The Healthcare Value Chain Transformation - Manajemen Rumah ...

The Healthcare Value Chain Transformation - Manajemen Rumah ...

AMR Healthcare Value Chain Coverage ModelLife SciencesPharmaBiotechMed DevGenericHealthcarePatient© 2009 AMR Research, Inc. | Page 4

Today’s Reality…the healthcare value chain lacks visibilitySuppliers,CMOsManufacturers,AssemblersDistributors,WholesalersProviders,RetailersConsumers,PatientsNew Product or ServiceRiskLack ofVisibilitySuppliersMaterialsMgmtRiskInventoryInefficiencyManufacturerProgramsManufacturing(Make-Pack)RiskWasteDistributionandDistributorsRiskLack ofVisibilityProvidersRetailersPatientsConsumersRiskCost• 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”© 2009 AMR Research, Inc. | Page 6

Is there a lack of trust with your trading partners?2007 2008The different industry segments in the healthcare value chain often do nottrust each other. This has been a hindrance to information sharing andcollaboration which drives significant cost and inefficiencies.Source: 2008 AMR Healthcare Study© 2009 AMR Research, Inc. | Page 7

Who is the customer?Patients/Consumers19%21%20072008Healthcare Providers19%21%Wholesalers/Distributors10%17%Doctors and Clinicians10%19%Pharmacies5%10%Drug or DeviceManufacturersGovernment4%7%6%10%Who is the customer thatyou serve?Inside-out focusedPayers/ManagedCare/Insurers/EmployersGPOPBM2%2%1%4%6%5%Companies lack outside-invision – not focused onpatient outcome-basedMoments of TruthWho is your PRIMARY customer?© 2009 AMR Research, Inc. | Page 8

Leaders are transforming strategies and business modelsManufacturersGame ChangingPatient-DrivenOutcome BasedProvider•Increasing demandvisibility by leveragingvarious forms ofdownstream data•Redesign of supply chainnetworks - segmentation•Improving collaborationbetween internal andexternal partners•Improving efficiencies andlowering costsCollaborationHighTechnologyVendorsManufacturerMomentsOfTruthRetailers•Supply chainmanagement is moving tointegrated environment –away from procurementorientation•Establishing closer linksto manufacturers.•Increased accountabilityand control of servicesand pricing -standardization•Hiring talent from otherindustriesWholesalers / Distributors•Moving from reacting toanticipating demand•Establishing networksbut with limited upstreamcollaboration•Extending technologyinvestment to providers•Moving to an informationbroker model.LowInsideOutWholesalerBusinessOrientationProviderOutsideInRetailer•Re-thinking role ofintermediaries in thehealthcare value chain•Potential to leveragetreasure trove ofinformation on patient•One stop shop fornutritional, health andwellness – not just forfood and Rx.•Focus on proprietarydifferentiators.© 2009 AMR Research, Inc. | Page 9

The ProviderEnvironment© 2009 AMR Research, Inc. | Page 10

Top issues confronting hospitals59%54%51%49%Financial challenges are top of mind for executives at smallersystems and the pace of reimbursement is a major issue for thelarger hospital systems.31%34%32%27%All issuesMost significant issue21%22%20%15%10%5%7%3% 3%7%5%FinancialChallengessuch asprofitability orgrowthReimbursementis not keepingup with the rateof expensegrowthCare for theUninsuredCosts ofsupplies arerising at anunsustainableratePatientSatisfactionGovernmentMandatesPatient Safetyand QualityPersonnelShortagesCapacityPhysicianrecruiting/retentionN = [65, 2+ hospital systems]© 2009 AMR Research, Inc. | Page 11

Challenges to existing healthcare supply chain modelThe rising cost of supplies and the ability to drive physician preferences are seen as the mostsignificant challenges. Most executives are focusing their supply chains to solve these issues.87%70%Quote from $2B+ Hospital System:•“Seeing supply cost growing at twice the cost oflabor….in a service industry that’s scary and requiresattention.”•“We cut contracts in half and doubled spend - we wantfewer SKUs to make our supply chain more efficient. “41%36%All challengesMost significant challenge29% 28% 28%26%24%13%2% 3% 4% 3% 3% 2%Rising Cost ofSuppliesN = [121, Total sample]Ability to driverationalizationof physicianproductpreferencesComplexity ofproduct andinformationflowContractProcess w ithSuppliersLack ofConsistentService inSupplyLack of SCpartnershipand visibilityw ith specialtyareas (OR,Cath, IR, EP,Radiology)Limited BestPracticeSharingLack ofleadershipvision,maturity andcontrol in theSC© 2009 AMR Research, Inc. | Page 12

