Summary / Discussion Mercy Footprint 31 4,400 38,000 200 1,500 600 Acute Care Hospitals Licensed Beds Co-workers Outpatient Facilities Integrated Physicians Advanced Practitioners Agenda Introduction & Background Supply Chain as it relates to… • Past: a Key Tactical Enabler • Present: a Performance Optimizer • Future: an Enabler of the Future Care Model, Industry Collaboration Summary / Discussion Mercy’s Transformational Journey We began as a holding company in 1986 We have become an an operating company with extraordinary competencies in execution The cultural evolution began in 1999 with supply chain as the “tip of the spear.” Supply Chain Becomes Strategic In 2000 Supply Chain became a strategic initiative for Mercy Supply Chain Touches Everyone Hospital/Clinic – Senior Leaders (C-Level, VP’s) • Accountability • Provider focused and based solutions – Assistance with goals- respect, value, recognition • Leadership Collaboration Corporate Senior Leadership (Corporate Staff) • “Systemness” • Relationship Management • Leadership (corporate) Future Customers (Physicians, IDN) Facility - Mid-Managers • Value • Respect • Recognition (Supervisors, Dir., Mgrs., VP’s) • Harmonious with environment • Communication, be heard, access to information • Respect Vendors • Partnership Relationships • Equal Opportunity • Profitability Clinicians (Nurses, Pharmacists, Resp. – Lab tech) • Efficiency of product access • Involvement in product decision making • Quality of patient care delivery/ patient safety Industry Leaders (Influencers, Publishers) • Succinct Story • Advanced knowledge, involvement understanding the model – New ideas • Reputable business model Non-Integrated Physicians • Autonomy • Quality of life • Quality of care/ Patient Safety SC Co-workers • Respect for individual input • Compensation/benefits • Tools to do the job Traditional Models are Broken Manufacturer Traditional Supply Chain Model Many Manufacturer Disintermediated Supply Chain Compressed Integrated Supply Chain Manufacturer Integrated Processes GPO Distributor Large Silos GPO Provider Commercial Distributor Direct Contracting GPO Integrated Contracting Internal Logistics Distributor Integrated Logistics Provider Silos Provider Integrated Processes Service Complexity & Inconsistency ISSUE: Complexity Complexity of product and information flow within the traditional healthcare supply chain. Med/Surg Mfg. Med/Surg Dist. Pharma Mfg. Pharma Dist. Mercy Clinics Lab Mfg. Lab Dist. Other Hospitals Film Mfg. Dietary Mfg. Linen Mfg. Radiology Dist. Dietary Dist. Linen Service Mercy Hospital Other Clinics Retail Pharmacy Home Health Retail Mass Merc. Other??? ISSUE: Geographical Match More than 90% of Mercy’s volume is OUTSIDE of the traditional distributors hub distribution service area Traditional Supply Chains Chase Pennies Time Spent Area of Focus Savings / Avoid Opportunity Examples Suture Gloves Med/Surg 75% Price 3% - 18% 10% Volume 0% - 5% Service line expansion, new physician 10% Utilization 25% - 50% Tubing Lengths SCD Length Drape Technique Generics 5% Technology Adoption CRM 100% - 500% (cost avoidance) Spine Ortho Pharma Supply Chain is a Strategy … Not a Department VISION RELATIONSHIPS are tight and trusting PRODUCT FLOW controlled by Supply Chain DATA clean and controlled by Supply Chain BUSINESS STRATEGY in sync with Mercy CLINICAL: Good Patient Outcomes OPERATIONAL: Happy Caregivers FINANCIAL: Positive Bottom Line FOUNDATION Invest in Technology, Process Improvement, Talent Make/But/Partner Decisions What Works: Stakeholder Input, Leverage, Commitment, Compression, Metrics Agenda Introduction & Background Supply Chain as it relates to… • Past: a Key Tactical Enabler • Present: a Performance Optimizer • Future: an Enabler of the Future Care Model, Industry Collaboration Summary / Discussion ROi’s Structure Integrated Sourcing Solutions Product and Services Contracting Utilization Optimization Contract Compliance Monitoring Rebate Management Pricing Administration Member Services Facilities • Consolidated Services Center – Springfield, MO • Consolidated Distribution Center – St. Louis, MO Co-workers Supply Chain Solutions • Corporate Office – St. Louis Warehousing and Distribution Services Inventory Management Transportation Management Process Improvement 315 FTEs from varied clinical and business disciplines (growing to 750+ FTEs with Unified Supply Chain) Mission: Manufacturing Solutions Pharmaceutical Repackaging Custom Procedure Tray Manufacturing Print Operations Integrated Business Solutions Purchasing and Accounts Payable Services Information Solutions Account Implementation Customer