Supply Chain in Paradise

Presentation by: Mike Hildebrandt

Director of Supply ChainThe Queen’s Health Systems

May 11, 2016

The Queen’s Health Systems

The Queen’s Health Systems is a not-for-profit corporation established in 1985 to provide expanded health care capabilities to the people of Hawai‘i and the Pacific Basin. It is Hawai‘i’s oldest and preeminent family of health care-related companies, and has over 6,000 employees dedicated to a healthy Hawai’i.

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The Queen’s Health Systems*Punchbowl*West Oahu*Molokai*North Hawaii *Diagnostic Lab Services

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The Queen's Hospital, now called The Queen's Medical Center, was founded in 1859 by Queen Emma and King Kamehameha IV.

In King Kamehameha IV's initial speech to the legislature in 1854, the King voiced his desire to create a hospital for the people of Hawaiʻi. At that time, the continued existence of the Hawaiian race was seriously threatened by the influx of disease brought to the islands by foreign visitors. Queen Emma enthusiastically supported the dream of a hospital, and the two campaigned tirelessly to make it a reality. They personally went door-to-door soliciting the necessary funding. The royal couple exceeded their goal in just over a month, raising $13,530. In turn, the Legislature appropriated $6,000.

Through six generations, The Queen's Medical Center has become a major provider of health care to the people of our State and a part of the cultural fabric of Hawaiʻi.

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Brief History

Mission Statement

Mission Statement:To fulfill the intent of Queen Emma and King Kamehameha IV to provide in perpetuity

quality health care services to improve the well-being of Native Hawaiians and all of the people of Hawaiʻi.

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The Queen’s Health Systems

Annual gross patient service revenue

$2.6 billion

Annual Supply Spend

$205 million

Annual Admissions

31,642

Annual Outpatient Visits

559,216

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Accreditation and Awards

The Queen's Medical Center takes pride in the patient quality awards that it's been honored with. Below are some of the accreditations and awards that Queen's has received:

Johns Hopkins PartnershipCertified Member of MD Anderson Cancer NetworkJoint Commission Accreditation AwardsJoint Commission Certified Primary Stroke CenterMagnet® RecognitionCommission on Cancer Approval with CommendationsBreast Center National AccreditationHarold P. Freeman Service AwardNCI Community Cancer Centers Program (NCCCP)The Guidelines Gold Plus Performance Achievement Award — StrokeGet With The Guidelines Gold Performance Achievement Award — CardiacBlue Distinction Center® for Spine Surgery and Cardiac CareUnitedHealth Premium® Cardiac Specialty Center

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THE CASE FOR CHANGE

The Queen's Health Systems (QHS) is dedicated to providing quality customer service. In the foot steps of our founders, we believe in our values C.A.R.E. - Compassion guides our actions; Aloha inspires us in all that we do; Respect and understanding are essential for the dignity of all; and, Excellence is our quest. These values shape our organization to strives for excellence and continuous improvement.

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CURRENT STATE

The current environment has major issues relating to age, supportability, number of interfaces, accuracy and speed of accessing data. Most importantly, this hinders support of future growth and initiatives.

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Case for Change

Finance

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.

Today

Decentralized Functions

Hospital Company Hospital

FIN

SCM

FIN

SCM

FIN

SCM

• Functions are performed locally at each entity

• Entities generally have their own structures, policies and procedures

5+different GL

Systems

Largest Systems Are

30+Years old

Highlymanual and Runs on a

Main-frame

Supply Chain

12+different Systems

LargestSystem

Installed in

‘99

3 Are past

end-of-life

Finance

Means to be one, to become one:

The vision is to become the Premier Healthcare Shared Services organization in Hawai'i, providing high quality, data-driven, responsive administrative services that support our health care delivery functions, our patients and our communities.

In order to achieve this, we will optimize QHS System-wide business support functions through the implementation of organizational structure changes, process improvements, and leveraging of an enterprise technology platform.

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BUSINESS TRANSFORMATION AS A STRATEGIC LEVER

Future growth:

How do we position QHS for future growth?

Need to address current system issues:

- Age, supportability, sustainability and growth

Implementation of the Finance and Supply Chain applications, known as the QHS Enterprise Resource Planning (ERP) Project.

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PROJECT OVERVIEW

• An Enterprise Resource Planning (ERP) system is typically comprised of software that enables finance and supply chain management and includes a common database, real-time processing, integrated workflow, seamless system interfaces, automation, and enforcement of business rules and practices. Our goal is to utilize the software as the lever to achieve business transformation.

• Transformation will encompass People, Technology and Process.

