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© 2009 AMR Research, Inc. | Page 1 The Healthcare Value Chain Transformation: A Time To Learn, Unlearn, and Relearn MDISCC Presentation May 20 th , 2009 Hussain Mooraj – Vice President, Healthcare & Life Sciences

The Healthcare Value Chain Transformation: A Time To Learn ...€¦ · The Healthcare Value Chain Transformation: A Time To Learn, Unlearn, and Relearn MDISCC Presentation May 20th,

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Page 1: The Healthcare Value Chain Transformation: A Time To Learn ...€¦ · The Healthcare Value Chain Transformation: A Time To Learn, Unlearn, and Relearn MDISCC Presentation May 20th,

© 2009 AMR Research, Inc. | Page 1

The Healthcare Value Chain Transformation: A Time To Learn, Unlearn, and Relearn

MDISCC PresentationMay 20th, 2009

Hussain Mooraj – Vice President, Healthcare & Life Sciences

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© 2009 AMR Research, Inc. | Page 2

Today’s discussion

• Challenges in the healthcare value chain

• The Provider Environment

• The Medical Device Environment

• The Value Chain Transformation

• Driving Change

• The Three Habits of Effective Value Chains

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© 2009 AMR Research, Inc. | Page 3

• AMR Research is an advisory and research firm focused on global supply chain and enterprise strategies.

• Not consultants – provide research based advice

• Industries we focus on:

– Consumer Products (16 of top 20 firms)

– Healthcare & Life Sciences (18 of top 20)

– Industrial Manufacturing (13 of top 15 discrete manufacturers)

– Retail (14 of top 20)

• Retained advisory services and peer networking forums.

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© 2009 AMR Research, Inc. | Page 4

Life SciencesLife Sciences

AMR Healthcare Value Chain Coverage Model

HealthcareHealthcare

PatientPharmaBiotechMed DevGeneric

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© 2009 AMR Research, Inc. | Page 5

The Healthcare Value Chain Overview

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© 2009 AMR Research, Inc. | Page 6

ManufacturerManufacturer

MaterialsMgmt Manufacturing

(Make-Pack)

Distributionand Distributors

Suppliers

New Product or ServiceNew Product or Service

Suppliers,CMOs

Manufacturers,Assemblers

Distributors,Wholesalers

Providers,Retailers

Consumers,Patients

Programs Programs

Today’s Reality…the healthcare value chain lacks visibility

ProvidersRetailersPatientsConsumers

ProvidersRetailersPatientsConsumers

Risk Lack ofVisibility

Risk Lack ofVisibility

RiskInventoryInefficiency

RiskInventoryInefficiency

RiskWaste RiskWaste

RiskLack of Visibility

RiskLack of Visibility

RiskCost RiskCost

• Supply chains designed with inside-out processes in mind – sub-optimized, constrained by silos

• Lack of end-to-end visibility and a Value Network Operations Strategy• Integrated information but disconnected processes and visibility for “trade offs”

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© 2009 AMR Research, Inc. | Page 7

Is there a lack of trust with your trading partners?

2007 2008

The different industry segments in the healthcare value chain often do not trust each other. This has been a hindrance to information sharing and collaboration which drives significant cost and inefficiencies.

Source: 2008 AMR Healthcare Study

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© 2009 AMR Research, Inc. | Page 8

Who is the customer?19%

21%

10%

19%

5%

10%

4%

4%

5%

2%

21%

19%

17%

10%

10%

7%

6%

6%

2%

1%

Patients/Consumers

Healthcare Providers

Wholesalers/Distributors

Doctors and Clinicians

Pharmacies

Drug or DeviceManufacturers

Government

Payers/ManagedCare/Insurers/Employers

GPO

PBM

20072008

Who is your PRIMARY customer?

Who is the customer that you serve?

