18/07/2013
1
Metrics that Drive Action, Not
Collect Dust!
Phil Pettigrew
Director, Materials Management
Denver Health
Denver, CO
Stewart Layhe
Supply Chain Project Manager
Denver Health
Denver, CO
18/07/2013
2
Problem Statement
» Supply chain should be integrated from manufacturer to the patient.
» Lack of integration between partners in the supply chain can introduce
waste and inefficiency.
» Metrics often come from departments outside supply chain.
» Inefficiencies in the supply chain sends disruptive ripples throughout the
entire chain creating waste.
» Optimizing one specific element or one specific level of the supply chain
in isolation can lead to unintended consequences elsewhere in the
supply chain.
» Currently there is no common sets of actionable metrics that measure
supply chain efficiency and effectiveness that point to specific actions
partners can take to eliminate waste from their processes.
» There is no accepted measure that tells an organization where they are
on the continuum of optimization of their supply chain.
Strategic Marketplace Initiative
• Consortium of manufacturer, distributor and provider executives
united to shape the future of the healthcare supply
• SMI create working teams with members from all three sides of
our industry to work on initiatives and projects to improve
healthcare supply chains
• These teams typically create a deliverable of a white paper or tool
that the industry can use to improve cooperation within our supply
chain and is available free from their web site
(http://www.smisupplychain.com)
• This presentation forms part of an initiative being co-lead by
Denver Health on Supply Chain Optimization.
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Expense Managed By Supply
Chain
Expense Area Benchmark
Supplies Price and Utilization
Instrumentation/ Minor Equipment Life Cycle Cost
Capital Equipment Life Cycle Cost
Purchased Services Price and Contracts
Supply Chain Operations
Expense Managed By Supply
Chain
Process & Operations Managed by Supply
Chain
Supply Chain
Optimization
A Very Short History Lesson
Perfect Order
Perfect Department Index
Supply Chain Optimization
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The Perfect Order
What is SMI’s ‘Perfect Order’?
A purchase order processed
electronically (from order to
payment) without human
intervention, which is delivered to
the correct location, on time,
undamaged, at the right price, with
the desired quantity, on the first
attempt. www.smisupplychain.com
• Purchase Order Received Electronically
• Delivered On Time and Complete
• Delivered to the Correct Location
• Undamaged
• Correct Price
• Order Is Shipped Complete
• Vendor Invoice Received Electronically
• Vendor Payment Sent Electronically
• Payment Received Within terms
• Invoice Paid In Full
The Perfect Department Index
Right
Reorder
System
Efficient
Layout
Right
Quantity
Right
Items Right Vendor Right Person
S.M.I.’s Perfect Order begins at
with a purchase order, Lean
begins at the start of the
process. Denver Health
created the Perfect Department
Index to move the metrics to
beginning of the process
% of items
with
optimized
inventory
levels
% of
order
lines from
a local
source
% of
requisition
lines created
electronically
% of lines
delivered
on time,
complete &
undamaged
% of
lines
invoiced
at the
correct
price
% of
electronic
invoices
% of
suppliers
using
E.F.T.
% paid
on time
and
complete
% of
purchase
order lines
transmitted
electronically
• Inventory Optimized
• Purchase Requisitions Created Electronically
• Sourced Locally
• Delivered On Time, Undamaged and Complete
• Purchase Order Transactions Electronic
• Invoiced At The Correct Price
• Vendor Invoice Received Electronically
• Vendor Payment Sent Electronically
• Payment Received Within terms and In Full
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Supply Chain Optimization
• Both the Perfect Order and the Perfect
Department Index looks at supply chain
operations through the hospital’s eyes
• SMI expanded the scope to include metrics and
best practices from manufacturer’s and
distributor’s perspective
• With this additional input the processes became
universal and can be used by any set of trading
partners
COMBINING THE INITIATIVES
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Merging the Perfect Order with The
Perfect Department Index -16 Metrics
Optimized Inventory
Pricing synchronized
electronically
Internal requisitions
created electronically
Purchase Order sent electronically
Purchase order confirmed
electronically
Purchase order updated
electronically
Local Sourcing
Delivered Complete
Delivered On Time
Delivered Undamaged
Delivered to the correct location
Pricing Correct Invoiced
electronically
Paid electronically
Paid within contract terms
Paid In full Optimized Inventory
Pricing synchronized electronically
Internal requisitions
created electronically
Purchase Order sent electronically
Purchase order confirmed
electronically
Purchase order updated
electronically
Local Sourcing
Delivered Complete
Delivered On Time
Delivered Undamaged
Delivered to the correct location
Pricing Correct Invoiced
electronically
Paid electronically
Paid within contract terms
Paid In full Plan
Price
Plan
Purchase Purchase
Purchase
Plan
Fill Receive
Receive
Receive
Price Pay
Pay
Pay
Pay
Six Business Processes
Six Business Processes
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Supply Chain Optimization
Best Practice
Metrics
For each proposed metric we
applied the following tests: • Does it measure performance between parties in the
supply chain?
