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Performance Metrics for a Wholesaler / Distributor

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

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

  2. 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.

  3. 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

  4. 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

  5. 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

  6. 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

  7. 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.

  8. 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?

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

  10. 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:

  11. 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.

  12. 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

  13. 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

  14. 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

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

  16. 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

  17. Typical Performance Metrics • Service Level Tiers • Days on Hand Tiers • Demand Management Incentives • Incentives / Penalties Related to Deductions • Return Management Incentives • etc.

  18. 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

  19. Questions?

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