18/07/2013

1

Metrics that Drive Action, Not

Collect Dust!

Phil Pettigrew

Director, Materials Management

Denver Health

Denver, CO

Stewart Layhe

Supply Chain Project Manager

Denver Health

Denver, CO

18/07/2013

2

Problem Statement

» Supply chain should be integrated from manufacturer to the patient.

» Lack of integration between partners in the supply chain can introduce

waste and inefficiency.

» Metrics often come from departments outside supply chain.

» Inefficiencies in the supply chain sends disruptive ripples throughout the

entire chain creating waste.

» Optimizing one specific element or one specific level of the supply chain

in isolation can lead to unintended consequences elsewhere in the

supply chain.

» Currently there is no common sets of actionable metrics that measure

supply chain efficiency and effectiveness that point to specific actions

partners can take to eliminate waste from their processes.

» There is no accepted measure that tells an organization where they are

on the continuum of optimization of their supply chain.

Strategic Marketplace Initiative

• Consortium of manufacturer, distributor and provider executives

united to shape the future of the healthcare supply

• SMI create working teams with members from all three sides of

our industry to work on initiatives and projects to improve

healthcare supply chains

• These teams typically create a deliverable of a white paper or tool

that the industry can use to improve cooperation within our supply

chain and is available free from their web site

(http://www.smisupplychain.com)

• This presentation forms part of an initiative being co-lead by

Denver Health on Supply Chain Optimization.

18/07/2013

3

Expense Managed By Supply

Chain

Expense Area Benchmark

Supplies Price and Utilization

Instrumentation/ Minor Equipment Life Cycle Cost

Capital Equipment Life Cycle Cost

Purchased Services Price and Contracts

Supply Chain Operations

Expense Managed By Supply

Chain

Process & Operations Managed by Supply

Chain

Supply Chain

Optimization

A Very Short History Lesson

Perfect Order

Perfect Department Index

Supply Chain Optimization

18/07/2013

4

The Perfect Order

What is SMI’s ‘Perfect Order’?

A purchase order processed

electronically (from order to

payment) without human

intervention, which is delivered to

the correct location, on time,

undamaged, at the right price, with

the desired quantity, on the first

attempt. www.smisupplychain.com

• Purchase Order Received Electronically

• Delivered On Time and Complete

• Delivered to the Correct Location

• Undamaged

• Correct Price

• Order Is Shipped Complete

• Vendor Invoice Received Electronically

• Vendor Payment Sent Electronically

• Payment Received Within terms

• Invoice Paid In Full

The Perfect Department Index

Right

Reorder

System

Efficient

Layout

Right

Quantity

Right

Items Right Vendor Right Person

S.M.I.’s Perfect Order begins at

with a purchase order, Lean

begins at the start of the

process. Denver Health

created the Perfect Department

Index to move the metrics to

beginning of the process

% of items

with

optimized

inventory

levels

% of

order

lines from

a local

source

% of

requisition

lines created

electronically

% of lines

delivered

on time,

complete &

undamaged

% of

lines

invoiced

at the

correct

price

% of

electronic

invoices

% of

suppliers

using

E.F.T.

% paid

on time

and

complete

% of

purchase

order lines

transmitted

electronically

• Inventory Optimized

• Purchase Requisitions Created Electronically

• Sourced Locally

• Delivered On Time, Undamaged and Complete

• Purchase Order Transactions Electronic

• Invoiced At The Correct Price

• Vendor Invoice Received Electronically

• Vendor Payment Sent Electronically

• Payment Received Within terms and In Full

18/07/2013

5

Supply Chain Optimization

• Both the Perfect Order and the Perfect

Department Index looks at supply chain

operations through the hospital’s eyes

• SMI expanded the scope to include metrics and

best practices from manufacturer’s and

distributor’s perspective

• With this additional input the processes became

universal and can be used by any set of trading

partners

COMBINING THE INITIATIVES

18/07/2013

6

Merging the Perfect Order with The

Perfect Department Index -16 Metrics

Optimized Inventory

Pricing synchronized

electronically

Internal requisitions

created electronically

Purchase Order sent electronically

Purchase order confirmed

electronically

Purchase order updated

electronically

Local Sourcing

Delivered Complete

Delivered On Time

Delivered Undamaged

Delivered to the correct location

Pricing Correct Invoiced

electronically

Paid electronically

Paid within contract terms

Paid In full Optimized Inventory

Pricing synchronized electronically

Internal requisitions

created electronically

Purchase Order sent electronically

Purchase order confirmed

electronically

Purchase order updated

electronically

Local Sourcing

Delivered Complete

Delivered On Time

Delivered Undamaged

Delivered to the correct location

Pricing Correct Invoiced

electronically

Paid electronically

Paid within contract terms

Paid In full Plan

Price

Plan

Purchase Purchase

Purchase

Plan

Fill Receive

Receive

Receive

Price Pay

Pay

Pay

Pay

Six Business Processes

Six Business Processes

18/07/2013

7

Supply Chain Optimization

Best Practice

Metrics

For each proposed metric we

applied the following tests: • Does it measure performance between parties in the

supply chain?