• Is it easily defined?
• Is it easily collected?
• Does it lead to a clear action?
• Is it applicable across the supply chain?
• Would a supply chain manager in ___________
understand the metric?
Your
nomination
goes here!
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Plan
Characteristics Of Best Practice Inventory Processes
• Warehouses and stock locations are set out in a systematic and logical
sequence
• Stocked items and quantities are set by scientific means and reviewed
regularly
• Reorder systems are electronic using Automatic Identification and Data
Capture (AIDC)
• Supply Chain systems feed downstream systems (no ‘alternative’
descriptions, item status, etc.)
• Supplier concentration is a factor in sourcing product
• Single (business intelligence) data source for decision support
• SKU rationalization is part of the business process
• Product (service) team used in new product introduction
• Item master data is retrieved and updated from a GDSN and not created by
the purchaser
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Characteristics Of a Best Practice Inventory Processes
• All item data is synchronized through a GDSN
• All items ordered exist in the Item Master file
• Collaborative planning
• Vendors are selected in a way to minimize total supply chain stock levels
and costs
• Real-time visibility into backlog, order status, shipments, scheduled receipts
and inventory levels across the supply chain
• Available to Promise (ATP) data available in real-time
• Inventory target levels are reviewed and adjusted frequently
• Accurate lead times are shared through the supply chain
• Where appropriate, vendor managed inventory agreements are used to
manage and replenish inventory
• Real time point of consumption reporting
Process Area: Inventory Planning
Metric
% of purchase order lines associated with an Item Master number
% of purchase requisitions created electronically
Inventory cycle count accuracy
Material requisition cycle time
% of unique items (used by a single institution or single department)
Velocity reports (% of A,B and C items)
# touch points per item from dock to consumption
% of items tied to a GTIN number
% of items linked through the GDSN (by supplier)
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Price
Characteristics Of A Best Practice Pricing Relationship
All purchase order lines are associated with an Item
Master number
All items have an identified, current and accurate price
Trading partners synchronize all items and the 832
updates all prices, not just those with anticipated
changes
Contract pricing is reviewed and updated via EDI 832
messages in a timely manner. 832 are received at least
monthly and changes are worked within a day.
When the purchase order price returned through an 855
message doesn't match the order confirmation price they
are worked within an hour
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Process Area: Pricing
Metric
% of purchase order lines associated to an Item Master number
% of items in the Item Master linked to a current contract
% of item lines that are updated via EDI 832
# of items with recurring contract price exceptions on EDI items per reporting period
% of purchase order lines where an EDI 855 confirmation is received
% of order lines with a vendor item number update received in the EDI 855 message
% of order lines with a price update received in the EDI 855 message
% of order lines with a unit of measure update received in the EDI 855 message
Purchase
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Characteristics Of A Best Practice Purchase
Relationship
• Outbound purchase orders sent via EDI 850 message
• Purchase orders acknowledged via EDI 855 message
• Purchase order lines are updated back into the
originating system based on the EDI 855 message
(Timeframe)
• EDI messages contain GLN and GTIN data
• Supplier performance data is collected, analyzed and
reported by provider to the suppliers
Process Area: Purchasing
Metric
Cycle time from requisition creation to purchase order sent
% of purchase requisition lines not created electronically
% of purchase order lines sent through an EDI 850 message
% of purchase order lines confirmed through an EDI 855 message
% of order lines with a vendor item number update received in the EDI 855 message
% of order lines with a price update received in the EDI 855 message
% of order lines with a unit of measure update received in the EDI 855 message
% of 850 order lines containing a GLN and GTIN
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Fill
Characteristics Of An Best Practice Fill Rate
Relationship
• Adequate quantities of product are available to fill the
order complete at first attempt
• Regular business reviews are held to share changes in
demand
• Inventory at the supplier is available for the customer to
view
• Demand is forecast by the customer and shared with the
suppliers
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Process Area: Fill Rates
Metric
# Of RGAs
% Line Fill rates by order
% Line Fill rates by product
% of order lines with a back order
% of items filled complete on the first pick
% of units filled complete (Distributor to Manufacturer.)
