Making the Medical Supply Chain Healthy POST-WEBINAR REPORT

Making the Medical Supply Chain Healthy POST-WEBINAR REPORT

THE 5 STEP MEDICAL SUPPLY CHAIN CHECK-UP An Industry Perspective Report brought to you by Cardinal Health Integrated Logistics Services This report is based on recommendations made by the industry experts who participated in the Integrated Logistics Services Making the Medical Supply Chain Healthy webinar. In addition, it includes benchmark data gathered on-site at LogiMed 2014 Meet the Experts Behind the Advice In order to address the growing importance of reducing costs and increasing efficiency of medical supply chains, Integrated Logistics Services assembled an expert panel of medtech professionals to diagnose common problems and troubleshoot them in an engaging, live forum. MODERATOR PANELIST PANELIST PANELIST Mitch MacDonald Group Editorial Director DC Velocity CSCMP s Supply Chain Quarterly Evan Armstrong President Armstrong & Associates Rob Doone Vice President Cardinal Health Integrated Logistics Services Ken Kucera Vice President Fresenius Kabi 2

CHALLENGE ANALYSIS Medical device manufacturers are facing pressures to reduce their operating costs in the face of the Medical Device Sales Tax, and one of the biggest areas where they are looking to save is in their distribution costs. Benchmark data gathered at LogiMed 2014 shows that 93% of survey respondents used over 1.1% of their total revenues to cover distribution costs, with 32% of that number having 3.1-5% of their total revenues taken by distribution. With profit margins predicted to continue to dip, medical device manufacturers are looking to bring their supply chain strategies up to speed and integrate third-party logistics (3PL) providers to preserve their profitability. What percent of your total revenue is used to cover distribution costs? 7% Less than 1% 51% 1.1-3% 32% 3.1-5% 10% 5.1-10% 0% More than 10% 3

5 WAYS TO MAKE YOUR SUPPLY CHAIN HEALTHIER Why is the industry facing pressure to change? With lower profit margins, supply chain costs must be reduced. Rob Doone The healthcare supply chain is really 100% about fill rates. Everyone involved understands that there is a patient on the receiving end of every product shipment and we all want to make sure that the patient receives the best possible care. Unfortunately, due to historical limitations in the healthcare supply chain, the best way to achieve that 100% fill rate goal has really been to flood the industry with inventory. With profit margins needing to be preserved in the face of new taxation and regulations, this strategy is no longer tenable and must be replaced by new, cost-saving strategies. 1 Be flexible to accommodate the shift in care from the hospital to alternate sites Delivery demands require smaller shipments to a broader range of sites. Meet customer expectations through adapting to parcel delivery requirements. Ken Kucera Warehouses that may have been designed for LTL or truckloads to hospitals have to retrofit for a parcel order process in order to be very efficient to meet customer needs. Customers continue to look for faster and more frequent deliveries. Because they are addressing patient care, customers are looking for partners who can get products to them on an immediate or emergency basis. As our customers are banding together into larger groups, the stakes are higher than they ve ever been. If you don t have the conditions available to quickly meet the needs, their buying groups could choose another manufacturer. 4

5 Ways to Make your Supply Chain Healthier continued 2 Streamline the number of touchpoints in your supply chain Identify the optimal locations in order to serve your customers, and eliminate wasted infrastructure. It is essential to involve the customer in this process. Evan Armstrong Medical device manufacturers should seek to work with 3PLs that really start with the patient and work backwards in terms of delivering product on a timely basis and meeting performance requirements. Not every 3PL is up to the task; you want to work with 3PLs who have lean management capabilities, focus on continuous improvement, and are geared for the healthcare supply chain. Quality inventory management comes about through working with the right team and in the end it really helps out manufacturer s margins by not having to work with numerous logistics organizations before a product gets through to the patient. Ken Kucera We couldn t have improved without involving the customer, which I think is key when you are talking about streamlining the number of touchpoints in the supply chain. Many times, without involving the customer, you may come up with a way of saving costs and bypassing aspects of the supply chain, but then find that it negatively impacts the customer in the end. Eventually the customer will tell you that they need something different. Involving them early is key in ensuring that you ve optimized your process all the way through. 5

5 Ways to Make your Supply Chain Healthier continued 3 Demand better visibility from your supply chain and adopt technology that can establish clearer demand signals Prioritize visibility in your shipping, and maintain the ability to expedite on an as-needed basis. Ken Kucera Evan Armstrong The question is, do you want to invest in visibility yourself, or partner with somebody that has those capabilities? All of us just experienced snowstorms in the Midwest and Northeast. Many customers relied upon us to provide them with updates on their shipment status. If you encounter a situation where the product can t get there when needed, the customer may ask for a partial emergency order to be shipped for next day delivery because the original transportation mode provided won t arrive in time. Having those systems in place is absolutely critical for the patient care on the other end of the equation for us. There are a wide range of systems in terms of warehouse management, transportation management, and providing visibility. It s critical to select a supply chain management system with good tracking, because when we talk about medical devices, we are talking about a lot of products. They tend to be high value goods and they have critical delivery requirements. If you are talking about insulin pumps, if you are talking about hospital equipment, there is not much margin for error. So, you need to work with a provider with that tier 1 systems backbone who can really inform you about the status of your shipping. 6