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 ofproducts?No39%Yes61%Even though 61% of hospitals reporthaving a supply chain organization AMRstrongly believes that many of thesehospitals don’t understand the truemeaning of supply chain.This however, is changing with theincorporation of talent from outside of theindustry.Among hospitals that have a supply chainorganization 94% have had one in placefor 4 years or more.Reporting structure of SC org is all overthe map.N = [65, 2+ hospital systems]© 2009 AMR Research, Inc. | Page 13

The Medical DeviceEnvironment© 2009 AMR Research, Inc. | Page 15

Med Dvc Primary Product Supply Business StrategyImprove collaboration in your enterprise with internal partners acrossR&D, Manufacturing, Supply Chain and Sales & Marketing9%22%Replicating best practices across the enterprise using operationalexcellence programs such as QM, Six Sigma, RFTImprove manufacturing performance visibility across manufacturingsitesRedesign of your supply chain networksStandardize manufacturing processes and systemsImprove efficiencies and lower costs across the enterpriseManufacturing outsourcing as an opportunity to boost productivityand efficiency4%4%4%4%9%9%9%9%13%13%13%17%Future:InternalCollaboration,VisibilityAgility &ProfitabilityIdentify and eliminate waste in manufacturing using leanmanufacturing practices4%17%Detailed production scheduling, and adherenceImprove collaboration with your external partners such as ContractManufacturers, 3rd Party Logistics, CustomersImprove compliance across financial, manufacturing and qualityprocessesIncrease 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 chain4%4%9%13%Today:Cost &Compliance9%20072012Source: AMR Research Life Sciences Study 2007© 2009 AMR Research, Inc. | Page 16

Most important versus most challenging supply chainoperations capability today in medical devicecompaniesMost ImportantMost Challenging23%29%Supply Chain has abdicatedjoint value creation to thecommercial organization.19%16%19%Leaders recognize this is alost opportunity!10%16%10% 10% 10% 10%10%6%6%3%3%Effective S&OPprocess thatintegratesregional &globalrequirementsGlobal supplychain networkthat achievessimultaneousobjectives onquality, costand time-tomarketIntegratingprocesses withlow-costcountrysuppliersEffective go-tomarketstrategyfor newproductsEffectivesupplierrecruitment,certification &alignmentprogramsIntegration oflocal marketneeds withinglobal design,research anddevelopmentfunctionsProtectingintellectualproperty inemergingmarketsRetaining anddevelopingsupply chaintalent in keymarketsTight links (jointvalue creation)with customersto obtainsupply/demandvisibilityn= Medical Device Manu, 31AMR Healthcare Survey Nov 2008Which 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?© 2009 AMR Research, Inc. | Page 17

Most important versus challenging to enable manufacturers, pharmacies,payers and providers to leverage patient outcome information19% 19%23% Most ImportantMost Challenging19%16%16%13% 13%13%13%10%10%3% 3% 3%3%3%Good relationswith payers andproviders forvisibility topatient outcomeinformationEffectiveplanningprocesses totranslate pastoutcome datainto futureforecastrequirementsEfficient businessprocesses andinformationsystems toprocess patientoutcomeinformationMoving beyonddiscussions ofprice towarddiscussions ofdiseasemanagement,patient outcomes,etc.Development ofwellnessprograms thatprovide patientsand providers withincentives formaintaininghealthy lives andpreventing illnessor injuryBuilding trustacross thehealthcarevalue chainElimination ofpolicies andpractices thatdiscourage opencommunication,joint valuecreation, etc.Linking patientoutcomes withtreatment andpayment plansLegislation orregulation to drivecollaborationacross thehealthcare valuechain to improvepatient outcomesn= Medical Device Manu, 31Which 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?© 2009 AMR Research, Inc. | Page 18

The Value Chain Transformation© 2009 AMR Research, Inc. | Page 19

The State of Supply Chain in Life Sciences• Supply chain processes are ever-changing. We need to learn, tounlearn to relearn…organizational lobotomy? Generic shock therapy?• Teams are focused on the synchronization of demand and the mostprofitable response. This is a significant shift….• Today, there is a recognition that there is not one supply chain, andthat supply chains need to be designed not inherited. As a result,there is a shift to aligning supply chain strategy with business strategyand designing the supply response.• A focus on cross-functional excellence is necessary to driveimprovements (S&OP, NPI, Commercialization, SupplierDevelopment, etc). The key is metric alignment to drive the rightresponse.© 2009 AMR Research, Inc. | Page 20

