WARFIGHTER FOCUSED, GLOBALLY RESPONSIVE SUPPLY CHAIN LEADERSHIP
DEFENSE LOGISTICS AGENCY
AMERICA’S COMBAT LOGISTICS SUPPORT AGENCY
Medical Supply Chain
Sourcing Optimization Initiative
Update
Presented to:
Navy Medical Logistics Symposium
Nancy Richardson
Team Lead, Joint Implementation Team
Medical Customer Operations Directorate
DLA Troop Support Forward Cell
June 6th, 2012
WARFIGHTER SUPPORT ENHANCEMENT
STEWARDSHIP EXCELLENCE
WORKFORCE DEVELOPMENT
1
WARFIGHTER FOCUSED, GLOBALLY RESPONSIVE SUPPLY CHAIN LEADERSHIP
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
2
WARFIGHTER FOCUSED, GLOBALLY RESPONSIVE SUPPLY CHAIN LEADERSHIP
Optimization & Time Saving
SOS
Open Market
MILSTRIP
ECAT
PC
PV
Totals
Annual Dollar$ Annual Orders
$8,817,701
277
$13,872,023
36,447
$26,548,764
91,241
$72,643,125
215,370
$624,812,706
1,105,704
$746,694,319
1,449,039
3
WARFIGHTER FOCUSED, GLOBALLY RESPONSIVE SUPPLY CHAIN LEADERSHIP
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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WARFIGHTER FOCUSED, GLOBALLY RESPONSIVE SUPPLY CHAIN LEADERSHIP
Sourcing Optimization – 8 Initiatives
Area
Approach
Projected 5 Year Cost
Reductions
Probability Weighting
Projected Realization 5 Year
Reduction*
High Probability of Full Implementation
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
Medium Probability of Full Implementation
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
~$60M Price
10%
~$6M
~$22.5M Price
10%
~$2.25M
Low Probability of Full Implementation
Pharmaceutical Prime
Vendor
Eliminate VA Industrial
Funding Fee
Pharmaceutical Prime
Vendor
Pay Prime Vendors in 1 day
versus 10 to 15 days
Total Projected Five Year Reduction In Price ($153M) and CRR ($101M)
*Note: Anticipated Realization Of Reductions: Year 1—10%; Year 2—15%; Year 3—25%; Year 4—25% and Year 5—25%
~$254.1M
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WARFIGHTER FOCUSED, GLOBALLY RESPONSIVE SUPPLY CHAIN LEADERSHIP
Realized Cost Reduction Tracking Tool
• 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.
2.
3.
4.
5.
6.
Pharm Cost reductions 5% or greater based on CPOC* recommendations
TMOP Cost reductions 5% or greater based on CPOC recommendations
Pharm Cost reductions of 5% or greater based on independent actions
TMOP Cost reductions of 5% or greater based on independent actions
Med/Surg cost reductions of 5% or greater based on eZSAVe
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
* CPOC: Customer Pharmacy Operations Cell
Service/TMOP confirmation
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WARFIGHTER FOCUSED, GLOBALLY RESPONSIVE SUPPLY CHAIN LEADERSHIP
Medical Supply Chain Sourcing Optimization Initiative
2nd Quarter 2012 Realized Cost Reductions
Area
Approach
Realized Reductions
2nd Qtr. 2012
High Probability of Full Implementation
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
1ST QTR
Realized
Reductions
$9.9 million
Medium Probability of Full Implementation
Pharmaceutical
Prime Vendor
Optimize use of Pharm
Business Intel Tools
$9.1M
Ecommerce
Expansion
Add VA and GSA FSS Items
To ECAT/PV
$0.05M
VA FSS
Pharmaceutical
Prices
Compel VA to enforce its
rules on use of Prime
Vendor Clause
$0.0
Low Probability of Full Implementation
Pharmaceutical
Prime Vendor
Eliminate VA Industrial
Funding Fee
$0.0
Pharmaceutical
Prime Vendor
Pay Prime Vendors in 1 day
versus 10 to 15 days
$0.0
$12.8M
* Anticipated realization of reductions: Year 1—10%; Year 2—15%; Year 3—25%; Year 4—25% and Year 5—25%
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WARFIGHTER FOCUSED, GLOBALLY RESPONSIVE SUPPLY CHAIN LEADERSHIP
Medical Supply Chain Sourcing Optimization Initiative
Cost Reductions Projected vs. Actual To Date
Area
FY 2012
Projected Reductions
Year
Approach
Realized Reductions
FY 2012 To Date
Percent of Goal
Year.
