Moving from Warehouse to Distribution Center Cross Docking

Todd Brandt Unit Head - Logistics Warehousing Tom Stewart Finance Manager Materials Management Financial Analysis Mayo Clinic Rochester, MN

Agenda  Mayo Clinic Background  Warehouse vs. Distribution Center  Need for Change  Road to Success  Value

 Mayo’s Mission  Mayo will provide the best care to every patient every day through integrated clinical practice, education, and research.  Primary Value  The needs of a patient come first.

Mayo Clinic Scottsdale, AZ Mayo Clinic Scottsdale, AZ Mayo Clinic Rochester, MN Mayo Clinic Rochester, MN Mayo Clinic Jacksonville, FL Mayo Clinic Jacksonville, FL Rochester Methodist Hospital Rochester Methodist Hospital Saint Marys Hospital Saint Marys Hospital Charter House Charter House Mayo Health System* Mayo Health System* Mayo Clinic Hospital Mayo Clinic Hospital St. Luke’s Hospital St. Luke’s Hospital * A network of clinics and hospitals in 64 communities in southern Minnesota, northern Iowa, and western Wisconsin

Mayo Clinic Rochester 28,080 Employees* 322,772 Unique Patients* 1,951 Licensed Beds* 77 Buildings $633M of Supply Spend *as of 9/06

Mayo Distribution Center  60,000 sq ft with 24 ft Ceilings  5,000 sq ft Mezzanine  4,000 sq ft Controlled Environment Area  8,000 Lines / day Ordered  > 50% low unit measure lines  700 Customer Requisitions Daily  400 – 500 Receiving Lines Daily  Average Tenure = 16 Years

What is a Warehouse?  Warehouse  Storage  Minimize expense  Fill it up!  Few metrics

Past- The 90’s  Product Migration  Inventory  Low visibility  Few policies and procedures  No stocking criteria  Traditional Approach  Fill it up!

Measurements

Past- New Millennium  Product Stabilization  Inventory  Increased visibility  Develop policies and procedures  Unofficial stocking criteria  Guarded Approach  Limited space available

Measurements

Need for Change  Customer Needs  Just in time  Low unit of measure  Growth  Space utilization  Financial Viability  Change patient demographics  Improving cost structure

What is a Distribution Center?  Distribution Center  Organized process  Customer focused  Unique demands  Visible metrics  Cross docking  Consolidation area

Road to success  Assemble Team  Create Strategy Map  Determine Baseline  Implement Plan  Measure Progress  Have Some FUN!

Assembled Team  Leadership Sponsor  Analytical Staff  Line Staff  Supervisors  Systems Support  Consultant

Strategy Map  Current State  Future State  Road Map

Slow Moving Parts  Defined Slow Moving  Identify Items  Criteria  Communicate  Disposition  Monitor

Velocity and ABC Codes  What is Needed  Create Legend  Slotting  Correct Size  Label SKUs  Reporting

Velocity and ABC Codes Classification Based on Point System* Order ScheduleLocation Capacity A 2 points Ordered daily by the largest customer base. Min. 3 days B 3 points More than one Customer was ordering either daily or weekly. Min. 1 week C 4 points More than one customer ordered at least once per week. Min. 2 weeks D 5 points 19 customers are ordering less than once per week or less than 52 times per year. All E Single Customer SKUsOne customer orders daily. Min. 3 days F Single Customer SKUs One customer was ordering either daily or weekly Min. 1 week G Single Customer or Critical (NMMC) SKUs One customer was ordering less than once per week or less than 52 times per year. Min. 2 weeks

631 “A” SKUs 29 Pick Aisles 2 Floors 427 Over-Stock Locations “A” Velocity SKUs Current Locations

Order Management and Staff Optimization  Current Patterns  Institution Needs  Customer Needs  Who Controls?  Change

Technology  Enterprise Resource Planning  Point of Use  Warehouse Management  Lot tracking  Expiration tracking  Electronic transactions  Staff productivity

Standard Operating Procedures (SOP’s)  Requires Process Changes  Inventory control  Slotting  Receiving  Picking  Cycle counting  Communication Tool  Change Behaviors

Distribution Processing*  Customers Needs  Lean Process  Save Space  Reduced Inventor * Internal or External

Cross Docking  Consolidation  Non-stocks  Delivery Times  Reduce trips  Space

Current State  Stock to Non-stock  Inventory  High visibility  Turns  Implement SOP’s  Official stocking criteria  Lean Approach  Low unit of measure

631 “A” SKUs 10 Pick Aisles Ground Floor 211 Over-Stock Locations “A” Velocity SKUs New Locations

Product Slotting

Measurements

Value  Customer Satisfaction  Right product  Right place  Right time  Growth  Optimize space needed for growth  Financial Viability  Optimize Staffing  Improved inventory turnover  Inventory reductions

Cost to Serve Benchmarks *Data provided by National Medical Logistics 2.0% 3.5% 5.0% 6.5% 8.0% 9.5% C O S T T O S E R V E SCHEDULED BULK DEL. 3 DAYS/ WK NEXT DAY BULK DEL.. 5 DAYS/ WK LOW UNIT DEL TO PAR LOC 5 DAYS/WK LOW UNIT TO PAR LOC. 7 DAYS/WK CROSS DOCKING SERVICES UNLIMITED STAT ORDER DEL 98%+ FILL RATE COMMITMENT SERVICE OFFERING

Future State  Laboratory Expansion  Lot track  Temperature sensitive  Clinical Growth  Space constraints  Flexibility

Best Practices  Key Performance Indicators  Documented SOPs  Point-of-use Replenishment Process  Scheduled Pick Waves  Scheduled Deliveries  Velocity Slotting

Summary  Evolution  Traditional warehouse  Distribution model  Customer  Flexibility  Value  Lower cost  Quality

Q & A