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Slides on the state of supply chain management in healthcare.
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How do we Heal The Health Care Value Chain?
A Closer Look at Healthcare Providers
Supply Chain Insights LLC Copyright © 2013, p. 2
Presenters
Karen ConwayGHX
Lora CecereSupply Chain
Insights
Roddy MartinAccenture
Supply Chain Insights LLC Copyright © 2013, p. 3
Healthcare Value Chain Financial Metrics
Supply Chain Insights LLC Copyright © 2013, p. 4
Components of Cash to Cash
Supply Chain Insights LLC Copyright © 2013, p. 5
Supply Chain Organization:Three-Quarters Have a Formal Supply Chain Organization
Supply Chain Insights LLC Copyright © 2013, p. 6
Supply Chain Organization:7 Functions Report Through It on Average;Reports Primarily to Chief Financial Officer
Supply Chain Insights LLC Copyright © 2013, p. 7
Supply Chain Organization:Purchasing is Primarily Done Corporate-Wide
Supply Chain Insights LLC Copyright © 2013, p. 8
Hospitals: Measuring Value
Supply Chain Insights LLC Copyright © 2013, p. 9
Hospitals: Value Analysis
Supply Chain Insights LLC Copyright © 2013, p. 10
Value Analysis Group: Supply Chain is Primary Leader;
Changing/Adding Products are Most Common Decisions
Supply Chain Insights LLC Copyright © 2013, p. 11
Value Analysis Program
Supply Chain Insights LLC Copyright © 2013, p. 12
Focus: Negotiating Lower Prices
Supply Chain Insights LLC Copyright © 2013, p. 13
Current State
Supply Chain Insights LLC Copyright © 2013, p. 14
SHARED VISION
+ SKILLS + INCENTIVE + RESOURCES + PLAN + LEADERSHIP = CHANGE
SKILLS + INCENTIVE + RESOURCES + PLAN = CONFUSION
SHARED VISION
+ INCENTIVE + RESOURCES + PLAN + LEADERSHIP = ANXIETY
SHARED VISION
+ SKILLS + INCENTIVE + RESOURCES + LEADERSHIP =FALSE
STARTS
SHARED VISION
+ SKILLS + INCENTIVE + PLAN + LEADERSHIP = FRUSTRATION
SHARED VISION
+ SKILLS + RESOURCES + PLAN + LEADERSHIP =GRADUAL CHANGE
Source: J.P. Kotter
Collaboration: The Right Stuff
Supply Chain Insights LLC Copyright © 2013, p. 15
Applying the Supply Chain Index to Healthcare
A formulaic representation of how companies are trading off growth, profitability, cycle and
complexity performance on selected supply chain financial
metrics against market valuation.
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Supply Chain Insights LLC Copyright © 2013, p. 16
Step 1: Located data sources
Step 2: Selected core supply chain ratios from over 50 financial metrics
Step 3: Identified meaningful metrics per industry using regression analysis among selected ratios
Step 4: Constructed industry equation based on correlation of industry metrics to market capitalization values
Step 5: Determined company rankings within industry by applying 2012 company results to industry equation
Step 6: Analysis of peer group companies over the last decade
Step 7: Correlations to supply chain practices, technologies and organizational design
Supply Chain Index Methodology
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Supply Chain Insights LLC Copyright © 2013, p. 17
– Market capitalization data of public companies (Ycharts.com)
– Industry peer groups defined by Morningstar Sector (36)
– Financial ratios built from balance sheet and income statement data collected from OneSource
– Analysis of quarterly data using R (frequency 2006Q1 to 2012Q4)
Step 1: Located Data Sources
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Supply Chain Insights LLC Copyright © 2013, p. 18
Healthcare Value Chain
Supply Chain Insights LLC Copyright © 2013, p. 19
Value Chain
Source: Supply Chain Insights LLC
Metrics That Matter by Industry
Medical Care Industry Medical Distribution Pharmaceutical Major
Free Cash Flow Ratio Operating Margin Free Cash Flow Ratio
Working Capital Ratio Return on Invested Capital Return on Invested Capital
Operating Margin Free Cash Flow Ratio Altman Z
SG&A to COGS Ratio Working Capital Ratio Current Ratio
YoY Revenue Growth Return on Net AssetsDays of Payables
Outstanding
Current Ratio DPO/DSO Ratio
Days of Sales Outstanding Current Ratio
Days of Inventory Days of Inventory
Days of Payables Outstanding
0.73 0.84 78
Supply Chain Insights LLC Copyright © 2013, p. 20
Medical Care Equation
Ln(market cap) = 6.24 + 16.33(FCF) + 10.34(WC) + 5.72(OM) – 2.39(SGAC) + 1.09(YOY) – 1.01(CR) + 0.02(DSO) + 0.01(DOI) +
0.01(DPO)
Correlation Strength
NOTE: Full equation is Ln(market capitalization) = 6.241727 + 16.32968(free cash flow) + 10.33977(working capital ratio) + 5.72111(operating margin) – 2.38969(sga to cogs ratio) + 1.087475(revenue growth) – 1.00962(current ratio) + 0.022692(days of sales outstanding) + 0.013903(days of inventory) + 0.008173(days of payables outstanding)We utilized adjusted which accounts for the occurrence of large p values. Outliers values were defined and excluded as those 5 times larger than IQR.