High Probability of Full Implementation
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%
Medium Probability of Full Implementation
Pharmaceutical
Prime Vendor
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%
VA FSS
Pharmaceutical
Prices
Compel VA to enforce its
rules on use of Prime
Vendor Clause
$2.1M
$0.0
0%
Low Probability of Full Implementation
Pharmaceutical
Prime Vendor
Eliminate VA Industrial
Funding Fee
$0.6M
$0.0
0%
Pharmaceutical
Prime Vendor
Pay Prime Vendors in 1
day versus 10 to 15 days
$0.22M
$0.0
0%
$25.41M
$22.7M
89%
* Anticipated realization of reductions: Year 1—10%; Year 2—15%; Year 3—25%; Year 4—25% and Year 5—25%
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WARFIGHTER FOCUSED, GLOBALLY RESPONSIVE SUPPLY CHAIN LEADERSHIP
Medical Supply Chain OSD Cost Reduction Initiative
1st and 2nd Quarter 2012 Cost Reductions By Service
INITIATIVE 1:
Customer
Air Force
Army
Navy
Marines
Sub Total:
OPTIMIZE USE OF MEDICAL/SURGICAL BUSINESS INTELLIGENCE TOOLS
Projected Yr 1
$1,127,600
$1,947,200
$824,800
$100,400
$4,000,000
INITIATIVES 2/3:
Customer
Air Force
Army
Navy
Marines
Sub Total:
Air Force
Army
Navy
Marines
TMOP
Sub Total:
$563,800
$973,600
$412,400
$50,200
$2,000,000
Projected Yr 1
$3,382,800
$5,841,600
$2,474,400
$301,200
$12,000,000
Projected
QTRs 1&2
$1,691,400
$2,920,800
$1,237,200
$150,600
$6,000,000
Air Force
Army
Navy
Sub Total:
Projected Yr 1
$1,734,600
$2,996,400
$1,269,000
Not defined
Not defined
$6,000,000
$867,300
$1,498,200
$634,500
Not defined
Not defined
$3,000,000
SubTotal
$144,823
$587,520
$420,910
$14
$1,153,268
Realized Q1
$142,329
$790,194
$774,250
$202,735
$1,909,508
Realized Q2
$342,119
$1,198,550
$785,277
$132,895
$2,458,841
Realized Q1
$975,702
$1,082,368
$456,890
$0
$5,125,024
$7,639,984
Realized Q2
$1,282,718
$1,385,932
$693,344
$193
$5,735,328
$9,097,516
Realized FYTD
% Target Achieved
% Target
(Q1 & Q2)
Achieved (FYTD)
$178,402
$759,583
$556,076
$313
$1,494,374
32%
78%
135%
1%
75%
16%
39%
67%
0%
37%
Realized FYTD
% Target Achieved
% Target
(Q1 & Q2)
Achieved (FYTD)
$484,448
$1,988,744
$1,559,527
$335,630
$4,368,349
29%
68%
126%
223%
73%
14%
34%
63%
111%
36%
Realized FYTD
% Target Achieved
% Target
(Q1 & Q2)
Achieved (FYTD)
$2,258,420
$2,468,300
$1,150,234
$193
$10,860,353
$16,737,500
260%
165%
181%
N/A
N/A
558%
130%
82%
91%
N/A
N/A
279%
ADDING FSS ITEMS TO ECAT AND PRIME VENDOR
Projected Yr 1
$147,441
$254,694
$107,865
$510,000
Projected
Realized Q1 Realized Q2
QTRs 1&2
$73,721
$5,325
$6,838
$127,347
$10,201
$10,742
$53,933
$29,702
$31,763
$255,000
$45,228
$49,343
INITIATIVE 6-8
Customer
$33,578
$172,063
$135,165
$299
$341,106
Realized Q2
OPTIMIZE USE OF PHARMACEUTICAL BUSINESS INTELLIGENCE TOOLS
Projected
QTRs 1&2
INITIATIVE 5:
Customer
Realized Q1
REDIRECT MEDICAL/SURGICAL and PHARM MILSTRIP ORDERS to ECOMMERCE
INITIATIVE 4:
Customer
Projected
QTRs 1&2
% Target Achieved
% Target
(Q1 & Q2)
Achieved (FYTD)
$12,162
16%
8%
$20,943
16%
8%
$61,465
114%
57%
$94,571
37%
19%
Realized FYTD
VA FALSE POSITIVES, IFF and FASTER PAYMENT
Projected Yr 1
Projected
QTRs 1&2
Realized Q1
Realized Q2
$2,900,000
$1,450,000
$0
$0
$25,410,000
$12,705,000
$9,935,826
$12,758,968
Realized FYTD
$0
% Target Achieved
% Target
(Q1 & Q2)
Achieved (FYTD)
0%
0%
179%
89%
9
Total
$22,694,794
WARFIGHTER FOCUSED, GLOBALLY RESPONSIVE SUPPLY CHAIN LEADERSHIP
Business Intelligence Tools
Prior 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
10
WARFIGHTER FOCUSED, GLOBALLY RESPONSIVE SUPPLY CHAIN LEADERSHIP
Business Intelligence Tools
Post 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
11
WARFIGHTER FOCUSED, GLOBALLY RESPONSIVE SUPPLY CHAIN LEADERSHIP
OSD Cost Reduction – Lessons Learned
• 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
Leading the effort allows us the opportunity to control our own destiny
12
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WARFIGHTER FOCUSED, GLOBALLY RESPONSIVE SUPPLY CHAIN LEADERSHIP
Approach To Future Cost Reduction Initiatives
• 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
DLA…your mission Partner for quality optimized Medical Supply Chain solutions
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WARFIGHTER FOCUSED, GLOBALLY RESPONSIVE SUPPLY CHAIN LEADERSHIP
What to do at MTF
• 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
14
WARFIGHTER FOCUSED, GLOBALLY RESPONSIVE SUPPLY CHAIN LEADERSHIP
Questions
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