Building Resiliency The Case for Change Supply Chain Management Site Operations and Logistics Overview February 17, 2017

What Does It Mean to Be Resilient? After going down three games to none against the Golden State Warriors, the Cleveland Cavaliers accomplished one of the greatest comebacks in modern era sports history. “I had to change. I had to change my game.” LeBron James

Advocate Health Care Background

Advocate Health Care Background Overview $6.4 billion of revenue 1.6 million unique patients 865,000 value based lives 35,000 associates Physicians/Ambulatory 1,400 employed + 400 APCs Over 6,000 physicians Over 450 sites of care Hospitals (12) 4 teaching 2 children's 1 critical access 5 level 1 trauma centers Post-acute Home health, hospice, SNF and palliative care

Advocate Health Care Background

The Beginning of the Change Journey The best time to plant a tree was ten years ago……….. The second best time is today.

Supply Chain Site Operations and Logistics Site Operations and Logistics has the operational responsibility for the management of $800M in annual medical supply expense across all Advocate point-of-care locations. Operating teams at all point-of-care facilities; All logistics, distribution and inventory management responsibilities; 265 FTEs; Annual Operating Budget: $42M; 24 / 7 / 365 Operating Schedule

Site Operations and Logistics - Leadership Taking people to places that they would not have otherwise gone on their own. Author Unknown Be Strategic Advisors to the Enterprise

Site Operations and Logistics – Guiding Principles Improve Patient Satisfaction / Outcome; Reduce Patient Risk Reduce Operating Expense Preserve Cash Eliminate Expired Product by 2020 Reduce Expense Patient Safety Preserve Cash Operational Excellence Reduce OPEX by $36M Reduce Inventory by $20M Supply Chain Management has the responsibility for patient care.

Healthcare – The Case for Change

It’s Time to Look Forward For many years healthcare has operated in a manner that is like driving a car through the rearview mirror….. But, times are changing.

Healthcare is Changing – Rising Costs McKinsey& Company evaluated the factors driving change in healthcare: Decline in government reimbursement; Changes in the commercial insurers; Rise of consumerism and patient payments; The healthcare network cost model is not sustainable without significant change.

Healthcare’s Burning Platform The most striking finding from McKinsey’s provider research is how drastically providers are expecting revenues to decline, and their resulting willingness to make dramatic changes in their operations: “We are facing 15-20% hard line reimbursement changes. We need to start making reductions in costs right now,” said one integrated delivery network (IDN) executive. Another reported: “Our organization’s leadership has said we need to be willing to change everything with the exception of our primary value proposition that the needs of the patient come first.”

Driving the Next Level of Supply Chain Savings While all costs are on the table, Supply Chain is universally considered one of the top priorities to contribute bottom line value. Healthcare Network Supply Chain

The Forces driving Change Problem Statement – Chief Nursing Officer: “We’ve got to reduce costs. I have been asked to eliminate 210 nurses and I don’t have a clue as to how to do this” Solution Statement – Supply Chain Site Operations and Logistics: We need to change. There are many back-office and operational support costs we can eliminate without impacting patient care”

Out of Balance Responsibilities Materials Management General Stores Supplies Regulatory Performance Standards Physician Satisfaction Clinical Care / Patient Satisfaction General Stores Supply Management Physician Satisfaction Ordering, Buying, Logistics Materials Management Product Expirations Clinical Associates Clinicians have been burdened with non-clinical responsibilities; Distracting the quality of patient care; and Resulting in unnecessary costs. 16

Alignment of Core Expertise Regulatory Performance Standards Physician Satisfaction Patient Satisfaction General Stores Supply Management Supply Chain Management All inventory management, distribution and logistics Physician Satisfaction Quality of Outcome Standards Product Expiration Clinical Care and Patient Satisfaction Supply Chain Management Clinical Associates Site Operations and Logistics has the responsibility now to manage the medical supply network life cycle – Logistics, Distribution, Replenishment. 17

Optimizing the Logistics Network

Advocate Logistics Channels – Initial State

Advocate Logistics Channels – Future State Vision Channel Optimization; Enterprise-wide Freight Management; Use of Logical Unit of Measure

Optimized Inventory Management

Automated 2-Bin Inventory Management Each SKU is evaluated based on historic usage analytics and a PAR level established; Two identical bins are prepared, each with the equivalent PAR value; The bins are then organized according to patient usage type and placed into a standardized and systematic environment. A predictable demand signal is now in place.

Inventory Management Standardization Inventory reduced by 40%; Supply Expense reduced by over $8M; Labor reduced by $4.3M

Automated Inventory Management * - Signifies Pilot Trial Candidate

Automated Clinical Workflows and Efficient Capture Data

Optimization through Real-Time Analytics

Site Operations and Logistics – Real Time Analytics Site Operations is focused on the development and advancement of real-time analytics: Non-Conforming Product Index Logistics Index DemandTrack Order Q QSight

Managing Product Expirations 2014 Baseline $3M in Waste = 35 Nurses

Managing Product Expirations

Managing Product Expirations

DemandTrack

DemandTrack

DemandTrack

Logistics Index

Logistics Index

Better Information | Better Management

Supply Chain Management Site Operations and Logistics

Supply Chain Management Site Operations and Logistics Order Q Dataflow

Supply room data collection terminal All-in-one touch PC; RFID reader; Supply Chain Management Site Operations and Logistics Order Q Components Supply room data collection terminal All-in-one touch PC; RFID reader; RFID tags affixed to bins Order Q manager’s desktop console Web-based dashboard; Provides visibility and controls

Site Operations and Logistics – QSight Technology

The World of Real-Time Analytics – Situation Room

Q&A