III.1 Using Point-of-Use Systems to Implement Demand Pull Inventory

Using Point-of-Use Systems to Implement Demand Pull Inventory

Bill Mosser, CMRPManaging Director- Supply Chain

Services

Temple University Health System

Philadelphia, PA

Discussion Points

Who is Temple University Health System?

TUHS Supply Chain Strategy

TUHS Inventory Management

Demand Pull Inventory Model

Point of Use Systems

Pharmacy Pilot

Hospital Supply Pilot

Next Steps

Q&A

TUHS

5 Hospital System (non-profit) in Northeast PhiladelphiaTemple University Hospital (671 beds)

Temple University Children’s Medical Center (68 beds)

Jeanes Hospital (197 beds)

Northeastern Hospital (200 beds)

Episcopal Campus (Behavioral Health Center & 24 beds)

$140 million spend in Supplies & Pharmaceuticals

System GoalsEmployer of Choice

Premier Healthcare System within our market

2% operating margin on healthcare operations

Healthcare Operations SnapshotPress Ganey Scores - The Health System’s composite score for the first quarter of fiscal year 2005 was 82.5 and we ranked at the 27th percentile. Currently our score is 84.6 and we have moved to the 64th percentile.Operations Improvement program – Achieved $42.2 million which exceeded our 2005 budgeted target of $33.5 million. When added to our 2004 realized initiatives of $14.1 million the 2005 cumulative annual value achieved through our Operations Improvement Initiative was $56.4 million.We make considerable use of the Solucient Benchmarking data to evaluate our expense performance. While we continue to strive for improvement our efforts to date have been successful. Our supply and pharmaceutical costs at our general med-surg hospitals benchmark at or better than the 25th percentile. Labor costs at Temple University Hospital are also at the 25th percentile. The community hospitals are working to bring their labor costs to within the 25th percentile.Information technology investments are necessary for us to achieve a better level of clinical and operational effectiveness. Our seven year technology plan calls for an investment of approximately $186.0 million and will be focused in those areas that will allow us to redefine our processes and cost structure.Medical Staff development strategies are focused on a better alignment between the physicians and the hospital to emphasize our surgical programs.Prior to FY2004, the Supply Chain was decentralized and independentSupply Chain Goals

Reduce operating expenses by $27-32 million by FY2006Improve service & quality through improved relationshipsDevelop capability within 18 months or buy it

TUHS Supply Chain Strategy

Prior State

Inventory Ownership• Cath Lab• Interventional Radiology• OR• Pharmacy

Distribution Services• 99% Fill Rates•2nd & 3rd Shift Focus•Minimal Onsite Storage

Expense Management• Benchmarking-Cost per UOS• Operations Analysis• Freight Analysis• Price Parity• Contract Utilization• Contract Recovery

Common Catalog• Standard Nomenclature• Contract Compliance• Supply Tracking• Decision Support

Strategic Plan Future StateFormulary-Classified, clean & synchronized item filesEasy to use web based technology with insignificant implementation costInventory-Track –Vendor Owned & Managed ( Lot Number, Expiration, Wastage)Pay as we use ProductsProvide high & easy visibility to usage data across the systemContracts/Purchasing-Leverage stronger negotiation Realize maximum rebate recoveryRequire compliance Drive visibility for price differences Executives-Track cost/procedure, duration of procedureDecisions based on reliable & complete dataReport spend by cost center & service lineProducts & Services-Achieve maximum standardizationBenchmark acquisition pricingEnable optimum & acceptable utilizationCompare product categories from pricing & contract perspectiveClinicians-Facilitate more time with patientsEnable QA reports based on patient outcomesProvide preference list by MDs

Data Cleansing Services• Normalize & rationalize data• Classify using UNSPSC code