Inside-out focused

Companies lack outside-in vision – not focused on patient outcome-based Moments of Truth

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Leaders are transforming strategies and business models

ProviderManufacturers

Wholesalers / Distributors

Low

Outside

In

Col

labo

ratio

n

Business Orientation

Retailer

High

Provider

Retailers

Wholesaler

Manufacturer

•Increasing demand visibility by leveraging various forms of downstream data

•Redesign of supply chain networks - segmentation

•Improving collaboration between internal and external partners

•Improving efficiencies and lowering costs

•Increasing demand visibility by leveraging various forms of downstream data

•Redesign of supply chain networks - segmentation

•Improving collaboration between internal and external partners

•Improving efficiencies and lowering costs

TechnologyVendors

TechnologyVendors

Moments Of

Truth

Moments Of

Truth

Inside

Out

•Moving from reacting to anticipating demand•Establishing networks but with limited upstream collaboration•Extending technology investment to providers •Moving to an information broker model.

•Moving from reacting to anticipating demand•Establishing networks but with limited upstream collaboration•Extending technology investment to providers •Moving to an information broker model.

•Supply chain management is moving to integrated environment –away from procurement orientation•Establishing closer links to manufacturers. •Increased accountability and control of services and pricing -standardization•Hiring talent from other industries

•Supply chain management is moving to integrated environment –away from procurement orientation•Establishing closer links to manufacturers. •Increased accountability and control of services and pricing -standardization•Hiring talent from other industries

•Re-thinking role of intermediaries in the healthcare value chain

•Potential to leverage treasure trove of information on patient

•One stop shop for nutritional, health and wellness – not just for food and Rx.

•Focus on proprietary differentiators.

•Re-thinking role of intermediaries in the healthcare value chain

•Potential to leverage treasure trove of information on patient

•One stop shop for nutritional, health and wellness – not just for food and Rx.

•Focus on proprietary differentiators.

Game ChangingPatient-DrivenOutcome Based

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The Provider Environment

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59%

54%51%

49%

34%32%

27%

22%20%

7%

31%

21%

10%

15%

5%7%

3% 3%5%

All issuesMost significant issue

Financial Challenges such as profitability or growth

Reimbursement is not keeping up with the rate of expense growth

Care for the Uninsured

Costs of supplies are rising at an unsustainable rate

Patient Satisfaction

Government Mandates

Patient Safety and Quality

Personnel Shortages

Capacity Physician recruiting/ retention

Top issues confronting hospitals

N = [65, 2+ hospital systems]

Financial challenges are top of mind for executives at smaller systems and the pace of reimbursement is a major issue for the larger hospital systems.

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87%

41%36%

29% 28% 28% 26% 24%

70%

13%

2% 3% 4% 3% 3% 2%

Rising Cost ofSupplies

Ability to driverationalizationof physician

productpreferences

Complexity ofproduct andinformation

flow

ContractProcess w ith

Suppliers

Lack ofConsistentService in

Supply

Lack of SCpartnershipand visibility

w ith specialtyareas (OR,Cath, IR, EP,Radiology)

Limited BestPracticeSharing

Lack ofleadership

vision,maturity andcontrol in the

SC

All challengesMost significant challenge

N = [121, Total sample]

Challenges to existing healthcare supply chain model

Quote from $2B+ Hospital System:

•“Seeing supply cost growing at twice the cost of labor….in a service industry that’s scary and requires attention.”

•“We cut contracts in half and doubled spend - we want fewer SKUs to make our supply chain more efficient. “

The rising cost of supplies and the ability to drive physician preferences are seen as the most significant challenges. Most executives are focusing their supply chains to solve these issues.

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Yes61%

No39%

A formal supply chain organizationQ 67. Do you have a formal supply chain organization (e.g., a group that focuses on the optimum sourcing of materials as well as the coordination and planning for the delivery of

products?

N = [65, 2+ hospital systems]

Even though 61% of hospitals report having a supply chain organization AMR strongly believes that many of these hospitals don’t understand the true meaning of supply chain.

This however, is changing with the incorporation of talent from outside of the industry.