Medical Care Equation
Supply Chain Insights LLC Copyright © 2013, p. 21
Medical Distribution Equation
Ln(market cap) = 6.04 + 33.39(OM) – 24.69(ROIC) + 15.23(FCF) – 11.11(WC) + 1.49(RONA) + 1.37(DPODSO) +
0.83(CR) + 0.02(DOI)
Correlation Strength
NOTE: Full equation is Ln(market capitalization) =6.036327 + 33.38703(operating margin) -24.6924(return on invested capital) + 15.23431(free cash flow ratio) -11.1125(working capital ratio) + 1.488203(return on net assets) + 1.371671(dpo/dso ratio) + 0.83093(current ratio) + 0.018224(days of inventory)We utilized adjusted which accounts for the occurrence of large p values. Outliers values were defined and excluded as those 5 times larger than IQR.
Medical Distribution Equation
Supply Chain Insights LLC Copyright © 2013, p. 22
Major Pharmaceutical Equation
Ln(market cap) = 14.00 + 5.75(FCF) + 5.14(ROIC) – 4.02(AZ) – 1.09(CR) – 0.003(DPO)
Correlation Strength
NOTE: Full equation is Ln(market capitalization) = 14.00234 + 5.748799(free cash flow ratio) + 5.141905(return on invested capital) -4.02167(altman z) – 1.08604(current ratio) – 0.00253(days of payables outstanding)We utilized adjusted which accounts for the occurrence of large p values. Outliers values were defined and excluded as those 5 times larger than IQR.
Major Pharma Equation
Supply Chain Insights LLC Copyright © 2013, p. 23
Heathcare Value Chain
Supply Chain Insights LLC Copyright © 2013, p. 2424
Implantable Devices: 15 Manual Steps
Typical process today involves 15 manual steps that are oftenbased on inaccurate catalog, pricing and charge data.
Supply Chain Insights LLC Copyright © 2013, p. 25
GHX Case Xpert Automation
Automation and process improvement eliminates or reduces labor needed in process steps while significantly increasing accuracy and cycle-time.
Supply Chain Insights LLC Copyright © 2013, p. 26
• Redesign for value• Focus on outcomes• Management of end-to-end processes
How do we Heal the Healthcare Value Chain?
Supply Chain Insights LLC Copyright © 2013, p. 27
Our Focus
2-DAY PUBLIC TRAINING
Princeton – June 24-25Minneapolis – August 8-9
$1500
GLOBAL SUMMIT
PODCASTS
www.supplychaininsights.com
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Supply Chain Insights LLC Copyright © 2013, p. 28
PAST SUPPLY CHAIN INDEX WEBINARS:
AVAILABLE ON DEMAND• From September 24, 2012:
The Supply Chain Index, 20 Years in the Making: A Focus on Process Industries
• From October 26, 2012: The Supply Chain Index, 20 Years in the Making: A Focus on Discrete Industries
Webinars
www.supplychaininsights.com/upcoming-webinars
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UPCOMING WEBINARS• May 23 rd: Supply Chain Index, Update, Part II
• June 13th: Sales and Operations Planning: State of the Union
• July 11th: Big Data Supply Chains and the Future of Analytics
• August 15th: State of Supply Chain Talent: Missing Link in the Supply Chain
• August 29th: Digital Manufacturing
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