Supply Chain ContinuumPresented by Mike Morrelli

Owens & Minor

Market dynamics and the developing trends.

What is the Supply Chain continuum?

How to baseline & the benefits of moving towards best practice.

Supply Chain as an Evolving Model.

Agenda

3

Market Dynamics - Questions

• Health reform impact on Supply Chain?

• Future of Supply Chain?

• External ways to increase efficiencies in our organizations?

• How to improve quality and reduce costs?

• Optimize the different distribution channels?

Model of the Future

Proactive Supply Chains

Aggregation

?

Market forces are accelerating industry-wide change:

◦ Future driven by Payors and payment structure◦ Margin pressures increasing significantly across

all trading partners◦ Competitive lines are blurring

4

Developing Trends & Topics

Supply Chain Continuum Aggregation Opportunities

CommonNeeds

PharmLinen

Office

Med/SurgDevices

MRO/Jan-San

- Bulk- Pallet Architecture- Cross Docking

- JIT / Totes- Par Optimization- 3PL model

- Clinical Inventory- JIT to the OR

Joint/Self Contracting

Supply Chain Continuum

Labor Activity Savings

Labor Activity Savings

Supply Savings

Supply Savings

Supply Savings

- Bill-Only (Implant) Management

Labor Activity Savings

- Transportation- Physician Clinics/

Non-Acute

7

Supply Chain Continuum

ISC

Integrated Service Center

How to Baseline

Executive Scorecard - SummaryDescriptions     Base     Proposed     Impact  FTEs 33.00 Expense 20.80 Expense (12.20) ExpenseWages & Benefits   $1,639,145     $1,032,850     ($606,295) Overtime & Benefits   $5,150     1,725     (3,426)  Wages, OT & Benefits    $1,644,295     $1,034,574     ($609,721)Inventory Investment $7,166,972   $5,842,462   ($1,324,510) Cost of Capital   $430,018     $350,548     ($79,471) Inventory Shrinkage   $179,174     $87,637     (91,537)  Inventory Carrying Cost    $609,193     $438,185     (171,008)Freight Expense    $420,000     $200,000     (220,000)Additional Expense (AOP Par Ex)    $0     $71,400     71,400 Facility Expense    $1,363,250     $1,363,250     0 Other Facility, equipment    $337,000     $337,000     0                     Total Expense    $4,373,738     $3,444,409     ($929,329)                    Distribution                 Cost Plus   $475,000     $660,000     $185,000  Activity Fee   $0     $110,000     110,000  Other Distribu.- Cost Plus   $128,250     $228,250     100,000  Other Distributors' - Fees   $0     $0     0   Distribution Expense    603,250     998,250     395,000                     Fully loaded customer & distributor costs    $4,976,988     $4,442,659     ($534,329)                    One-Time Inventory Savings    $7,166,972     $5,842,462     ($1,324,510)                    Ongoing process savings    $4,976,988     $4,442,659     ($534,329)

How to Baseline

Supply Chain as an Evolving Model

Why

• Reduced supply spend

• Optimized labor

• Elimination of inventory

• Improved profitability per procedure

Example: Perioperative Locations

SupplyChain

DemandChain

Patient

Schedule

PreferenceCard

Assemble

Use

Adjust

GoalTransform from a reactive

supply chain to a proactive demand chain

12

Traditional Market was Clearly Defined…

Distributor Model

• High volume• <$800/unit • Low complexity• Nearly 100% - GPO

contracting• Uncomplicated use• Private label• Minimal direct sales

Manufacturer Direct• Low to moderate volume• >$800/unit • High to very high

complexity• Direct sales force• High prevalence of local

contracting• Complicated use• Mostly sold direct

2012 O&M research, estimates AHA, Gartner Research, 2011

Supply Mode of Purchase

35% 65%

By volume: 75% Distribution / 25% Direct

13

But the Delivery Dynamics are Changing Rapidly…

2012 O&M research, estimates

2013-2015

40%

Distributor Model + Fee for Service• Manufacturers

increased reliance on more effective supply chains to service providers

• Increase Flexibility• Lower Cost• Improve Visibility

60%

Manufacturer Direct• Downward pressure

on revenues /margins forces re-evaluation of SG&A inventory & DSO elements

• Address changing customer needs

AHA, Gartner Research, 2011

14

Questions & Answers• Health reform impact on distribution?

• Future of distribution?

• External ways to increase efficiencies in our organizations?

• How to improve quality and reduce costs?

• Optimize the different distribution channels?

Identify logistics service partners; separate out manufacturers/wholesalers

Invest in technology & interfacesto connect schedule, care & replenishment

Eliminate ownership as a condition of management; consider novel investments