Service We will transform the Clinical, Operational and Financial performance of those we serve through an integrated supply chain. Vision: We will be a recognized leader in supply chain management through innovation and application of the best People, Processes and Technologies. Values: Service, Excellence, Dignity, Alignment, Accountability Integrated Business Model • One of the largest GPOs in the U.S. • Highest $ penetration per bed • Single Source negotiation strategy • 500+ contracts ($800 million) • International focus • Demonstrated results in reducing cost • Efficiency based sourcing • Provider Integration • 1st Provider based Private Label program in the US • Largest Provider based CPT manufacturing operation in US • Top 10 Volume Distributor according to HIDA • 80+ Vehicles • Growing interest with other providers • FDA Registered • Med/Surg • Print Services • Rx • Every location every day • Rx Unit Dose Repackaging • Office • Print Services • Instrument Repair • +2.3 million miles per year • Back-haul common carrier • Courier, TL and LTL ROi Supply Chain Operation Springfield, MO 101,000 Square Feet Climate controlled Refrigerated and Frozen Storage Controlled Substance Cage and Vault Suitable for all Healthcare supply storage needs in one facility Private Fleet (80+ vehicles) reduces third party transportation expenses Shortened Order Cycle to 12 hours 66% increase in acute care Med/Surg deliveries 42% Reduction in hospital inventory Elimination of 3,000 material service failures (stock-outs) per week Unique Programs Private Label Sourcing Strategy - Private Label RATIONALE: End user design and ownership – pride in ownership Reduces variation and proliferation of SKU’s. Platform for provider collaboration Significant $ value PRODUCTS: Basic Wound Care Pneumatic Compression Devices Can Liners Patient Positioning Products Cold Therapy Products Disposable Minor Procedure Kits IV Start Kits Isolation Gowns Hand Sanitizer Sterilization Supplies Disposable Blood Pressure Cuffs Patient Slipper Socks Alcohol Prep Pads Medical Tapes & Adhesive Bandages Orthopedic Soft Good Line Patient Bathing & Wipe Products Surface Disinfection Instrument Reprocessing Solutions Sterile Equipment Drapes Surgical Masks Surgical Apparel IV Tubing Sets OR Towels, Laps, Markers, Needle Ct OR Turn Over Kits DME - Canes, Crutches, Chairs, Walkers ER Disposable Curtin System Special Procedure Kits Birthing & Neonatal Portfolio Non Acute Care Products Portfolio Mercy Meds – Rx Repackaging & Distribution Custom Packs - Why Change? Traditional Custom Pack Model: • Lack of cost containment • Inconsistent pack utilization • Unauthorized changes • Inferior product quality • Waste • End-use mistrust Who is paying for all of this extra material ?? ROi Custom Pack Manufacturing FDA Regulated, provider owned Activity based costing model - complete pricing transparency Objectives aligned: No unauthorized substitutions No commission for volume growth 5.5 sigma manufacturing quality Disaster Responsiveness – Joplin Industry Recognition The Healthcare Supply Chain Top 25 Essential to the larger strategy Transparent Desire to do what is right – for all Significant bottom line contributor Leadership Engine for Mercy Integration is key distinction Financial Contribution FINANCIAL PERFORMANCE: Mercy Supply Chain - Value Report – FY12 ROi - Customer Value Category Mercy Value Fee Elimination ……………………………………………………………………. $3,222,850. Centralization / Consulting ….…………………………………………….… $5,109,250. Contracting / Rebates …………………………………………………………..$21,549,560. Total Supply Chain Contribution ……………………………………………$29,881,660. Centralization Fee (to ROi from Hospitals) ……………………………. ($6,711,810.) Net Financial Benefit to Customer (6.4:1) .……………………….… $23,169,850. ROi Net Income …………………………………………………………………… $9,205,000. Total Net Financial Benefit ………………………………………………….. $32,374,850. Agenda Introduction & Background Supply Chain as it relates to… • Past: a Key Tactical Enabler • Present: a Performance Optimizer • Future: an Enabler of the Future Care Model, Industry Collaboration Summary / Discussion Changing Healthcare Business Model BC - 1950 1950 - 2000 2000 - ? Foot, Covered Wagon Interstate Highway System Air Travel, Internet Local Regional Virtual Today Healthcare is simultaneously Local, Regional, and Virtual Supply Chain’s Future Evolution By Providing access to multiple touchpoints of care and reducing barriers, the redefined model will ease the path our customers take through the care process. Inpatient care Day surgery Endoscopy and outpatient procedures Medical Home Home monitoring Disease management