The Core Elements of the Demand Driven Value ChainMaster DataAnalyticsInnovationBusinessImplications (Planning)&Tradeoffs (Finance & Tax )Common Process Platforms& Processes (eg S&OP)Customers and PatientsDemand VisibilityDemandManagementBusiness &Risk TradeoffsS&OPDemandTranslationThe Downstream Data Architecture ModelOperations&Product SupplyERPMESReliableFlexibleResponsiveCompliantSupplyCapabilityTranslation“Turntable”InnovationAgilitybyDesign“ProfitablePerfect Order”CustomerSegmentationModelSensedDemandShapingTranslationsDemandVisibility&InsightsDemandTranslationSupply VisibilityCommercialDownstream Data/ Application StackRepositoryDemandOpportunity3 rd PartyDistributorForecastInvReliable,ProfitableResponse fromSupply Basedon DemandSuppliersTakeaway: Visibility and collaboration are key,but risk/opportunity tradeoffs are inherent© 2009 AMR Research, Inc. | Page 21

Value Chain Transformation/Change Maturity• Cost to “Deliver”• Perfect OrdersInternally Focused Externally FocusedResponsive to DemandCost to DeliverDemand - DrivenBuild and ExtendCoreDemand ManagementProcessesCustomer / BrandDriven ControlIntegrateand ConsolidateBusiness ProcessInfrastructureIII IVIIIGrowth and ProfitabilityCost to ServeValue DrivenNetworkJoint ValueOutcomeFocusedPerformanceManagementMarketsFocusedAcquireMergePartnerLegacy GrowthBusiness Units and Functions• Growth & Market Share• Cost to “Serve”• Profitable Perfect Orders• Profitability (sku /shelf / account /segment)Cost FocusedRevenue Focused© 2009 AMR Research, Inc. | Page 22

Value Chain Transformation JourneyStage 1Markets FocusedStage 2Customer & BrandControlStage 3Demand DrivenStage 4Value DrivenDescriptionDistributed business unitsand functionsFocused on local markets andproductsConsolidated andstandardized businessprocesses andinfrastructureFocused on consolidated &standardized controls andefficiencyExtended set of integrated lean,business and supply chainprocesses.Integrated front officeIntegrated back officeFocused on outward facingdemand and supplier managementefficiencyJoint Value Creation Profitablerelationships with upstream &downstream network partnersFocus on outside in demandtranslation into joint valueMetaphorBoxes Boxes & Lines Synchronization EcosystemMetricsLaggards•Local business unitmetrics•Business /Geography Unitperformance•Market Share / revenue•RevenueLife SciencesMedian•Inside internal metrics•Efficiency , costs,Standards•Transaction platforms•Integrated core metricsLSLeaders•Inside – out metrics•Transactional businessperformance management• Speeds, feeds, cycle times,service levels, adherence,compliance• Collaboration metrics•Outside – in metrics•Joint value creationrelationships and networks• Profitable perfect orders•Relationship processmanagement metricsIT Strategy•Local IT organization,governance systems andstandards•Centralized IT leadership &standards, consolidatedplatforms, data, andinfrastructure•Business – IT partnership•Governance of the distributed ITorganization•IT Operations Excellence• Business leadership ofenabling IT•Business-skilled IT resourcesembedded in businessprocesses© 2009 AMR Research, Inc. | Page 23

Leaders Make The Link To Business Value ExplicitBusiness StrategyWhat 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?Align demandrelationshipsDemand networksJoint valuecreation strategiesRight productplatformsDesign networksInnovationmethodologiesDesign theSupply chain strategysupplyresponseSupply chainnetwork designBusiness ProcessBuildorganizationalsystems andmanage talentContinuousImprovementCapabilities requiredHow do I do the right things right?Align supplyrelationshipsEffective supplynetworksExecution ofbuy-side strategies© 2009 AMR Research, Inc. | Page 24

Segmenting the Supply Chain – Volume, demandvariability, technology and life cycleCommoditizedCommoditizedHigh6721TechnologyTechnology8543VolumeSpecializedShortLifecycleLongSpecializedShortLifecycleLongCommoditizedCommoditized1413109TechnologyTechnologyLowSpecializedShort16Lifecycle1515LongSpecializedShort12Lifecycle1111LongLowDemand PredictabilityHigh© 2009 AMR Research, Inc. | Page 25