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Project Overview

Phase 1 Scope:

• General Ledger

• A/P & Expenses

• Assets

• Project Costing (Capital Projects)

• eSettlements

• Strategic Sourcing

• Purchasing

• eProcurement

• Inventory

• Mobile Inventory

• eSupplier Connect

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Project Overview

Phase 2 Scope:

• Grants

• A/R & Billing

• Real Estate Management

• Project Costing (enabling Grants)

• Treasury

• Contracts & Supplier Contracts

• Financial & Supply Chain Analytics Core

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Guiding Principles

• As we design this transformation project, we'll use the following principles to guide us:

- Facilitate standardization and consistent execution of business practices across the system

- Maximize the use of functionality of our chosen technology solutions

- Ensure efficient delivery of high levels of service quality

- Provides for the creation and maximizes the use of information and analysis to improve decision making

- Improve cash management

- Allow Queens to scale – to grow without adding proportional cost

- Maximize affiliates' management focus, time, and attention on the quality of care delivery

- Provides the flexibility to expand in scope and evolve toward a vision of system-wide shared services

- Be a catalyst for creating the culture to which we aspire – customer service oriented, with a working environment that is supportive and effective

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Ho'olōkahi Enterprise Administrative Systems

• Finance

• Supply Chain

• Human Capital Management

• Enterprise Learning Management & Enterprise Portal

SCMFIN

HCM

We are finalizing our deployment strategy for Ho`olokahi and as part of that effort have identified the staffing needed to provide ongoing support for the FIN/SCM applications and other major business and administrative applications (HCM/ELM/KRONOS) of QHS:

ELM

SUPPLY CHAIN VISION

We will provide responsible stewardship of QHS resources, products and services through integrated and innovative service delivery, value

analysis decision-making, and data-driven product/services/vendor management practices. Our goal is to provide service excellence and

continuous improvement for our QHS and affiliate customers and clinical partners, and ultimately our patients.

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Transformation 2020

Goal = $45,000,000 annualized cost savings

$22,500,000 in FY 2016 for the organization

$19,000,000 savings goal for Supply Chain

Five Year Net Cash Flow Benefit$89,800,000

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Ho'olōkahi FTE Changes Overview

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Centralization of inventory management and supplier management

Additional SUPPLY CHAINpositions in

• Demand & Inventory Management• Analytical Support• Supplier Management Efficiencies achieved through

automation and org redesign

Reduction in SUPPLY CHAINFTEs in

Buyer staffing positions

This is a long-term plan, that starts with Finance, Supply Chain, and then HR and Rev Cycle

Confidential Information

Launch ERP and Functional

Shared Services

2016Program Launch

2015

Within each function

Launch

Multi-Function Shared Services Operation

2020

Consolidated Shared

Operation Center

Its own function

Separate Entity

Separate, revenue-generating entity

Shared Services Offered to

Market in Hawai’i

2025

Functional Shared Services

Shared Delivery Operation

Profit Center

Premier Healthcare Shared Services in Hawai’i

The Journey to System Shared Services

HCM Fin SCM

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Centralized purchasing that will coordinate and standardize procurement activities across all entities

Requisition to check automation that will provide visibility and make the end-to-end procurement process easier for end-users

Online catalogues with better information, product photos and descriptions, pricing, and ratings by other employees.

Strategic Sourcing benefits, putting more purchases on contract

Increased contract compliance, decreased special spend and decreased noncontract buying

Cash acceleration from inventory management

ERP functionality that will easily identify and track vendor rebates

Automation and efficiency gains resulting in increased inventory turns

Use of handhelds and ERP to automate and increase efficiencies related to inventory fulfillment replenishment

Benefits to Supply Chain & Requisitioners

Key Elements of Shared Services

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1. Service Delivery Center is typically centralized and responsible for transactional requests, responding to low risk transactions, process / rule driven transactions, commonly asked questions, and escalating unresolved issues.

2. Centers of Excellence (CoEs) comprised of specialist resources with subject matter expertise responsible for performing policy, process ownership and knowledge management roles. Typically consolidated supporting a certain part of business or more broadly across the organization.

3. Decentralized functions are localized strategic business partners in a client-facing delivery/execution role; providing guidance to stakeholders and linking the field back to the centralized business unit.

Centers of Expertise

Decentralized Functions

Service Delivery Center Common

Governance

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In order to…

So that…

Standardized and consistently executed business process across

the system

System-wide adoption of our chosen technologies

The centralization and consolidation of finance

and supply chain as shared services

Improve efficiency and quality of

service

Improve cash management

Allow Queen’s to scale without adding

proportional cost

Provide information and analysis needed to improve decision

making

We can become the Premier Healthcare Shared Services organization in Hawai‘i providing high quality, data-driven, responsive administrative services that support our health care delivery functions, our patients and our communities.