Among hospitals that have a supply chain organization 94% have had one in place for 4 years or more.

Reporting structure of SC org is all over the map.

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Has the greatest potential to resolve challenges

35%

12%

9%

9%

7%

7%

7%

3%

3%

2%

2%

Manufacturers

Distributors & Wholesalers

Service Providers

Physicians

GPOs

Administration

The end user/patient

Government

Supply chain/purchasing

CEO/President

Combination of all involved

N = [65, 2+ hospital systems]

Quote from $500M+ Hospitals:

•“We’re looking to the manufacturer to drive efficiency in our SC. They have the knowledge, money and resources to drive visibility solutions.”

•“We're working closely with a manufacturer to drive down costs in our supply chain. This has definitely translated into more market share for them.”

•“Manufacturer X sales reps can speak the operational game/supply chain game vs. other manufacturers reps.”

Especially amongst larger systems, the manufacturers were deemed to have the greatest potential to solve these challenges.

AMR sees this as a great opportunity to create differentiation via supply chain services.

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The Medical Device Environment

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Med Dvc Primary Product Supply Business Strategy

9%

4%

4%

9%

9%

4%

4%

17%

13%

4%

9%

9%

4%

22%

17%

13%

13%

13%

9%

9%

4%

Improve collaboration in your enterprise with internal partners acrossR&D, Manufacturing, Supply Chain and Sales & Marketing

Replicating best practices across the enterprise using operationalexcellence programs such as QM, Six Sigma, RFT

Improve manufacturing performance visibility across manufacturingsites

Redesign of your supply chain networks

Standardize manufacturing processes and systems

Improve efficiencies and lower costs across the enterprise

Manufacturing outsourcing as an opportunity to boost productivityand efficiency

Identify and eliminate waste in manufacturing using leanmanufacturing practices

Detailed production scheduling, and adherence

Improve collaboration with your external partners such as ContractManufacturers, 3rd Party Logistics, Customers

Improve compliance across financial, manufacturing and qualityprocesses

Increase insight into downstream demand using near real-time datafrom the distributors and other intermediaries (e.g. PBM’s)

Product authentication, track and trace, integrity of supply chain20072012

Source: AMR Research Life Sciences Study 2007

Today:Cost & Compliance

Future:Internal Collaboration, Visibility Agility & Profitability

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Most important versus most challenging supply chain operations capability today in medical device companies

Which of the following is your company’s most important operations capability today?

Which of the following is your company’s most challenging operations capability today?

23%

19%

16%

10% 10% 10% 10%

3%

10%

6%

19%

3%

10%16%

6%

29%

Most Important

Most Challenging

Effective S&OP process that integrates regional & global requirements

Global supply chain network that achieves simultaneous objectives on quality, cost and time-to-market

Integrating processes with low-cost-country suppliers

Effective go-to-market strategy for new products

Effective supplier recruitment, certification & alignment programs

Integration of local market needs within global design, research and development functions

Protecting intellectual property in emerging markets

Retaining and developing supply chain talent in key markets

Tight links (joint value creation) with customers to obtain supply/demand visibility

n= Medical Device Manu, 31 AMR Healthcare Survey Nov 2008

Supply Chain has abdicated joint value creation to the commercial organization.

Leaders recognize this is a lost opportunity!

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Most important versus challenging to enable manufacturers, pharmacies, payers and providers to leverage patient outcome information

Which of the following is most important to enable manufacturers, pharmacies, payers and providers to leverage patient outcome information?

Which of the following is most challenging to enable manufacturers, pharmacies, payers and providers to leverage patient outcome information?

19% 19%

16%

13% 13%

10%

3% 3% 3%

3%

13%

10%

3%

19%16%

13%

23% Most ImportantMost Challenging

Good relations with payers and providers for visibility to patient outcome information

Effective planning processes to translate past outcome data into future forecast requirements

Efficient business processes and information systems to process patient outcome information

Moving beyond discussions of price toward discussions of disease management, patient outcomes, etc.

