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

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

3. Using Point-of-Use Systems to Implement Demand Pull Inventory Bill Mosser, CMRP Managing Director- Supply Chain Services Temple University Health System Philadelphia, PA

4. 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

5. TUHS 5 Hospital System (non-profit) in Northeast Philadelphia Temple 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 Goals Employer of Choice Premier Healthcare System within our market 2% operating margin on healthcare operations

6. Healthcare Operations Snapshot Press 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 independent Supply Chain Goals Reduce operating expenses by $27-32 million by FY2006 Improve service & quality through improved relationships Develop capability within 18 months or buy it

7. TUHS Supply Chain Strategy Our three year strategy is to convert from the traditional decentralized, vendor driven, reactive model with different contracts, catalogs and processes to a system wide integrated supply chain complete with Demand Pull, Vendor Owned Inventory, Supply Formulary driven model with full contract compliance .Our three year strategy is to convert from the traditional decentralized, vendor driven, reactive model with different contracts, catalogs and processes to a system wide integrated supply chain complete with Demand Pull, Vendor Owned Inventory, Supply Formulary driven model with full contract compliance .

8. TUHS Supply Chain Strategy We�ve taken a building block approach focusing our initial efforts on developing the infrastructure to sustain an expanded and long term strategy. The green blocks have been completed. The yellow blocks are in the development and implementation staged for FY2006,. The gray boxes represent our future plans to complete the integration process.We�ve taken a building block approach focusing our initial efforts on developing the infrastructure to sustain an expanded and long term strategy. The green blocks have been completed. The yellow blocks are in the development and implementation staged for FY2006,. The gray boxes represent our future plans to complete the integration process.

9. 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 KPIs 25th % or better in Supply $ as % of NPR & TOE; and per APD 75th % in Supply $ per AD Inventory $$ Too much on the shelves Proliferation of New Products �Back Door� Purchasing 50% of total purchasing w/o POs Contracts are Missing <60% of Supply Contracts <25% of Purchased Services Deliveries Bypass Receiving Procurement Controls are Lacking

10. FY04 Year End Inventory Levels

11. Supply Variety Too many varieties Too many vendors Different prices at each hospital Stock versus Non-stock ordering confusion Training on new products

12. 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

13. 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

14. 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?

15. TUHS Supply Distribution Chain

16. Pharmaceutical distribution process Typically there are more than 19 steps in a typical hospital pharmaceutical distribution process (if possible, customize for customer)Typically there are more than 19 steps in a typical hospital pharmaceutical distribution process (if possible, customize for customer)

17. Med/Surg distribution process Typically there are more than 20 steps in a hospital med-surg distribution process (if possible, customize for customer) Typically there are more than 20 steps in a hospital med-surg distribution process (if possible, customize for customer)

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19. How do we Resolve? One company. One solution. One source. Cardinal Health. One company. One solution. One source. Cardinal Health.

20. 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.

21. TUHS Supply Chain Vision Effectively Integrated

23. Clinical Staff Involvement in Supply Chain LogisticSource can reduce the supply chain steps of pharmaceuticals & supplies by more than 70% LogisticSource can reduce the supply chain steps of pharmaceuticals & supplies by more than 70%

25. Value Proposition Establish Framework for TUHS to gain full control over: Non-Wage Data Integrity Challenges across the health system Contract Management Product Management Procurement Cycle Point of Use Inventory Utilization Supply Distribution & Logistics Efficiencies Implement Tools and Improvements to drive and sustain savings Complement or replace existing Business and Technology investments Allow TUHS to provide a best practice supply distribution model Monitor & track progress on an on-going basis

34. ANY QUESTIONS??