Vendor Driven Environment

Disparate & Incomplete Item catalogs

Different MMIS & Clinical systems

Disconnected Work Processes

Standard business rules lacking system wide

Supply management tools lacking

•Inventory mgmt•Contract mgmt•Benchmarking

Urgency for savings

TUHS Supply Chain StrategyTUHS Supply Chain Strategy

Value Value Analysis Analysis

PrinciplesPrinciples

TUHSTUHSPolicies &Policies &

ProceduresProcedures

CentralCentral

ContractingContracting

TeamTeam

BuildingBuilding

CommonCommon

SourcingSourcing

SingleSingle

GPOGPO

Integrated Supply Chain

Vendor Vendor Relationship Relationship DevelopmentDevelopment

CapitalCapitalPOPO

ControlsControls

TACTAC

PrimePrime

DistributorsDistributors

CentralCentral

WarehouseWarehouse

ContractContract

ComplianceCompliance

CommonCommon

CatalogCatalog

Automated Automated Par Par

ManagementManagement

KPIs &KPIs &

Cost per Cost per UOSUOS

Capital Capital ManagementManagement

VendorVendor

ManagementManagement

PrinciplesPrinciplesOfOf

ProcurementProcurement

CommonCommonProductProduct

SelectionSelection

HospitalHospitalLevelLevel

ControlsControls

PricePrice

LevelingLeveling

RequirementRequirementss

DrivenDrivenContractsContracts

POU POU SystemsSystems

Integrated Integrated Procurement Procurement

CycleCycle

Wall to Wall Wall to Wall InventoryInventory

Vendor Vendor CertificationCertification

Utilization Utilization ManagementManagement

Strategic Strategic Capital Capital

ManagementManagement

Inventory Inventory Spend DownSpend Down

Product Product StandardizationStandardization

ECommerceECommerce On-Line On-Line RequisitionsRequisitions

System System Wide Wide

ControlsControls

FY07+FY07+

FY06FY06

FY05FY05

FY04FY04

Formulary Formulary ManagementManagement

Strategic Strategic SourcingSourcing

Common Common SystemsSystems

Patient Demand Patient Demand MatchingMatching

Demand Pull Demand Pull InventoryInventory

Clinical Clinical EngineeringEngineering

Current Problems and Barriers

Expensive, manually intensive activities

Multiple product handling activities

Excessive inventory carrying costs

Lack of information sharing

Minimal cooperation among supply chain entities

Poor fill rates

Operations focus vs. focus on customer needs

Stock versus non-stock

KPIs25th % or better in Supply $ as % of NPR & TOE; and per APD75th % in Supply $ per AD

Inventory $$Too much on the shelves Proliferation of New Products‘Back Door’ Purchasing

50% of total purchasing w/o POsContracts are Missing

<60% of Supply Contracts<25% of Purchased Services

Deliveries Bypass ReceivingProcurement Controls are Lacking

FY04 Year End Inventory LevelsTemple University Health SystemFiscal Year Ending 2004Inventory Values

TUHS TUH TUH-E TUCMC NEH JH

Operating Room 4,733,404$ 2,316,480$ A 1,074,728$ A 689,000$ SA 653,196$

Pharmacy 2,228,149$ 969,375 A 97,202 A 169,043 A 308,000 SA 684,528

Storeroom/Warehouse 902,189$ 528,788 P 134,000 P 178,527

SPD 334,934$ 334,934 P

Other - Central Supply 612,671$ 582,860 P 29,811 P

- Radiology 407,930$ 249,000 SA/A (1) 158,930

- Housekeeping/Linen 185,137$ 63,000 122,137

Modified Par Levels - Dietary 27,003$ 11,000 A 16,003

- Nursing Floors 155,773$ 36,000 119,773

Par Stock

- Laboratory 261,170$ 261,170

- Fuel Oil 19,444$ 19,444

-Cath Lab 1,345,000$ 1,345,000

- IS

11,212,804$ 5,742,503$ 127,013$ 1,578,705$ 1,490,000$ 2,213,708$

A= AnnualP= PerpetualSA= SemiannualNOTE: EH Pharmacy value includes Pyxix value of $23,282.05.

Supply Variety

Too many varieties

Too many vendors

Different prices at each hospital

Stock versus Non-stock ordering confusion

Training on new products

Logistics Maze

Finding someone’s order Transferring supplies to

another facility Tracking Deliveries from

Outside Who to call to resolve

problems? Waiting for return calls

Internal Delivery Services

Who delivers what? When do they deliver? How long till next delivery

occurs? Bottom Line: We have

redundant delivery staff services that few understand

End User Issues

Multiple Bulk Warehouses Multiple Storerooms Direct from Vendor

Philosophy Who handles my stat needs? Who to call for pickup &

delivery? Where can I store my

equipment? Who do I call for Service?

Rx Manufacturer

Vendor Order Entry

Supply Cart/Closet

TUHS Supply Distribution Chain

Replenishment Processed

Supplies Utilized @ POC

Data Keyed into MMIS

Stock Picked

StoreroomManual

ReceivingWarehouse

Bulk Delivery

Rx Distributor

M/S Manufacturers

M/S Distributor

PPI Manufacturer

Specialty Manufacturer

Specialty Distributors

LUOM Delivery

Manual Receiving

Starts Here

Pharmaceutical distribution process

Document in system

RN order entry

MD writes order

Rx tech picks order

Rx checks order

Drug to floor

Nurse removes

Rx validates order

Meds restocked

Meds transported to Rx

Rework of unused meds

Patient credited

Meds separated

Order stocked inpharmacy

Reorder book

Order separated

Order received

Transmit order

Order entry

Patient care

Patient manuallybilled

Chart sheetscollected

Nurse remove supply

Order Put Away

Order put away

Delivery to Floor

Med/Surg distribution process

Select product

Dept orders

Purchasing review

Order placed

Dock delivery rec’v

Product electronicrec’v

Delivery to storeroom

Patient chargestickers

MM/Clinical manualinventory

MM electronicallyplaces order

Order picked

Order transportto departments

Sticker attached tocharge sheet

Special Orders

Patient care

Issue Summary

• Inaccurate and incomplete Catalogs

• Lack of streamlined processes

• Over-Use of clinical personnel

• Increase in supply expenses

• Inadequate inventory control

• Access to performance metrics and actionable information

How do we Resolve?