Development of wellness programs that provide patients and providers with incentives for maintaining healthy lives and preventing illness or injury

Building trust across the healthcare value chain

Elimination of policies and practices that discourage open communication, joint value creation, etc.

Linking patient outcomes with treatment and payment plans

Legislation or regulation to drive collaboration across the healthcare value chain to improve patient outcomes

n= Medical Device Manu, 31

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The Value Chain Transformation

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© 2009 AMR Research, Inc. | Page 20

The State of Supply Chain in Life Sciences • Supply chain processes are ever-changing. We need to learn, to

unlearn to relearn…organizational lobotomy? Generic shock therapy?

• Teams are focused on the synchronization of demand and the most

profitable response. This is a significant shift….

• Today, there is a recognition that there is not one supply chain, and

that supply chains need to be designed not inherited. As a result,

there is a shift to aligning supply chain strategy with business strategy

and designing the supply response.

• A focus on cross-functional excellence is necessary to drive

improvements (S&OP, NPI, Commercialization, Supplier

Development, etc). The key is metric alignment to drive the right

response.

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The Core Elements of the Demand Driven Value Chain

Cus

tom

ers a

nd P

atie

nts

Demand Management

Demand Translation

Reliable, Profitable

Response from Supply Based on Demand

Suppliers

Demand Visibility Supply Visibility

Business & Risk Tradeoffs

S&OP

Demand Translation

The Downstream Data Architecture Model

Supply Capability Supply Supply Capability Capability

Demand OpportunityDemand Demand

OpportunityOpportunity

Reliable FlexibleResponsive Compliant

Reliable FlexibleResponsive Compliant

Master Data Analytics

Common Process Platforms& Processes (eg S&OP)

Operations &

Product Supply

Commercial

Agility by

Design“Profitable

Perfect Order”

Agility by

Design“Profitable

Perfect Order”

“Turntable”“Turntable”

Business Implications (Planning)

& Tradeoffs (Finance & Tax )

Business Implications (Planning)

& Tradeoffs (Finance & Tax )

Translation

Innovation

Translation

Innovation

Translation

Innovation

Innovation

Customer Segmentation Model

Shaping Translations

Shaping Translations

Sensed DemandSensed Demand

ERP

3rd Party

Distributor

Forecast

Do

wn

stre

am

Da

ta/ A

pp

lica

tion

Sta

ck

Repository

InvDemand Visibility &Insights

MES

Takeaway: Visibility and collaboration are key, but risk/opportunity tradeoffs are inherent

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© 2009 AMR Research, Inc. | Page 22

Value Chain Transformation/Change Maturity

AcquireMerge

Partner Legacy Growth

Business Units and Functions

I

Inte

rnal

ly F

ocus

edEx

tern

ally

Foc

used

Integrate and Consolidate

Business Process Infrastructure

Build and Extend Core

Demand Management Processes

Joint Value Outcome Focused

Performance Management

IIIII IV

Growth and Profitability Cost to Serve

Responsive to Demand Cost to Deliver

Cost Focused Revenue Focused

Demand - Driven Value Driven Network

Customer / BrandDriven Control

MarketsFocused

• Growth & Market Share• Cost to “Serve”• Profitable Perfect Orders • Profitability (sku /shelf / account / segment)

• Cost to “Deliver”• Perfect Orders

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Value Chain Transformation Journey Stage 1

Markets FocusedStage 2

Customer & Brand Control

Stage 3Demand Driven

Stage 4Value Driven

Description Distributed business units and functions

Focused on local markets and products

Consolidated and standardized business

processes and infrastructure

Focused on consolidated & standardized controls and

efficiency

Extended set of integrated lean, business and supply chain

processes.Integrated front officeIntegrated back office

Focused on outward facing demand and supplier management

efficiency

Joint Value Creation Profitable relationships with upstream & downstream network partners

