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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


Performance metrics for a wholesaler

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.


Performance metrics for a wholesaler

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


Performance metrics for a wholesaler

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


Performance metrics for a wholesaler

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:


Performance metrics for a wholesaler

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: 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. 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: 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. 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: 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. 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 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.

  • Strong Customer Orientation (Internal/External)

  • Drive for Internal/External Collaboration

  • Effective/Efficient Use of Resources

  • Evolving/Learning Together


Performance metrics for a wholesaler

Typical Performance Goals 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.

  • Perfect Order Fill Rate

  • Perfect Transaction Processing

  • No Returns or Waste

  • Minimal Inventory

  • Perfect Demand Information

  • Minimal Lead Time

  • Product Handling / Quality Assurance


Performance metrics for a wholesaler

Typical Performance Metrics 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.

  • Service Level Tiers

  • Days on Hand Tiers

  • Demand Management Incentives

  • Incentives / Penalties Related to Deductions

  • Return Management Incentives

  • etc.


Performance metrics for a wholesaler

Opportunities 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.

  • 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


Questions

Questions? 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.