Mike Hobbs Owens

Opportunities in Clinical Supply Chain Opportunities in Clinical Supply Chain InnovationInnovation

Michael HobbsVice President Clinical Supply Solution

Owens & Minor, Inc.

September 10th, 2008

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Owens & MinorCopyright Owens & Minor, Inc. 2008

Owens & Minor Today

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Agenda

• Clinical Market – Devices & Implants

• Supply Chain Issues

• Elements of a Solution

• Opportunities for Diversity

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Expense Growth Rates2002-2004

SuppliesSupplies have overtaken labor as the have overtaken labor as thefastest growing line itemfastest growing line item..

Source: The Advisory Board Company 2005

Total Operating

Cost

SalaryExpense

Benefits Expense

Supply Expense

Supply expense

increasing 64% faster than total operating

costs

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25%

Supply chain management Supply chain management expenditures will reach 45% of total expenditures will reach 45% of total

costcost

Labor

Supplies

Logistics & Distribution

Others

Total

* Figures based on HFMA estimates. Labor cost includes salaries, wages and benefits based on average of leading hospitals in the U.S. and Others is inclusive of profits to the hospitalsSource: S&P Industry Surveys: Healthcare Facilities; HFMA; industry reporting; Pipal Research analysis

Supply Chain Management

100%

45%

15%

15%

Total Cost Incurred by Hospitals

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Medical Supply Industry - USMedical Supply Industry - US

Acute Care US $58B

Acute Care US $58B

Med-Surg Supplies US $76B

Med-Surg Supplies US $76B

Non-AcuteUS $18B

Non-AcuteUS $18B

Commodity$20B

Commodity$20B

Devices &Implants

$38B

Devices &Implants

$38B

Clinical Supply Chain Issues

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Clinical/Direct supply chain is 4 to 5 times Clinical/Direct supply chain is 4 to 5 times lessless efficient than the distributed supply efficient than the distributed supply

chainchain

InventoryTurns

Cost perPO

NursingCost per

PO

DeliveryCost per

Line

ElectronicOrder

Fulfillment

4

18

$12

$60

$0.70

$3

$2

$9

25%

75%

1x

2x

3x

4x

5x

Commodity Device & Implant

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What drives this model?What drives this model?

• Customer intimacy

• High industry gross margins

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MD&I suppliers experience certain MD&I suppliers experience certain

challenges in servicing this challenges in servicing this market…market…

• Poor sales visibility

• Small order size

• High order frequency

• High freight charges

• High front-office cost

• Manual order process

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Suppliers have issues with Suppliers have issues with consignment…consignment…

% of respondents citing issue as significant or highly % of respondents citing issue as significant or highly significantsignificant

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

ExcessiveInventory/ Overstock

New ProductIntroductions

Timeliness ofConsumption Data

Obsolete Products

Managing Recalls,Tracking & traceability

Inventory Visibility

Poor Communicationwith Customer

Source: Archstone Consulting, “Medical Device Supply Chain Council Consignment Survey Results”, January 6, 2006

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Medical device manufacturersMedical device manufacturerscash cycle is 4x slowercash cycle is 4x slower than than

O&MO&M

*Note: Lower numbers are betterSource: CFO Magazine 2006 Working Capital Survey

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……and, customers experience and, customers experience substantialsubstantialsupply chain costssupply chain costs with MD&I. with MD&I.

1st Time Order

Accuracy

Lines/Order

Turns Expiration

Target Performance

78.8%

1.5

2.1x

5%

GA

P

EDI%

25%

ChargeCapture

75%

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“Having RNs and techs manage product databases, manipulate inventories to avoid expiration, cross level stock, analyze physician utilization patterns, etc. is at best a profound distraction from their clinical value.”

Thad MacKrell, O&M, as quoted in Healthcare Purchasing News, December 2006

Elements of a Solution

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Clinical supply chain componentsClinical supply chain components& savings opportunity& savings opportunity

ORGANIZATIONAL ENABLERS / ADMINISTRATIVE SPONSORSHIP

(Change Management/Communication/Performance Management/Commitment)

SUPPLY EXPENSE MANAGEMENT

VALUE ANALYSIS

(Optimizing Value in Selection, Specification & Utilization, Including

Clinically Sensitive Products)

SOURCING

CONTRACTING

Vendor Relationship Management

INVENTORY MANAGEMENT and REPLENISHMENT

Forecasting Demand; Requisitioning & Replenishment;

Managing Supply Availability and

Inventory

PURCHASING & PAYMENT CYCLE

Order Placement, Three-way Match Accuracy, Timely

Payment

TRANSPORTATION & LOGISTICS

ExternalLogistics, Receiving, Internal Distribution

(5) KEY ELEMENTS OF A WELL PERFORMING SUPPLY CHAINOptimum Performance = Lower Non-salary Cost, Dependable Service Delivery and Improved Productivity

TECHNOLOGY DRIVERS(Contract Management, Cost Control, Asset Management, Performance Mng, Revenue Performance)

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Resources (On-site & Off-site Normalize Data,

and Analyze Spend Data)

What Clinical Departments Need

Inventory/Order

Supply Mgt.(Visibility, Expiration, and

product recalls)

Collaboration

(Business Reviews)

Price Mgt. (Tier Maximization, Digitize Contracts)

+ + +

Clinical Supply Chain Services Managed or Monitored Solutions

Revenue/Clinical

Utilization Mgt. (100% charge capture)+

Equals a 3-4 Return On Investment

Not Software

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O&M Specialty 3PL Offering

Value-added Services 1. Transportation Optimization2. ePedigree Compliance / Track and

Trace3. Cross Docking / Order Consolidation4. Asset tagging / Custom Packing /

Kitting5. Product Recall Management / Reverse

Logistics6. ISO Certification7. Management of Global Distribution

and Logistics8. Integration to Demand Planning and

CRM Systems

Basic 3PL Services • Shared Warehousing Management• Inventory Management• Transportation Management• Order to Cash Systems

• Order Management• Accounts Receivable• Chargeback Processing• EDI

• Outsourced Order to Cash Processes• cGMP Regulatory Compliance

Distribution Network

Hospital

Distributor / Wholesaler

PhysicianOffice

Patient

Specialty CenterOr Department

SalesAgent

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Our solution is working in…

• Over 100 clinical departments nationwide including:– The Cleveland Clinic

– Yale New Haven Hospital

– The Ohio State University Medical Center

– Stanford University Hospital

– Thomas Jefferson University Hospital

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Services for Clinical Supply Chain

Hospitals

• IT Services (RFID, Interfaces etc.)

• Clinical staffing services (RN/RT)

• Educational Services (CME, CEU etc..)

• Clinical Outcomes services (tie supply chain to outcomes, utilization review)

• Supply Spend Analytics

• Contract Management service

• Reimbursement Services (Billing/Coding)

• Direct Bill services

• Recall Management Services

Supplier Service

• Customer Service

• Direct Bill Services

• Clinical outcomes post market entry

• Research and Development (New Product development)

• Recall Management

• Clinician Educational Services

Thank You!

Documents

Mike Hobbs Owens