Common, clean Catalog of Products

Central Warehouse for Optimizing Inventory

Streamlined Distribution Processes

Point of Care Data Collection Systems

Systems & Measures Defined & in Place

Aligned Storage & Delivery Capabilities in Departments

Volume based Inventory Levels

Ecommerce Systems

DEMAND PULL INVENTORY MODEL

Demand Pull Vision

To create a Business Model that will allow access to data across the entire supply chain from point of manufacture to point of use, thus creating a seamless flow of product, information and cash that will have products available at point of use when required, through multiple delivery channels, at the lowest cost.

2

POC Station or

Data Collection

Patient

Central Warehouse & Supply Distribution Partner

EDI/XML

MMIS/ERP

.com engine

Low Unit of Measure

Electronically Received

SuppliesDeliveredTo Floor

HIS/Billing

TUHS Supply Chain Vision Effectively Integrated

EDI/XML

Phone/Fax

Healthcore South Contract Compliance

$-

$1,000,000

$2,000,000

$3,000,000

$4,000,000

$5,000,000

$6,000,000

$7,000,000

$8,000,000

Healthcore South Lubbuck Mercy Clovis Regional Hereford Clinic Borger Clinic Plainview Sub-Acute

Actual

Commitment

Last Year Actual

Authorized Distributor / Mfg.

Starts Here

Utilization Reports

Key EnablersExecutive Management Support

Clean, Timely Updated Catalog

A system that aligns the expense more closely to the time of use

Culture of ChangeProcess improvement

Emphasis on customer service

Emphasis on product logistics

Partnering

Cross-organizational process orientation

Increased outsourcing

Shared services

Real-time information sharing

Enabling technology

E-commerce

TARGET: reduce the supply chain steps of pharmaceuticals and supplies by more than 70%

Clinical Staff Involvement in Supply Chain

PharmaceuticalsSuppliesOrder transportedto depts.

Order put away

Nurse removessupply

Patient care

Administered anddocumented

RN order entry

Rx validates order

Nurse removesmeds

Order received

Order stockedIn MedStation®

Unused meds rework process eliminated

MD writes order

Reorder process

TUHS- POU Replenishment Process

Patient IDNurse IDNurse Unit numberProduct/usage

HospitalFinancial Systems

ElectronicPayment

ElectronicInvoice

MMIS Packaging Slip

Distribution Center

}Patient/

Care-Giver

POU System

Hand Held Technology

Value Proposition

Establish Framework for TUHS to gain full control over:Non-Wage Data Integrity Challenges across the health systemContract ManagementProduct ManagementProcurement Cycle Point of Use Inventory UtilizationSupply Distribution & Logistics Efficiencies

Implement Tools and Improvements to drive and sustain savingsComplement or replace existing Business and Technology investmentsAllow TUHS to provide a best practice supply distribution modelMonitor & track progress on an on-going basis

Diligence:Source of Savings

SpaceWarehouse, Storeroom & Departmental

Revenue enhancementOperating room efficiencies & chargecapture

Pharmaceutical and medical supply utilization reduction

Labor reductionInventory reduction

Best practice

Consumption reduction

Contract compliance

Lower cost alternatives

Standardization

Therapeutic equivalents

Waste reduction

Warehouse & Storeroom

Distribution

Transportation

Departmental

Purchasing

Accounts Payable

Cost of Capital

Vendor Owned Inventory

Obsolescence

Overhead

Shrinkage

TUHS: $11.2 Million Official

$3-8 Million Unofficial

TUHS: $ 4.2 Million SCS

$?? Departmental

TUHS Opportunity

Estimated between $4 to 12M

Proposed Implementation TimelinePharmaceuticals

Education, Monitoring, Drug Conversion, Inventory Transition

1st Qtr 20054th Qtr 2004 3rd Qtr 20052nd Qtr 2005

Reporting & Monitoring (on-going)

Ongoing Collaboration & Implementation

SERVICE

Common

Wholesaler

Implementation

Conversion

Refining & Expansion (on-going)

Validate

Database

Initiative Implementation

Build Database &Admin Function

Expense Mgmt Started June 2005 & Ongoing

POU System Implementation

Common Formulary

Partnership Developmen

t

Proposed Implementation TimelineSupplies

Validate, Cleanse & Enrich

1st Qtr 20064th Qtr 2005 3rd Qtr 20062nd Qtr 2006

Reporting & Monitoring (on-going)