The Hierarchy of Supply Chain Metrics:Availability and Perfect Order to Patients20%-65% Error77%-94%DemandForecastPerfectOrderSCMCost125-325 daysAPCash-to-CashInventoryTotalAR37%-69%UtilizationSupplierQualitySupplierOn-TimeRMInvPurchaseCostsDir MtlCostsCostDetailProductionScheduleVariancePlantUtilizationWIP + FGInventoryOrderCycleTimePerfectOrderDetailSource: AMR Benchmark Analytix© 2009 AMR Research, Inc. | Page 26

The Key is BalanceSCM Costs© 2009 AMR Research, Inc. | Page 27

What Does Good Look Like?Level 1 Level 2 Level 3 Level 4Reacting Anticipating Collaborating OrchestratingBusiness ProcessOrganizationConsciouslyExcellentMeasurementContinuousImprovementTechnologyCultureUnconsciouslyincompetentConsciouslyincompetentConsciouslyCompetentInside outOutside in© 2009 AMR Research, Inc. | Page 28

PharmaCo Example – Unconsciously Incompetent?Key:Above parOn parBelow parAssessDemandForecastPerfectOrderSCMCostDiagnoseAPCash-to-CashInventoryTotalARCorrectSupplierQualitySupplierOn-TimeRaw MtlInvPurchCostsDir Mtl CostsCostDetailPrdctnSchedVariancePlantUtilztnWIPInvFGInvNewProd.TTMOrderCycleTimePerfectOrderDetail© 2009 AMR Research, Inc. | Page 29

Example Company D: Orchestrating“Consciously Excellent”Key:Above parOn parBelow parAssessDemandForecastPerfectOrderSCMCostDiagnoseAPCash-to-CashInventoryTotalARCorrectSupplierQualitySupplierOn-TimePurchCostsDir Mtl CostsCostDetailProductionSchedVariancePlantUtilizationWIP +FGInventoryOrderCycleTimePerfectOrderDetail© 2009 AMR Research, Inc. | Page 30

Improving business operations through better visibilityBetter demand forecasters have…..• 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 revenueSource: AMR Research supply chain benchmark data from 70+ Fortune 500 companies© 2009 AMR Research, Inc. | Page 31

Leaders get benefits from visibility in life sciencesLevel of change seen amongst better demand forecastersin profitability performance over the last 12 monthsBenefits realized as a result ofdemand forecast accuracy improvement67%42%Source: 2008 AMR Healthcare Study© 2009 AMR Research, Inc. | Page 32

What’s needed to move to the next level? Combineprocess, technology and best practices“Lean”75 th percentileand above25 th percentileand below– Management Practice ++8% +20%0 +2%– Intensity of IT Deployment +BusinessTransformationEnabled by ITERP + MES +EMR + Etc.25 th percentileand below75 th percentileand aboveSource: London School of Economics–McKinsey survey and analysis of top 100 companies inFrance, Germany, United Kingdom and United States / AMR Analysis© 2009 AMR Research, Inc. | Page 33

Roadmap to the Demand-Driven TransformationValue Network Performance ManagementCapabilitiesDemandVisibilityAutomatic / Responsive Replenishmentand Demand ShapingGlobal Product, Supply, and Network OptimizationValue Network RedesignDownstream Customer and Consumer “Capabilities”Segmented Channel Management, Cost to ServiceResponsiveSupplyDemand Intelligence, Operations—Sales Planning Process and CollaborationValue Chain Performance Metrics, and Master Data ManagementCosts to Deliver, Operations Excellence, Measurement Strategy, Cycle TimeHarmonizing Core Business Processes, Leveraging IT Investments, Costs to Deliver,Strategic Governance, Value Chain Continues Improvements StrategiesPredictable Supply (Right First Time) and Costs (COGS); Waste and Loss Elimination, LeanTime© 2009 AMR Research, Inc. | Page 34

Driving Change© 2009 AMR Research, Inc. | Page 35

Who’s going to drive change?© 2009 AMR Research, Inc. | Page 36

How will changes occur to build trust and collaborationwithin the healthcare value chain?2007 2008•Sentiment favors government intervention•But the healthcare industry is divided as tolevel of involvementSource: 2008 AMRHealthcare Study© 2009 AMR Research, Inc. | Page 37