Results We Expect

• Purchasing • eMarketplace• Master Data Maintenance

Service Delivery Center (Centralized)

• Consolidate Repair Requests/Information

• Performance • Management• Clinical Asset Maintenance

Asset Lifecycle

Purchasing

Transactional or rules-based services

• Inventory & Demand Management

• Operations Management

• Category Complexity & Risk Management

• Value Analysis Process• Contracts Management• RFP Management• Supplier Relationship /

Vendor Credentials Management Process

• Procurement Policies & Procedures

• Rebate Management

Center of Excellence (Centralized)

• Analytical Reporting/Metrics

Core Supply Chain Analytical Support

• Asset Management Process Management

Asset Management

Distribution & LogisticsCategory, Value Analysis, Contracts, and Supplier

Relationship Mgmt.

Policy and strategy oriented services

Decentralized Functions

Affiliate Representatives, Supply Chain Staff

• Receive Items• Inventory Management• Sterile Processing/Central

Services• Repairs Operations/ Clinical • Disaster Recovery• Waste Management

Critical on-site services

Confidential Information24

Supply Chain Management Operating Model

Supply Chain Management (SCM) Organizational Chart Summary

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As of 8/10/15

Organizational Chart: SCM Service Delivery Center

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As of 8/21/15

Title(FTE – Grade)

New Position

Positions subject to reduction-in-force

Title(FTE – Grade)

Organizational Chart: SCM Center of Excellence

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As of 7/20/15

Title(FTE – Grade)

New Position

Positions subject to reduction-in-force

Title(FTE – Grade)

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Organizational Chart: SCM Decentralized FunctionsAs of 8/18/15

Title(FTE – Grade)

New Position

Positions subject to reduction-in-force

Title(FTE – Grade)

Expected Benefits

There are significant savings, balance sheet, and other benefits that we can expect from this effort. We will consolidate transactions, build additional capability, and allow affiliate staff to focus on delivery.

Supply Chain

• Centralized purchasing

• Requisition to check automation

• Increased buying power and vendor rebates

• Improved inventory replenishment with handheld bar code scanners and automated inventory ordering processes

• Improved inventory turns

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Ho‘olōkahi*Goal: Build organizational capacity as an enterprise through a strong, integrated administrative system, and centralization and consolidation of Finance and Supply Chain as Shared Services

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Phase 1 Go Live: 7/1/2016

Phase 2 Go Live: 4/1/2017

*This section summarizes the estimated on-going operating impact of the Finance and Supply Chain target operating models and application support

Supply Chain

Key outcomes expected:

• Improved cash management

• Timely and accurate information and analysis to assist with decision making

• Scalability to support growth

• Strategic Supply Sourcing

• Efficiencies and improved service levels

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Benefits to Healthcare

Technology plays an important part in a health system’s ability to deliver high-quality care at an affordable price

ERP systems can assist departments to be more transparent, efficient and prompt at delivering their services which ultimately drives more accountable patient care and services

Healthcare is a quickly evolving field, so the more healthcare systems can be ahead of the curve, integrated and cost-effective, the better equipped healthcare providers are at handling the influx of new patients, changes in regulation and new technologies

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Solidify Presence on

O‘ahu

Establish Presence

on Big Isle

Build Clinical

Integration

Establish Payer

Relationships

Create Strategic Alliances

Integrated HC System

Build Org. Capacity

The Transformation

• Starting from a position of strength

• Significant near-term investment required for transformation

• Future with a sense of purpose: the Integrated Healthcare System

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1 2 3 4 5 6

Ho‘olōkahi Benefits

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EDI

System focus

Results

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Service Line

ANNUALIZED BENEFIT

(Implemented) FY2016

ANNUALIZED BENEFIT (Identified) FY2016

ANNUAL REALIZED BENEFIT

THROUGH 04/30/16*ANNUAL REALIZED

BENEFIT by 6/30/16*

Cardiac $382,148 $2,014,547 $637,307 $720,643

Nursing $262,615 $587,395 $658,913

Path/Imag/Lab $88,070 $211,140 $136,681 $161,119

Pharmacy $2,872,183 $1,216,038 $2,124,825 $2,603,523

Rebates $1,559,609 $1,559,609 $1,559,609

Supply Chain $315,192 $6,743,171 $171,887 $231,494

Surgical Services $1,062,539 $3,933,671 $1,982,266 $2,195,314

Grand Total $6,542,357 $14,118,567 $7,199,970 $8,130,616

* includes FY15 carryover savings = $2,414,903 as of 4/30/2016

The Queen’s Health Systems

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