5 Ways to Make your Supply Chain Healthier continued 4 Collaborate to create shared distribution strategies Eliminate wasted space in storage and shipments by looking to replicate sharing strategies in parallel industries. Rob Doone I think it s a new world now for healthcare manufacturers. There is a lot of price pressure in this market today, as it s been in other industries. If you look at the automotive industry and all the integration that they ve done upstream with their suppliers, they feed into their manufacturing process to lean out their supply chain. In the technology world, they use the term coopetition ; sometimes you are cooperating with your competitors, sometimes you re competing against them. I think we need to start looking along the lines of those types of strategies in the healthcare sector. We can cooperate to streamline the supply chain through multi-tenant warehousing and shared transportation. We see a lot of manufacturers that have warehouses that are 50%-60% full - because they plan on future growth. That s great, but until you grow, you don t really need that capacity and you are spending a lot of capital to have that infrastructure in place. The way to get around that is through a collaborative approach by looking at a multi-tenant facility. We see similar types of opportunities on the transportation side. Most healthcare products are sent to the same sites around the country. The problem is that they are all shipped via LTL or sub-optimized truckload that may be only 60% or 70% full. So we ve looked at opportunities to make sure that we are sending full trucks to those sites to make shipping more efficient, more timely and less costly. I think that we can learn a lot from other industries and apply it to healthcare. 7

5 Ways to Make your Supply Chain Healthier continued 5 Be more nimble to manage change Agility is becoming a priority in all areas, from managing warehousing locations, to regulatory compliance. Be sure that you are able to project the implications of strategic investments in the long term lest you are boxed in to a decision that fails to pay dividends. Ken Kucera 3PL services provide great agility for us because we only pay for the storage space that we need, and as we try to shrink inventories or need to expand for new product launches, that gives us the ability to add new inventory locations very quickly in response to the market. Previously, when we had our own brick and mortar, it was very difficult to make those changes without the high cost. A lot of people don t necessarily know how to cope with changing regulations, and you can invest in a lot of people within your organization to stay up on it, or you can use a third party service provider to be your regulatory expert. It just depends on how large of an organization you are, but that s one area where service providers can be very beneficial when dealing with various changing statutes. It allows you to be more proactive versus having to react, which sometimes can be very, very costly. Rob Doone Keeping up with regulations and the changes that are taking place is a significant concern in the healthcare industry now. Regulatory inspections are occurring more frequently too. We ve seen close to a 300% increase in regulatory visits in the last five years. Looking for somebody to partner with on those types of issues can really help your company be able to react. In regards to being nimble, it is important for all of us to remember that the healthcare industry was very different five years ago than it is today and from where it will be five years from now. As a result, you ve got to be very careful when you make infrastructure investments. We all know that when we set up a building, we are making a potentially 30 year commitment and many times we can t really predict what the future is going to hold. There is going to be significant consolidation on both the provider and the manufacturing sides and you want to make sure that you have the ability to react as the environment changes. So, the whole concept of being nimble is evaluating each decision that you make and determining whether that boxes you into a certain path. 8

KEY RECOMMENDATIONS In order to ensure that medical device manufacturers are able to effectively reduce costs related to their supply chains, they should prioritize improvement in the following areas: Reduction of wasted resources in shipments and warehousing. Paying for wasted space can greatly inflate the already high distribution costs related to medical equipment. The companies that are best able to consolidate shipping and warehousing, whether through stronger demand planning or through coopting shared space strategies are the ones who will best be able to protect eroding margins. Collect and manage data pertinent to where your products are needed and where they are in the transportation process. Without the means to effectively track products, companies assume major risk through both increased risk of loss and customer dissatisfaction. Whether this means using 3PL with high visibility built in to their supply chains, or improving internal tracking capabilities, there is no room for any lack of discernability in the shipping process. Facilitate a move towards leaner inventory management. Data provides the means for working on the amount of reserve inventory needed to satisfy emergency requirements. Traditionally, excess inventory has been the safeguard against unpredictable demands. The companies that are best able to move towards a leaner approach will be able to reduce a major source of overhead cost. 9

ABOUT INTEGRATED LOGISTICS SERVICES Cardinal Health Integrated Logistics Services (ILS) is the complete 3PL solution for healthcare, combining a nationwide network of distribution centers, transportation logistics and regulatory expertise. We are a complete source for medical devices and supplies to every point of care including hospitals, surgery centers, labs and even patients homes. We collaborate closely with every client to customize the right solution, from enhancing transportation to offering a fully outsourced, turnkey supply chain. And through it all, our proprietary quality and regulatory systems help you remain compliant. So you can keep your products moving no matter what. Because we are your healthcare 3PL. For more information, visit us at yourhealthcare3pl.com ABOUT WBR DIGITAL WBR Digital s team of content specialists, marketers, and advisors believe in the power of demand generation with a creative twist. With senior executives from medium-sized businesses and Fortune 1,000 companies attending more than 100 WBR events each year, we are uniquely positioned to energize your organization s marketing campaigns with a full array of marketing and bespoke content services. 10