• Is it easily defined?

• Is it easily collected?

• Does it lead to a clear action?

• Is it applicable across the supply chain?

• Would a supply chain manager in ___________

understand the metric?

Your

nomination

goes here!

18/07/2013

8

Plan

Characteristics Of Best Practice Inventory Processes

• Warehouses and stock locations are set out in a systematic and logical

sequence

• Stocked items and quantities are set by scientific means and reviewed

regularly

• Reorder systems are electronic using Automatic Identification and Data

Capture (AIDC)

• Supply Chain systems feed downstream systems (no ‘alternative’

descriptions, item status, etc.)

• Supplier concentration is a factor in sourcing product

• Single (business intelligence) data source for decision support

• SKU rationalization is part of the business process

• Product (service) team used in new product introduction

• Item master data is retrieved and updated from a GDSN and not created by

the purchaser

18/07/2013

9

Characteristics Of a Best Practice Inventory Processes

• All item data is synchronized through a GDSN

• All items ordered exist in the Item Master file

• Collaborative planning

• Vendors are selected in a way to minimize total supply chain stock levels

and costs

• Real-time visibility into backlog, order status, shipments, scheduled receipts

and inventory levels across the supply chain

• Available to Promise (ATP) data available in real-time

• Inventory target levels are reviewed and adjusted frequently

• Accurate lead times are shared through the supply chain

• Where appropriate, vendor managed inventory agreements are used to

manage and replenish inventory

• Real time point of consumption reporting

Process Area: Inventory Planning

Metric

% of purchase order lines associated with an Item Master number

% of purchase requisitions created electronically

Inventory cycle count accuracy

Material requisition cycle time

% of unique items (used by a single institution or single department)

Velocity reports (% of A,B and C items)

# touch points per item from dock to consumption

% of items tied to a GTIN number

% of items linked through the GDSN (by supplier)

18/07/2013

10

Price

Characteristics Of A Best Practice Pricing Relationship

All purchase order lines are associated with an Item

Master number

All items have an identified, current and accurate price

Trading partners synchronize all items and the 832

updates all prices, not just those with anticipated

changes

Contract pricing is reviewed and updated via EDI 832

messages in a timely manner. 832 are received at least

monthly and changes are worked within a day.

When the purchase order price returned through an 855

message doesn't match the order confirmation price they

are worked within an hour

18/07/2013

11

Process Area: Pricing

Metric

% of purchase order lines associated to an Item Master number

% of items in the Item Master linked to a current contract

% of item lines that are updated via EDI 832

# of items with recurring contract price exceptions on EDI items per reporting period

% of purchase order lines where an EDI 855 confirmation is received

% of order lines with a vendor item number update received in the EDI 855 message

% of order lines with a price update received in the EDI 855 message

% of order lines with a unit of measure update received in the EDI 855 message

Purchase

18/07/2013

12

Characteristics Of A Best Practice Purchase

Relationship

• Outbound purchase orders sent via EDI 850 message

• Purchase orders acknowledged via EDI 855 message

• Purchase order lines are updated back into the

originating system based on the EDI 855 message

(Timeframe)

• EDI messages contain GLN and GTIN data

• Supplier performance data is collected, analyzed and

reported by provider to the suppliers

Process Area: Purchasing

Metric

Cycle time from requisition creation to purchase order sent

% of purchase requisition lines not created electronically

% of purchase order lines sent through an EDI 850 message

% of purchase order lines confirmed through an EDI 855 message

% of order lines with a vendor item number update received in the EDI 855 message

% of order lines with a price update received in the EDI 855 message

% of order lines with a unit of measure update received in the EDI 855 message

% of 850 order lines containing a GLN and GTIN

18/07/2013

13

Fill

Characteristics Of An Best Practice Fill Rate

Relationship

• Adequate quantities of product are available to fill the

order complete at first attempt

• Regular business reviews are held to share changes in

demand

• Inventory at the supplier is available for the customer to

view

• Demand is forecast by the customer and shared with the

suppliers

18/07/2013

14

Process Area: Fill Rates

Metric

# Of RGAs

% Line Fill rates by order

% Line Fill rates by product

% of order lines with a back order

% of items filled complete on the first pick

% of units filled complete (Distributor to Manufacturer.)