Focus on outside in demand translation into joint value

Metaphor

Metrics •Local business unit metrics

•Business /Geography Unit performance

•Market Share / revenue •Revenue

•Inside internal metrics •Efficiency , costs,

Standards•Transaction platforms

•Integrated core metrics

•Inside – out metrics•Transactional business

performance management• Speeds, feeds, cycle times,

service levels, adherence, compliance

• Collaboration metrics

•Outside – in metrics•Joint value creation

relationships and networks• Profitable perfect orders

•Relationship process management metrics

IT Strategy •Local IT organization, governance systems and

standards

•Centralized IT leadership & standards, consolidated

platforms, data, and infrastructure

•Business – IT partnership•Governance of the distributed IT

organization•IT Operations Excellence

• Business leadership of enabling IT

•Business-skilled IT resources embedded in business

processes

Boxes Boxes & Lines Synchronization Ecosystem

Life Sciences Median

Life Sciences Median

LS

Leaders

LS

Leaders

La

gg

ard

sL

ag

ga

rds

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© 2009 AMR Research, Inc. | Page 24

Leaders Make The Link To Business Value Explicit

Supply chain strategy

Business Strategy

What are the right things to do to increase company value?

Value Chain StrategyWhat are the right ways to support the business strategy?

What are your companies priorities?

Right productplatforms

Design the supply

response

Build organizational systems and

manage talent

Align supply relationships

Align demandrelationships

Effective supply networks

Execution of buy-side strategies

Continuous Improvement

Capabilities required

Supply chain network design

Design networks

Innovation methodologies

Demand networks

Joint value creation strategies

Business ProcessHow do I do the right things right?

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Segmenting the Supply Chain – Volume, demand variability, technology and life cycle

High

Low

HighLowDemand Predictability

Volume LifecycleShort Long

Technology

Commoditized

Specialized

66

88

LifecycleShort Long

Technology

Commoditized

Specialized

LifecycleShort Long

Technology

Commoditized

Specialized

LifecycleShort Long

Technology

Commoditized

Specialized

15

10 9

11

77

55

22

44

11

33

1010

1212

99

1111

1414

1616

1313

1515

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The Hierarchy of Supply Chain Metrics:Availability and Perfect Order to Patients

Supplier Quality

Supplier On-Time

Purchase Costs

Dir MtlCosts

RM Inv

Cost Detail

Production Schedule Variance

Plant Utilization

WIP + FG Inventory

Order Cycle Time

Perfect Order Detail

AP ARInventory

Total

Cash-to-Cash

Demand Forecast

SCM Cost

Perfect Order

Source: AMR Benchmark Analytix

20%-65% Error

77%-94%

37%-69% Utilization

125-325 days

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The Key is BalanceSCM Costs

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What Does Good Look Like?

Level 1 Level 2 Level 3 Level 4

Reacting Anticipating Collaborating Orchestrating

Business Process

Organization

Measurement

Continuous Improvement

Technology

Culture

Inside out Outside in

Unconsciously

incompetent

Consciously

incompetent

Consciously

Competent

Consciously

Excellent

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Supplier Quality

Supplier On-Time

Purch Costs Dir Mtl Costs

Cost Detail

PrdctnSched

Variance

Plant Utilztn

Order Cycle Time

AP ARInventory

Total

Cash-to-Cash

Perfect Order

SCM Cost

Demand Forecast

Assess

Diagnose

Correct

On par

Below par

Above par

Key:

Perfect Order Detail

PharmaCo Example – Unconsciously Incompetent?PharmaCo Example – Unconsciously Incompetent?