Ongoing Collaboration & Implementation

SERVICE

Common

Supply Catalog

Extraction & Business Rules

Extraction & Validate User Training

Upload Ongoing Cleansing

Validate

Database

Pilots Initiative Implementation

Build Database &Admin Function

Expense Mgmt Cost Per Unit of Service & KPI Reporting Started June 2005 & Ongoing

Data Cleansing & Warehouse

Inventory Managemen

t

Partnership Developmen

t

What’s Been Completed?Executive Management Support in Place

Vendor Partner Chosen and Contract in Final Negotiations

90% Patient Care Areas have implemented POU for Medications

Remaining Departments targeted by June 2006

200-250 Common Drugs packaged, ordered & delivered via integrated demand pull model at all sites

200-300 care specific drugs being converted to integrated demand pull model

Min/Max System in place for remaining drugs

Electronic Drug Ordering & Receipt in place…….invoicing next

Common Supply Catalog Cleansed, Created and Ready for Implementation 3/15/2006

Business Process redesign at TUCMC (Pilot)

Next StepsFinalize Risk Sharing Contract

Implement Common Catalog

Complete Formulary Conversion for all Drugs at all sites

Finalize e-Procurement model for Pharmacy

Convert to Vendor Owned Inventory for Pharmacy

Plan & Implement Pilot Project at TUCMCQuantify all inventories

Determine benchmark levels and identify outliers

Develop Action Plans

Verify Item Catalog

Establish IT requirements

Align Technology as required

Plan Implementation Projects for Nursing Departments - all sites

OR

CCL

IRAD

Who’s Next?

Future State Characteristics

Suppliers Distributors TUHS Fewer invoice

disputes Fewer returns Reduced

logistical labor Increased "up-

sell" potential Differentiate on

service quality vs. product

Reduced A/R days

Electronic funds transfer

Enhanced operational effectiveness

Improved service responsiveness

Increased share of customer spending

Improved order accuracy

Involvement in Formulary Management

Reduced supply chain effort

Vendor Owned Inventory

Fewer invoice disputes

Speed and reduced inventory

Improved contract compliance

Improved throughput with auto substitution

TUHS Business Processes Vendor Owned Inventory

True E-Commerce

Product Standardization

Point of Use Systems

Comprehensive Inventory Management

Prime Vendor Programs/Scheduled Deliveries

Unit of Service Cost Management

Inventory Management in Select Departments

Committed Group Purchasing

Prime Vendor Programs with EDI

Materials Management w/Information Systems and Software

Materials Management Function at Enterprise Level

Traditional Purchasing Department

HIGH

Potential for

CostReduction

LOW

LOW Degree of Difficulty High

ANY QUESTIONS??

Month

Milestone Conclusion

Task ID 9/1/05 9/15/05 10/1/05 10/15/05 11/1/05 11/15/05 12/1/05 12/15/05

TUHS Master Plan

Project Tasks

1) Development of Supply Distribution Impact Plan - meetings and strategy sessions with HR - meetings and planning sessions with supervisory staff2) Analysis and review of 3PL proposal and Impact Plan3) Continued evaluation and meetings for Data Cleansing4) Partnership Contract review and finalization of agreement 5) Review of contractual agreement by TUHS - modifications and changes - TUHS legal and project staff; review and negotiations 6) Confirm POU internal cost component in financials

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Month

Milestone Conclusion

Task ID 9/1/05 9/15/05 10/1/05 10/15/05 11/1/05 11/15/05 12/1/05 12/15/05

TUHS Master Plan

Project Tasks7) Second pass reviews of Agreement by TUHS - modifications and changes - second pass, tertiary revisions by legal - TUHS review of vendor modifications - final negotiations of terms and conditions - final legal and commercial review of terms and

conditions - contract acceptance and signoff8) Review and analysis of revised financials - discussions and negotiations on cost savings and incentives - development of clinical risk sharing models and metrics - development of internal financial process controls - final review and incorporation of financial deliverables into agreement 9) Review and analysis of implementation plan - meetings on plan tasks and rollout - development of plan for best optimal fit - plan review/revisions based on operational strategy - plan acceptance

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Month

Milestone Conclusion

Task ID 9/1/05 9/15/05 10/1/05 10/15/05 11/1/05 11/15/05 12/1/05 12/15/05

TUHS Master Plan

Project Tasks10) Development of first phase communication plan

for staff/network presentation - presentations as may be required 11) Initial organizational meetings on

implementation team makeup and responsibilities 13) Finalization acceptance/timing/rejection of

Cardinal divisional/service offerings with planned

integration 14) First phase complete/contract signing

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