# Of fill failures (PAR = 0 at replenishment time)

% cycle count lines with a discrepancy

Receive

18/07/2013

15

Characteristics Of An Best Practice Receiving

Relationship

• Shipments are accompanied by an accurate EDI 856 message

• Items are received directly to stock through the EDI 856 message

• Transactions are completed using Automatic Identification and Data

Capture (AIDC)

• Receipt is as close as possible to the point of use

• Orders filled complete and on-time

• Payments (via Evaluated Receipt) can be made off the 856 if you

use an 832 and an 855 to ensure accurate pricing.

Process Area: Receiving

Metric

% of on-time deliveries to request date (promise date?)

% of suppliers sending an 856

% of purchase order lines received directly into stock with an 856. (May be timing issues when

on-hand inventory is updated)

Number of lines where EDI 856 data was incorrect

# Of RGAs

18/07/2013

16

Pay

Characteristics Of A Best Practice Payment

Relationship

• Invoices are processed via EDI 810

• EDI 810 messages contain GLN & GTIN data

• EDI 810 invoices are pulled directly into the customers ERP system

and automatically matched

• Payments are made to the supplier via EDI 820 or ACH messages

• Methods of matching Add-On costs

• Evaluated Receipts payments

• Payments (via Evaluated Receipt) can be made off the 856 if you

use an 832 and an 855 to ensure accurate pricing.

18/07/2013

17

Process Area: Payment

Metric

% of invoice lines paid late (Need clear definition of late)

% of order lines invoiced electronically (810)

Days sales outstanding

% of order lines paid electronically (820/ACH)

% of Prompt pay discounts taken

% Invoices paid in full

% Invoices paid on time

Days payables outstanding

% of invoices paid late where the entire invoice payment is delayed because one line has a

discrepancy % of invoices paid short

REAL-LIFE USE OF THE

METRICS

18/07/2013

18

Real-Life Use Of The Metrics

• Most organizations will only use this

process with their strategic vendors

• Each process will have one or two critical

metrics that organizations will collect

• The lowest scoring processes point to the

areas where organizations will use the

deeper level metrics

Conduct Business Reviews With

Key Suppliers

Pla

n

Price

Pu

rch

ase

Fill

Re

ce

ive

Pay

92 84 92 87 95 94

Review Scorecard

Focus on the Price Business Process

Metrics to Establish Causes

84

Focus on the Fill Business Process

Metrics to Establish Causes

87

18/07/2013

19

VALIDATING THE METRICS IN

A REAL-WORLD EXAMPLE

Denver Heath and Owens & Minor

18/07/2013

20

PRICING

18/07/2013

21

Pricing – Best Practice and Metrics

All purchase order lines are associated with an

Item Master number

All items have an identified, current and accurate

price

Trading partners synchronize all items and the

832 updates all prices, not just those with

anticipated changes

Contract pricing is reviewed and updated via EDI

832 messages in a timely manner. 832 are

received at least monthly and changes are

worked within a day.

When the purchase order price returned through

an 855 message doesn't match the order

confirmation price they are worked within an hour

% of purchase order lines associated to an Item

Master number

% of items in the Item Master linked to a current

contract

% of item lines that are updated via EDI 832

# of items with recurring contract price exceptions

on EDI items per reporting period

% of purchase order lines where an EDI 855

confirmation is received

% of order lines with a vendor item number

update received in the EDI 855 message

% of order lines with a price update received in

the EDI 855 message

% of order lines with a unit of measure update

received in the EDI 855 message

FILL

18/07/2013

22

Five Fill root cause categories

• Over-usage versus history

• Usage correct, but failed to fill (order timing)

• Manufacturer’s backorder

• Branch non-stock orders (leadtime)

• Discontinued products

Adequate quantities of product

are available to fill the order

complete at first attempt

Regular business reviews are

held to share changes in

demand

Inventory at the supplier is

available for the customer to

view

Demand is forecast by the

customer and shared with the

suppliers

Fill - Best Practice and Metrics

# Of RGAs

% Line Fill rates by order

% Line Fill rates by product

% of order lines with a back

order

% of items filled complete on

the first pick

18/07/2013

23

Are we really covering the full

cycle?

Options for further development…

Enable

Pla

n

Pri

ce

Purc

ha

se

Fill

Receiv

e

Pay

Optim

ize

Enable Maintain source data

Manage product inventory plan

Manage supplier/distributor network

Plan clinical training & communication

Optimize Analyze patient outcome

Measure cost effectiveness of the product

Analyze safety/surveillance data

Analyze impact on patient satisfaction

Analyze warranty and returns

Best Practice

Metrics

18/07/2013

24

Questions?

Phil Pettigrew, Director, Materials Management

Denver Health Denver, CO

Philip.pettigrew@dhha.org

Stewart Layhe, Supply Chain Project Manager

Denver Health Denver, CO

Stewart.layhe@dhha.org