Raw MtlInv

FG Inv

WIPInv

NewProd.TTM

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Supplier Quality

Supplier On-Time

Purch Costs Dir Mtl Costs

Cost Detail

Production Sched

Variance

Plant Utilization

Order Cycle Time

AP ARInventory

Total

Cash-to-Cash

Perfect Order

SCM Cost

Demand Forecast

Assess

Diagnose

Correct

WIP + FG

Inventory

On par

Below par

Above par

Key:

Perfect Order Detail

Example Company D: OrchestratingExample Company D: Orchestrating

“Consciously Excellent”

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Improving business operations through better visibility

• 24% less raw material inventory

• 22% less finished goods inventory

• 21% shorter cash-to-cash cycle times

• 32% shorter days sales outstanding

• 22% better plant utilization

• 9% lower SC costs representing approximately 5% of revenue

Source: AMR Research supply chain benchmark data from 70+ Fortune 500 companies

Better demand forecasters have…..

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© 2009 AMR Research, Inc. | Page 32

Level of change seen amongst better demand forecastersin profitability performance over the last 12 months

Benefits realized as a result of demand forecast accuracy improvement

Leaders get benefits from visibility in life sciences

Source: 2008 AMR Healthcare Study

67%

42%

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© 2009 AMR Research, Inc. | Page 33

+8% +20%

0 +2%

– Intensity of IT Deployment +

–M

anag

emen

t Pra

ctic

e +75th percentile

and above

25th percentileand below

25th percentileand below

75th percentileand above

Source: London School of Economics–McKinsey survey and analysis of top 100 companies in France, Germany, United Kingdom and United States / AMR Analysis

ERP + MES +EMR + Etc.

“Lean”

Business Transformation Enabled by IT

What’s needed to move to the next level? Combine process, technology and best practices

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© 2009 AMR Research, Inc. | Page 34

DemandVisibility

Value Network Performance Management

Automatic / Responsive Replenishment and Demand Shaping

Global Product, Supply, and Network Optimization Value Network Redesign

Downstream Customer and Consumer “Capabilities”Segmented Channel Management, Cost to Service

Demand Intelligence, Operations—Sales Planning Process and Collaboration

Value Chain Performance Metrics, and Master Data Management Costs to Deliver, Operations Excellence, Measurement Strategy, Cycle Time

Harmonizing Core Business Processes, Leveraging IT Investments, Costs to Deliver, Strategic Governance, Value Chain Continues Improvements Strategies

Predictable Supply (Right First Time) and Costs (COGS); Waste and Loss Elimination, Lean

Roadmap to the Demand-Driven TransformationC

apab

ilitie

s

Responsive Supply

Time

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© 2009 AMR Research, Inc. | Page 35

Driving Change

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© 2009 AMR Research, Inc. | Page 36

Who’s going to drive change?

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© 2009 AMR Research, Inc. | Page 37

How will changes occur to build trust and collaboration within the healthcare value chain?

2007 2008

•Sentiment favors government intervention

•But the healthcare industry is divided as to level of involvement

Source: 2008 AMR Healthcare Study

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Supply Chain Model for Life Sciences

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- Standalone departments- Functional Independence- Separate Metrics- In-Fighting - Focus on one or (2) key stations

-Synchronized Activities-Focus on organization creating collaborative opportunities with customers and suppliers- Visibility, Collaboration and Planning Tools Invoked

- Beginning connectionsBetween stations

- Leadership established- Development of internal - Metrics and system- Focus on reducing self inflicted wounds- Focus on (3) or (4) key stations

Fiefdoms

Internal Integration

External Integration

Strategic Partner

Reacting Anticipating Collaborating Orchestrating

Maturity mapping to the Demand Driven maturity modelMaturity mapping to the Demand Driven maturity modelSupply Chain Talent /Organizational Evolution

-Organization viewed as strategic differentiator-Broad station span of control- Tightly integrated into technology and NPDI activities- Expected to deliver “game changing”product and service offerings

Demand Driven Stage

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Collaborative Relationships•Relationship and process driven•Continuous improvement to drive joint value creation•Redesign for value•Aligned metrics to the shelf•Performance-driven business networks

CollaborativePractices•One off projects•Suppliers and hospitals have different goals•Not integrated into hospital and supplier workflows

10

9

8

7

6

5

4

3

2

1

EnablersAligned metrics to serve the patientShared savingsJoint business process innovationCost-to-serve improvements

EnablersCPFRVMI programsData sharing: EDI, B2B, and portalsCost to Deliver

Are you building collaborative practices or developing collaborative relationships?

