9/15/2014Supply Chain Insights Global Summit #ImagineSC September 2014, p.1

Imagine a Healthcare Supply Chain That Works from the

Patient Back

Kevin McPhersonOwens & Minor Healthcare Logistics

9/15/2014Supply Chain Insights Global Summit #ImagineSC September 2014, p.2

AgendaObjectivesOwens & Minor OverviewThe MarketThe ProblemThe SolutionSummary & Q & A

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• Fortune 500 Company – $9B in sales• Founded in 1882 in Richmond VA• 2012 Acquired Movianto – 3PL in Europe• 6,500 Employees

• Core – Med-Surgical Distribution (40% shr)

– >200,000 SKUs– 1,400 suppliers– 4,600 US healthcare provider customers– 825 3PL Contracts

• 2013 – Rebranded as Supply Chain Services Company

3

3

Owens & Minor OverviewOverview

Connecting Manufacturers to the Point of Care

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Owens & Minor Network

44

• 37 Local Distribution Centers• 5 Regional DC’s• 450 Power Units in Private Fleet• Connecting:

• 1,400 Suppliers• 4,400 Manufacturers• Buy-Sell, Activity Based Fees• Agnostics to Title to Inventory

•Custom Models for Mnftgs•Network Models for Large Health Systems•ERP - Ross, Oracle, OMNI•WMS – Cambar (Legacy), Red Prairie,

2 Hour Delivery to 90% of US Hospital Beds

l

ll

l l

Local Dist Center Regional Dist Center

Home Office

l

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8%

29%

4%

15%

5%

39%

U.S. Medical Device Industry by Category, 2011

ConsumablesDiagnostic ImagingDental ProductsOrthopedics & Prosthetic DevicesPatient AidsOther

U.S. Medical Device Market

U.S. Medical Device Industry by Category, 2011

• The $106 billion U.S. medical device market is the largest in the world

• Implantable devices represent the largest dollar volume ($40B)

• Implantable device recalls exceeded 100 million units Q2:2012 for the first time in nearly 2 years

Implantable Medical Device (IMD) Demand

Johnson & Johnson; 10.0% Boston

Scien-tific; 8.7%

Striker; 7.8%

Others; 26.4%

Medtronic; 20.7%

St. Jude Med-ical; 6.6%

Zimmer; 6.2%

Synthes; 5.1%Abbott, 4.4%

Biomet, 4.1%

U.S. Implantable Medical Devices, 2010 ($36B)

52%31%

17%

2015, ($47B)

Source: The Freedonia Group, Inc.

2010, ($33B)

50%34

%

16%

54%29%

18%

2020, ($64B)

6.9%2010 – 2020CAGR

Source: Seeking AlphaSource: MDDI

3%CAGR

Market

Orthopedic

Trauma

Cardiovascular

Cosmetic

Other

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Implant Supply Chain Challenges

• Highly Comp’d – 40% time spend on logistics

• Physician / Rep relationship drives process

• Need technology / visibility tools to exit logistics

• Procedure to cash lag• Procedure to PO = 3 to 30 days • PO to payment 60 days

• 2-4 Inventory turns – Heavy Working Capital

• Antiquated demand planning tools – Disparate & Manual

• 3-5% Inventory loss, outdate, & obsolescense

• High transportation costs – direct air ship 100% - No mins

• All Mnftgs have direct supply models-Redundant

• Combination insourced & boutique distributors

• Lack/limited visibility to Provider & Patient data

6

Logistics

Sales

Financial

The Problem – Implant Manufacturers

DSO 55-85 days

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Distributed Disposables

25%

Direct Purchase Devices, Implants,

Disposables75%

• Surgeon Preference Driving SKU Proliferation

• Sales Reps in Hospital & OR’s

• Supply Chain Issues

• SKU Redundancy – Seek Formulary

• Whse Labor Costs

• Contract Pricing Mngts

• Erratic Supply – Alt Sourcing Difficult

• Disaster Planning

• Seeking Innovative Solutions

Total Hospital Supply Spend (Non-Pharma)

The Problem – Healthcare Providers

Challenges

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Logistics

• Significant inventory reduction

• Reduced freight

• 100% visibility

• Standard processes

• Improved recall management capability

Financial

• PO on Day of Procedure

• 5-20 day reduction in cycle time

• Able to cover more cases with less inventory & fewer reps

Sales Force

• Increased sales rep productivity

• Reps spend 100% of time selling, not on supply chain

• 24 x 7 visibility to set inventory

What the Implant Market needs8

The Solution

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1

PPI Manufacturers

PPI orders placed by the Provider are

delivered to O&M warehouse

3

OM aggregates the various manufacturer goods and delivers them as needed in

convenient totes that are prepped for PAR

locations.

4

OM delivers to Hospitals and Clinics

2

Provider-owned inventory is

segregated in the distribution center by

customer

DistributionCenter

The Solution

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Acute Care Hosp Detroit MI

Sales Rep/DOE to MnftgsWeb Based Order System

Inventory Synch

Ops KPI & A/R Recon Support

Par Driven PO & Weekly Replen / Return ASN

Leverage ExistingDaily Deliver

O&M cycles inventory

ReverseLogistics &Recall Support

Reportable communications, clinical calls, etc

EDI Payment

LENS Visibility Tool

Primary FlowsThe Solution

Demand Capture &

Par Replen

O&M sets PARs

O&M manages metrics

O&M Captures POU Data

EDI Invoice

Text/Email Key Order Status& Alerts – Eliminates CurrentLogistics Tasks

Inventory SynchHosp & DC Level Data

Capture Surgery Demandat point of determination

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Providers

• Product to Floor ½ Day Earlier

• Reduce receiving & IC labor

• Eliminate Parcel Receipts

• Pathway to Procedural Kitting

• Scalable in move to Product Formulary

Device Mnftg • 20-day DSO Redux

• Total SC Visibility

• Divest of IC Risk (IC control to O&M)

• Increased working capital (IC & DSO)

• ▲ROI of Reps

• PR – Value add to Providers

O&M• Expands Total

Order Offering

• Leverages Private Fleet

• Leverages current IC Team

• Aggregates for the Industry

• Pathway for reduced cost of care

Value Creation11

The Summary