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Performance Metrics for a Wholesaler / Distributor. Michael Kody VP, Supply Chain Solutions April 2007. Introduction.

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performance metrics for a wholesaler distributor

Performance Metrics for a Wholesaler / Distributor

Michael Kody

VP, Supply Chain Solutions

April 2007

slide2

Introduction

Michael Kody, Vice President of Supply Chain solutions at AmerisourceBergen Corporation. We are a roughly $70B company that delivers pharmaceuticals and medical supplies to thousands of retail and institutional pharmacy customers on a just-in-time basis.  We also provide consulting services to help healthcare providers improve their businesses and focus on their strengths.

slide3

Industry Overview

  • $300B in pharmaceuticals distributed across the United States
  • 80% through Wholesalers/Distributors (10% to mail order services/government, 10% Large Chains, 1% to hospitals)
  • To Patients – (22% hospitals; 15% independents; 41% chains; 22% mail order; government, doctors, other)
  • 80% of hospital pharmaceuticals received through Wholesalers/Distributors
prescription drugs flow 275b 2006
Prescription Drugs Flow ($275B 2006)

1%

Hospitals/ Clinics

22%

21%

15%

Ind. Pharm.

15%

Patients

100%

Manufs.

100%

Dists.

80%

Chain Whses

18%

80%

9%

18%

Chain Pharmacy

41%

23%

9%

12%

Drs. / Mail

Gov’t / Other

22%

10%

Source: IMS

slide5

Wholesaler Coverage of US Population

  • ABC provides next day service to the entire United States
  • Our 26 distribution centers are distributed around population centers while ensuring coverage to remote locations
  • More than 90% of the US population is within 100 miles of a distribution center
  • Only the most remote areas are more than a 10 hour drive from a distribution center
  • Physical proximity to people and logistical networks are the drivers for leveraging Wholesalers in a flexible value chain
slide6

Inventory and Sales Considerations

  • Typical on hand / on order quantities as well as demand variability
  • Inventory is based upon customers’ expected demand
  • Generally only maintain a few weeks of supply in inventory
  • Demand often fluctuates (we may see orders triple)
  • Events drive customers orders variability
understanding the bull whip
Understanding The Bull Whip
  • Assume that you are responsible for order product for ABC’s DC:
  • Customer’s order everyday,
  • Unfilled demand remains on-order,
  • Manufacturer’s deliver once a week,
  • Manufacturer’s have a one week lead time, and
  • Demand has been $1B each and every week for years.
understanding the bull whip1
Understanding The Bull Whip

Assume that your company picks up a new customer and Customer Orders are now $1.5B per week (every week).

What do you do?

understanding the bull whip2
Understanding The Bull Whip

Assume that your company picks up a new customer and Customer Orders are now $1.5B per week (every week).

understanding the bull whip3
Understanding The Bull Whip

Perfect knowledge would result in 3 weeks of disruption (treasury, freight management, DCs, sales, marketing, etc.) and incorrect demand signals to the supplier:

slide11

A significant change occurred in 2004/2005 in the U.S. Pharmaceutical supply chain with the implementation of the Fee-for-Service model. The traditional role of the “wholesaler” transitioned into a role of a supplier of “distribution services” to both upstream manufacturers and downstream dispensing customers.

rx value supply chain previous state
Rx Value (Supply) Chain:Previous State

No

Transparency

Profit

Sharing

Trade

Wholesaler

Retail/Health

Systems

Dispenser

Rx

Manufacturer

Buy/Sell

Buy/Sell

Focus on

Channel Revenue

Speculative

Buying

Best Price

rx value supply chain current post ffs state
Rx Value (Supply) Chain:Current (Post FFS) State

Transparency/Performance

Based

Total Value

Trade

“Supply Chain

Services”

Retail/Health

Systems

Dispenser

Rx

Manufacturer

Expanded

Services

Service Fee

Focus on

Channel Management

(Fragmented Channel)

Supply Chain Excellence (Service, Inventory & Performance Management)

Healthcare Margin Management

supply chain management excellence three levers of success margin
Supply Chain Management Excellence:Three Levers of Success (MARGIN)
  • Capital Investment (D.C.’s)
  • Core Technologies (PkMS)
  • 3rd Parties (Transportation)

Inventory Mgmt

  • Service Level/Demand

Management

  • Value Added Services
  • Execution Governance
  • Demand Visibility
  • Inventory Management

Processes

  • Collaboration
themes for success
Themes for Success
  • Strong Customer Orientation (Internal/External)
  • Drive for Internal/External Collaboration
  • Effective/Efficient Use of Resources
  • Evolving/Learning Together
slide16

Typical Performance Goals

  • Perfect Order Fill Rate
  • Perfect Transaction Processing
  • No Returns or Waste
  • Minimal Inventory
  • Perfect Demand Information
  • Minimal Lead Time
  • Product Handling / Quality Assurance
slide17

Typical Performance Metrics

  • Service Level Tiers
  • Days on Hand Tiers
  • Demand Management Incentives
  • Incentives / Penalties Related to Deductions
  • Return Management Incentives
  • etc.
slide18

Opportunities

  • Mutual Understanding of Business Challenges and Opportunities
  • Collaborative Decisions Based Upon Increased Value in the Supply Chain
  • Performance Metrics that are Simple and Motivate Value Added Behavior
  • Knowledge Sharing and SOP
  • Performance Incentives for Value Added Collaborative Projects
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