© Copyright 2010, Cardinal Health, Inc. or one of its subsidiaries. All rights reserved.

Every Lab’s Stock-out & Customer Supply Conundrum:

Proven Ways to Manage Supplies & Reduce Lab Costs

Rachel Stoll, Dir Supply Chain Solutions

What we know today…

Supply chain’s impact to the bottom line

• Supply expense makes up ~25% of the laboratory budget*• A 5-15% savings in supply chain costs equates to 1-3%

improvement in operating margin **• Supply costs represent greatest source of new capital

available to hospitals***

So how do we manage this more effectively?

•Washington G-2** Enabling Long Term Value Added Partnership in the Healthcare Industry, Jorge Oliviera, June 2005***World Class Supply Chain Effectiveness, Jonathan Byrnes, DBA,, MIT, HFMA, August 2008

Creating the foundation

Create the data and control

infrastructure

Choosing the correct distribution platform

Traditional distribution model:

Distributor leveraged distribution model:

ValueLink®

Distribution services

• Delivers low-unit-of-measure or “Best-Unit-of-Measure” orders directly to the client point of use; thereby reducing excessive touch points and inventory investment in the supply chain.

• Helps reduce the large cost of storing, maintaining and distributing supplies.

• Designed to optimize the inventory and distribution management processes for both the core lab and client supplies

ValueLink®

A Case Study

• Reduced labor.– Estimated over 71% of the line activity was transitioned out of

the internal operation.

• Inventory savings.– Contributed to reducing inventory by 58%.

• Supporting future growth.– Since implementation of ValueLink®, facility has added five

additional hospitals to their client base with minimal inventoryor labor investment

• Product standardization.– Able to promote the benefits (on-site ordering and low-unit of

measure delivery) of using certain products to help entice theirclient sites to standardize to a core set of product supplies.

Single facility lab3M annual test volumeSupports acute facilities

Optimize inventory management

Product flow is in response to demand.

Inventory management Client supply management

Integrated

The Connect System

Inventory Management

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• Designed for easy use in the lab by utilizing scanners and bar codes to increase order accuracy and decrease time required by busy lab techs

• Right size inventory by adjusting par levels based on point of use demand

• Allocate expense by department or test type/ platform• Minimize stock-outs• Provides actionable intelligence

The Connect System

Client Supply Management

• Differentiate your lab with technology

• Manage client supply orders electronically

• Track supplies by client • Ensure compliancy• Decrease client supply

expense• Improve service levels Today most labs supporting clients/

outreach do not have an electronic method to accept supply orders and provide

confirmation*

* Internal Cardinal Health research

The Connect System

A look at results

• Saved Time.“With The Connect System, I spend half the time I used to placing orders with my vendors,” said Judie Slattery at North Clinic Laboratory. “Now I use that time to focus on diagnostic care.”

• Increased efficiency.19% reduction in the number of order lines placed while purchase volume remained flat.

• Decreased freight expense.Overall, customers utilizing the program have seen a 15.8% reduction in freight expense*

* Internal Cardinal Health data

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• Reduce clinical handling of supplies **• Improve clinical satisfaction **

• Improve product availability (99%+ service levels) **

• Control par delivery costs (15% line reduction) ***

• Optimize department storage space and ergonomics **

• Improve cash flow timeline (inventory reduction average 20-30%) ** Cost

Containment

Stabilized inventory

A look at results

Supply Chain Efficiencies

Customer Satisfaction

Dat

a C

aptu

re &

Man

agem

ent

** Enabling Long Term Value Added Partnership in the Healthcare Industry, Jorge Oliviera, June 2005

*** Internal Cardinal Health Spreadsheet Validated by El Camino Hospital, October 2007

Optimize your logistics practices

Inbound supplier freight represents

2-3% of supply spend

Freight is growing 6-9% per year

OptiFreight Logistics®

Freight Management

OptiFreight®

A Case Study

• Over $20,000 savings in 12 months- that will repeat

• Complete visibility into freight spend by vendor

Proven 25% savings on inbound manufacturer expense

Resources & Tools

• Your laboratory distributor– Should be your supply chain trusted advisor

• Cardinal Health ProgramsValueLink® The Connect SystemOptiFreight® Specimen ManagementPar Optimization ExactCost Laboratory

• For more information, email: laboratorysolutions@cardinalhealth.com

Parting thoughts…

End to end supply chain

Product & data flow

Seamless visibility from operation to operation

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Virtual CommandCenter

Logistics HubDemand

Hub

Supply Hub

Demand Driven ReplenishmentDemand ForecastingInventory OptimizationProactive Buy-Sales DecisionEvent ManagementS&OP Support

Track and TraceRoute OptimizationKPI Visibility

Inventory OptimizationSupplier CollaborationKPI VisibilityDynamic Supply Demand Balancing

Innovation to keep our eye one….

Forecast

Commit

Recomm Inv

Inv Volume

Purchase Order

ForecastPOS

Recomm Inv

Inv Volume

Purchase Order

Distributor

Reseller

Consumer Supplier Shipment

Distributor Shipment

Customer Shipment

IBM Virtual Command Center is composed of three major Hubs which manage and synchronize Demand, Supply and Logistics

Trends to keep our eye on…

Connection of supply chain systems to Electronic Health Records system in order to get insight into consumption and demand

• 28% of respondents said yes*

Use of RFID/ 2D Barcodes

• Patients, assets, and products

• 26% respondents utilize to track supplies at the point of consumption*

• 24% track patients*

• 16% track assets*

• Specimens?

AMR Research: Trends in the Medical Device Supply Chain: The View from the Hospital, 2008*

INTERNALUSEONLY

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Q&A

INTERNALUSEONLY

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Thank you!