Takeaway: Develop the vision that moves your organization towards collaborative relationships

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Questions to Ask

1. If I give you data, how will you use it?

2. How do you give incentives to your sales team to drive value?

3. How do you measure effectiveness?

4. What matters the most: cost to serve or cost to deliver?

5. What differentiates your brand, and how committed are you to innovation?

1. If I give you data, how will you use it?

2. How do you give incentives to your sales team to drive value?

3. How do you measure effectiveness?

4. What matters the most: cost to serve or cost to deliver?

5. What differentiates your brand, and how committed are you to innovation?

1. How good is your data today? Where are you going in the future?

2. What is your gap between planning and execution? How are you closing this gap?

3. How do you measure performance?

4. How committed are you to driving innovation for the patient?

1. How good is your data today? Where are you going in the future?

2. What is your gap between planning and execution? How are you closing this gap?

3. How do you measure performance?

4. How committed are you to driving innovation for the patient?

Provider to Manufacturer Manufacturer to Provider

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JVC Discussions Must Transcend Costs

$

Cost to Deliver• GPM = Price-Commission-COGS• Distribution costs expensed separately • Sales Rep’s commissioned on full price• GPM appears to be maximized• What about write-offs?

Cost to Serve• What impact could JVC efforts have on write-off’s?• Could expedited freight costs decrease?• Could decreased commissions be supplemented with process

incentives, service incentives?

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Basic Cost to Serve

Cost Factors Considered

PRODUCT COSTSRaw MaterialConversion Costs (direct overhead)Energy

SG&A COSTSTransportationCustomer ServiceOrder HandlingA/R processingPromotional Discounts on Price

ASSET RELATED COSTSInventory carrying costProduction Change overWarehouse costs

SPECIAL HANDLING COSTSSpecial requestsReturnsDeducts

Basis of Calculation

Product mix with Bill of MaterialProduction line utilization – from model inputProduction line mix

Frequency of LTL, TL, CL shipments% and Frequency of orders processed% of total activity annuallyQuantity x cost per transaction, DSO comparisonsPromotional rules and order data by customer

Inventory investment x carrying cost rateNumber of orders processedNumber of orders processed by warehouse

Special orders separated in demand dataSeparated in demand data analysisSeparated in demand data analysis

Data Source

ERP + modelERP + modelERP + model

Simulation output Simulation outputSimulation outputERP + modelModeled

Simulation outputSimulation outputSimulation output

Model inputModel inputModel input

Source: OnPoint Group

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Profitability – Conventional Contracting View of the Price Waterfall

Performance Based On-Invoice Discounts

Off Invoice Discounts Standard Costs

Price/Cost Index

Missing – Granular Insight into true Cost to ServeCourtesy © 2009 Model N, Inc. Model Performance Analytics

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True Profitability View of the Price Waterfall

Extended Price/ Cost Index

Base Price

Product and Market Value Adjustments

Negotiated On and Off Invoice Discounts

Unrecovered Cost to Serve

Market Driven Price Reductions

Performance Based Rebates, Admin Fees, Channel Settlements, Promos

Asset Related CostsSpecial Handling Costs

Courtesy © 2009 Model N, Inc. Model Performance Analytics

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Three habits of effective value chains

• Focused and strategic investments in trading partnerso Aligned incentives for collaboration o Enhance understanding and know-how of partners business o Development of trading partners

• Effective management of knowledge and information flows amongst trading partners

o Sharing of information in a timely mannero Product and process improvement initiatives

• Building trust amongst trading partnerso Reduces transaction costo Monitor and measure performance o Evaluating relationships on more than just cost

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Questions…?

Hussain Mooraj [email protected]

Cell: 617 823 9219