Supply Chain Model for Life Sciences© 2009 AMR Research, Inc. | Page 38

Supply Chain Talent /Organizational EvolutionMaturity mapping to the Demand Driven maturity modelStrategic PartnerFiefdoms- Standalone departments- Functional Independence- Separate Metrics- In-Fighting- Focus on one or (2) key stationsInternal Integration- Beginning connectionsBetween stations- Leadership established- Development of internal- Metrics and systemExternal Integration-Synchronized Activities-Focus on organizationcreating collaborativeopportunities withcustomers and suppliers- Visibility, Collaborationand Planning ToolsInvoked- Focus on reducing self inflicted wounds- Focus on (3) or (4) key stations-Organization viewedas strategicdifferentiator-Broad station span ofcontrol- Tightly integrated intotechnology and NPDIactivities- Expected to deliver“game changing”product and serviceofferingsReacting Anticipating Collaborating OrchestratingDemand Driven Stage© 2009 AMR Research, Inc. | Page 39

Are you building collaborative practices or developingcollaborative relationships?CollaborativeRelationships•Relationship and process driven•Continuous improvement to drivejoint value creation•Redesign for value•Aligned metrics to the shelf•Performance-driven businessnetworksCollaborativePractices•One off projects•Suppliers and hospitals havedifferent goals•Not integrated into hospital andsupplier workflows10987654321EnablersAligned metrics to serve the patientShared savingsJoint business process innovationCost-to-serve improvementsEnablersCPFRVMI programsData sharing: EDI, B2B, and portalsCost to DeliverTakeaway: Develop the vision that moves your organizationtowards collaborative relationships© 2009 AMR Research, Inc. | Page 40

Questions to AskProvider to ManufacturerManufacturer to Provider1. If I give you data, howwill you use it?2. How do you giveincentives to yoursales team to drivevalue?3. How do you measureeffectiveness?4. What matters themost: cost to serve orcost to deliver?5. What differentiatesyour brand, and howcommitted are you toinnovation?1. How good is your datatoday? Where are yougoing in the future?2. What is your gapbetween planning andexecution? How areyou closing this gap?3. How do you measureperformance?4. How committed areyou to drivinginnovation for thepatient?© 2009 AMR Research, Inc. | Page 41

JVC Discussions Must Transcend CostsCost 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 processincentives, service incentives?© 2009 AMR Research, Inc. | Page 42

Basic Cost to ServeCost Factors ConsideredData SourceBasis of CalculationPRODUCT COSTSRaw MaterialConversion Costs (direct overhead)EnergySG&A COSTSTransportationCustomer ServiceOrder HandlingA/R processingPromotional Discounts on PriceASSET RELATED COSTSInventory carrying costProduction Change overWarehouse costsSPECIAL HANDLING COSTSSpecial requestsReturnsDeductsERP + modelERP + modelERP + modelSimulation outputSimulation outputSimulation outputERP + modelModeledSimulation outputSimulation outputSimulation outputModel inputModel inputModel inputProduct mix with Bill of MaterialProduction line utilization – from model inputProduction line mixFrequency 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 customerInventory investment x carrying cost rateNumber of orders processedNumber of orders processed by warehouseSpecial orders separated in demand dataSeparated in demand data analysisSeparated in demand data analysisSource: OnPoint Group© 2009 AMR Research, Inc. | Page 43

Profitability – Conventional Contracting View of the Price WaterfallPrice/Cost IndexPerformance Based On-InvoiceDiscountsOff Invoice DiscountsStandard CostsMissing – Granular Insight into true Cost to ServeCourtesy © 2009 Model N, Inc. Model Performance Analytics© 2009 AMR Research, Inc. | Page 44

True Profitability View of the Price WaterfallExtended Price/ Cost IndexMarket Driven PriceReductionsPerformance Based Rebates, Admin Fees,Channel Settlements, PromosAsset Related CostsSpecial Handling CostsBasePriceProduct andMarket ValueAdjustmentsNegotiated On and OffInvoice DiscountsUnrecoveredCost to ServeCourtesy © 2009 Model N, Inc. Model Performance Analytics© 2009 AMR Research, Inc. | Page 45

Three habits of effective value chains• Focused and strategic investments in trading partnersoooAligned incentives for collaborationEnhance understanding and know-how of partners businessDevelopment of trading partners• Effective management of knowledge and informationflows amongst trading partnersooSharing of information in a timely mannerProduct and process improvement initiatives• Building trust amongst trading partnersoooReduces transaction costMonitor and measure performanceEvaluating relationships on more than just cost© 2009 AMR Research, Inc. | Page 46

Questions…?Hussain Moorajhmooraj@amrresearch.comCell: 617 823 9219© 2009 AMR Research, Inc. | Page 47

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