# Of fill failures (PAR = 0 at replenishment time)
% cycle count lines with a discrepancy
Receive
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Characteristics Of An Best Practice Receiving
Relationship
• Shipments are accompanied by an accurate EDI 856 message
• Items are received directly to stock through the EDI 856 message
• Transactions are completed using Automatic Identification and Data
Capture (AIDC)
• Receipt is as close as possible to the point of use
• Orders filled complete and on-time
• Payments (via Evaluated Receipt) can be made off the 856 if you
use an 832 and an 855 to ensure accurate pricing.
Process Area: Receiving
Metric
% of on-time deliveries to request date (promise date?)
% of suppliers sending an 856
% of purchase order lines received directly into stock with an 856. (May be timing issues when
on-hand inventory is updated)
Number of lines where EDI 856 data was incorrect
# Of RGAs
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Pay
Characteristics Of A Best Practice Payment
Relationship
• Invoices are processed via EDI 810
• EDI 810 messages contain GLN & GTIN data
• EDI 810 invoices are pulled directly into the customers ERP system
and automatically matched
• Payments are made to the supplier via EDI 820 or ACH messages
• Methods of matching Add-On costs
• Evaluated Receipts payments
• Payments (via Evaluated Receipt) can be made off the 856 if you
use an 832 and an 855 to ensure accurate pricing.
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Process Area: Payment
Metric
% of invoice lines paid late (Need clear definition of late)
% of order lines invoiced electronically (810)
Days sales outstanding
% of order lines paid electronically (820/ACH)
% of Prompt pay discounts taken
% Invoices paid in full
% Invoices paid on time
Days payables outstanding
% of invoices paid late where the entire invoice payment is delayed because one line has a
discrepancy % of invoices paid short
REAL-LIFE USE OF THE
METRICS
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Real-Life Use Of The Metrics
• Most organizations will only use this
process with their strategic vendors
• Each process will have one or two critical
metrics that organizations will collect
• The lowest scoring processes point to the
areas where organizations will use the
deeper level metrics
Conduct Business Reviews With
Key Suppliers
Pla
n
Price
Pu
rch
ase
Fill
Re
ce
ive
Pay
92 84 92 87 95 94
Review Scorecard
Focus on the Price Business Process
Metrics to Establish Causes
84
Focus on the Fill Business Process
Metrics to Establish Causes
87
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VALIDATING THE METRICS IN
A REAL-WORLD EXAMPLE
Denver Heath and Owens & Minor
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PRICING
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Pricing – Best Practice and Metrics
All purchase order lines are associated with an
Item Master number
All items have an identified, current and accurate
price
Trading partners synchronize all items and the
832 updates all prices, not just those with
anticipated changes
Contract pricing is reviewed and updated via EDI
832 messages in a timely manner. 832 are
received at least monthly and changes are
worked within a day.
When the purchase order price returned through
an 855 message doesn't match the order
confirmation price they are worked within an hour
% of purchase order lines associated to an Item
Master number
% of items in the Item Master linked to a current
contract
% of item lines that are updated via EDI 832
# of items with recurring contract price exceptions
on EDI items per reporting period
% of purchase order lines where an EDI 855
confirmation is received
% of order lines with a vendor item number
update received in the EDI 855 message
% of order lines with a price update received in
the EDI 855 message
% of order lines with a unit of measure update
received in the EDI 855 message
FILL
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Five Fill root cause categories
• Over-usage versus history
• Usage correct, but failed to fill (order timing)
• Manufacturer’s backorder
• Branch non-stock orders (leadtime)
• Discontinued products
Adequate quantities of product
are available to fill the order
complete at first attempt
Regular business reviews are
held to share changes in
demand
Inventory at the supplier is
available for the customer to
view
Demand is forecast by the
customer and shared with the
suppliers
Fill - Best Practice and Metrics
# Of RGAs
% Line Fill rates by order
% Line Fill rates by product
% of order lines with a back
order
% of items filled complete on
the first pick
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Are we really covering the full
cycle?
Options for further development…
Enable
Pla
n
Pri
ce
Purc
ha
se
Fill
Receiv
e
Pay
Optim
ize
Enable Maintain source data
Manage product inventory plan
Manage supplier/distributor network
Plan clinical training & communication
Optimize Analyze patient outcome
Measure cost effectiveness of the product
Analyze safety/surveillance data
Analyze impact on patient satisfaction
Analyze warranty and returns
Best Practice
Metrics
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Questions?
Phil Pettigrew, Director, Materials Management
Denver Health Denver, CO
Stewart Layhe, Supply Chain Project Manager
Denver Health Denver, CO