Chronic Disease management Mobile/ Electronic access Convenient or retail care Self-directed health management will be supported by the care model. Home care Traveling nurse or care coordination Imaging and other tests in many of the care venues SG&A Comparison Retail vs. Healthcare Suppliers RETAIL HEALTHCARE 29.3% Opportunity (15.2%) 14.1% Healthcare Retail Source: Average of group as per public company financials. The Cost of Doing Business Cost Breakdown of a Major Trading Partner with Mercy Spend Breakdown of Mercy $51,396,800 $50 $45 $40 $10.2 NI (19.8%) $3.6 Tax/Other (7.1%) $16.4 SG&A (32.0%) $5.8 R&D (11.3%) $35 $30 $25 Observations: ▶ Company SG&A is… ▶2.8 X R&D ▶1.1 X COGS ▶1.6 X Net Income ▶ Mercy spent $16,447,000 for this company to sell us your products… ▶ Only 3 of Mercy’s 26 hospitals make more Net Income than this companies SG&A from our business. $20 $15 $10 $5 $0 $15.3 COGS (29.8%) Are we the problem? SG&A is an efficiency measure of the trading partner relationship We have the ability to impact this… let us SOURCE: Company financials as reported in Reuters ProVestor Plus Company Report, December 27, 2009 Industry Leadership & Transformation • 30% reduction in payables outstanding resulted in additional early pay discounts from faster payment that required less manual intervention. • 73% reduction in discrepancies, includes a complete elimination of vendor part number and unit of measure (UOM) discrepancies by supplanting part number and UOMs with GTIN on purchase order. • Improved sourcing of product by use of a single scan of a barcode to determine the right product and product UOM to reorder. • Less calls to customer service in the sourcing process. • Fewer stock outs due to the inherent simplicity offered to nursing staff of scanning barcodes at the bedside. For more information go to www.roiscs.com • Better charge compliance resulting from scanning as a surrogate to traditional practices Industry Leadership & Transformation Mayo Clinic Intermountain Healthcare Mercy Geisinger Kaiser ► Formed in December of 2010 ► Adoption of GS1 standards and improve operations through best practices ► Unified voice of well respected brands to uniformly move the industry to adoption ► Work with trading partners to assure there is value for all ► Agree reduce variation in practice where ever possible in our trading transactions ► Linking standards adoption of improved tracking of clinical effectiveness Industry Dynamics The Problem The healthcare industry is facing a crisis. External forces will strain providers operating margins. Providers will look for ways to operate more efficiently and cost effectively to remain relevant. Our Aspiration To reform the healthcare industry through collaboration by optimizing the Supply Chain. Agenda Introduction & Background Supply Chain as it relates to… • Past: a Key Tactical Enabler • Present: a Performance Optimizer • Future: an Enabler of the Future Care Model, Industry Collaboration Summary / Discussion Benefits of an Integrated Supply Chain Proven method to reduce cost. Proven method to improve patient safety. Proven method to integrate physicians and clinicians in product decision making. Proven service enhancement model that is a key satisfier for nursing. Proven method to unite culture. Secrets to Our Success Stick to Guiding Principles Take Risks to Innovate Buy-In (at all levels) Experienced Talent Dedicated Resources Strong Business Cases Metrics Driven Systems Investments Industry Collaboration Questions for Providers to Consider CLINICAL: Can your supply chain be positively linked to better care? OPERATIONAL: Is your supply chain known for improving patient or caregiver satisfaction? FINANCIAL: Does your supply chain materially contribute to your bottom line? STRATEGIC: Is your supply chain considered a department or a strategy? Questions for Suppliers to Consider CLINICAL: Do your products/services have a documented clinical improvement in outcomes – science behind the marketing? Are your solutions addressing needs in all patient care settings? OPERATIONAL: Is your company efficient for providers to work with? Provider Supply Chain leaders are becoming more – are you adjusting accordingly? FINANCIAL: Does your product/service improve the provider’s bottom line? Questions for Suppliers to Consider STRATEGIC: Suppliers are homogenized – are you differentiated? Are you selling “your box” or a solution to your customer’s needs? Lines between GPOs, Distributors and Providers are blurring. How are you responding? Are you strategically aligning with providers that will survive future industry consolidation?