WARFIGHTER FOCUSED, GLOBALLY RESPONSIVE SUPPLY CHAIN LEADERSHIP 1 DEFENSE LOGISTICS AGENCY AMERICA’S COMBAT LOGISTICS SUPPORT AGENCY DEFENSE LOGISTICS AGENCY AMERICA’S COMBAT LOGISTICS SUPPORT AGENCY WARFIGHTER SUPPORT ENHANCEMENT STEWARDSHIP EXCELLENCE WORKFORCE DEVELOPMENT Medical Supply Chain Sourcing Optimization Initiative Update Presented to: Navy Medical Logistics Symposium Nancy Richardson Team Lead, Joint Implementation Team Medical Customer Operations Directorate DLA Troop Support Forward Cell June 6 th, 2012

WARFIGHTER FOCUSED, GLOBALLY RESPONSIVE SUPPLY CHAIN LEADERSHIP 2 Agenda Background and Overview of Sourcing Optimization Initiative Realized cost reduction update 2 nd Qtr FY 2012 Business Intelligence Plan prior to and during Gen IV transition Business Intelligence Plan post Gen IV transition Lessons Learned Approach To Future Cost Reduction Initiatives

WARFIGHTER FOCUSED, GLOBALLY RESPONSIVE SUPPLY CHAIN LEADERSHIP 3 33 SOSAnnual Dollar$Annual Orders Open Market$8,817, MILSTRIP$13,872,02336,447 ECAT$26,548,76491,241 PC$72,643,125215,370 PV$624,812,7061,105,704 Totals $746,694,3191,449,039 Optimization & Time Saving

WARFIGHTER FOCUSED, GLOBALLY RESPONSIVE SUPPLY CHAIN LEADERSHIP 4 44 Background Genesis: FY 2010 Joint Logistics Board proposal Follow on initiative: “Sourcing Optimization” –Determine opportunities to reduce delivered costs of medical materiel Pharmaceuticals (Brand Name/AB-rated Generic) Med/Surg Consumables (Identical) Joint Medical Team developed proposal containing 8 initiatives to reduce costs by $254M over the FYDP –2 cost elements: Administrative and Product Approved by OSD and Services/Agency POMs adjusted accordingly Joint Medical Team implemented plan to realize cost reductions and report success Effort proceeding as planned…First and Second Quarter, 2012 results on target 4

WARFIGHTER FOCUSED, GLOBALLY RESPONSIVE SUPPLY CHAIN LEADERSHIP 5 Medical/Surgical Prime Vendor and ECAT Optimization Through Use of Medical/Surgical BI Tools ~$40M Price100%~$40M Med/Surg MILSTRIP Orders Redirect MILSTRIP Orders to Ecommerce ~$15M Price/~$85M CRR100%~$100M Pharmaceutical MILSTRIP Orders Educate Customers to use Ecommerce versus MILSTRIP ~$4M Price/~$16M CRR100%~$20M AreaApproachProjected 5 Year Cost Reductions Probability WeightingProjected Realization 5 Year Reduction * Pharmaceutical Prime Vendor Optimization Through Use of Pharmaceutical BI Tools ~$120M Price50%~$60M Ecommerce Expansion Add VA and GSA FSS Items To ECAT/PV ~$10.2M Price50%~$5.1M VA FSS Pharmaceutical Prices Compel VA to enforce its rules on use of Prime Vendor Clause ~$41.5M Price50%~$20.75M Pharmaceutical Prime Vendor Eliminate VA Industrial Funding Fee ~$60M Price10%~$6M Pharmaceutical Prime Vendor Pay Prime Vendors in 1 day versus 10 to 15 days ~$22.5M Price10%~$2.25M High Probability of Full Implementation Medium Probability of Full Implementation Low Probability of Full Implementation *Note: Anticipated Realization Of Reductions: Year 1—10%; Year 2—15%; Year 3—25%; Year 4—25% and Year 5—25% Total Projected Five Year Reduction In Price ($153M) and CRR ($101M)~$254.1M Sourcing Optimization – 8 Initiatives

WARFIGHTER FOCUSED, GLOBALLY RESPONSIVE SUPPLY CHAIN LEADERSHIP 6 66 Initial Cost Tracking Prototype up and functioning as designed –Base: 4 th Quarter, FY2011…data loaded –Target: 1 st Quarter, 2012…data loaded Process produces 6 key “excursions” to aid in tracking cost reductions –1. Pharm Cost reductions 5% or greater based on CPOC* recommendations –2. TMOP Cost reductions 5% or greater based on CPOC recommendations –3. Pharm Cost reductions of 5% or greater based on independent actions –4. TMOP Cost reductions of 5% or greater based on independent actions –5. Med/Surg cost reductions of 5% or greater based on eZSAVe –6. Med/Surg cost reductions of 5% or greater based independent actions Reports available at various levels from DoD to individual DODAAC Drill down capability to DODAAC/order level Cost reduction logic is very conservative leaving room for adjustment based on Service/TMOP confirmation 6 * CPOC: Customer Pharmacy Operations Cell Realized Cost Reduction Tracking Tool

WARFIGHTER FOCUSED, GLOBALLY RESPONSIVE SUPPLY CHAIN LEADERSHIP 7 Medical/Surgical Prime Vendor Optimize Use of Med/ Surg Business Intel Tools $1.2M Med/Surg & Pharm MILSTRIP Orders Redirect MILSTRIP Orders to Ecommerce $2.5M AreaApproach Realized Reductions 2 nd Qtr Pharmaceutical Prime Vendor Optimize use of Pharm Business Intel Tools $9.1M Ecommerce Expansion Add VA and GSA FSS Items To ECAT/PV $0.05M VA FSS Pharmaceutical Prices Compel VA to enforce its rules on use of Prime Vendor Clause $0.0 Pharmaceutical Prime Vendor Eliminate VA Industrial Funding Fee $0.0 Pharmaceutical Prime Vendor Pay Prime Vendors in 1 day versus 10 to 15 days $0.0 High Probability of Full Implementation Medium Probability of Full Implementation Low Probability of Full Implementation * Anticipated realization of reductions: Year 1—10%; Year 2—15%; Year 3—25%; Year 4—25% and Year 5—25% $12.8M Medical Supply Chain Sourcing Optimization Initiative 7 2 nd Quarter 2012 Realized Cost Reductions 1 ST QTR Realized Reductions $9.9 million

WARFIGHTER FOCUSED, GLOBALLY RESPONSIVE SUPPLY CHAIN LEADERSHIP 8 Medical/Surgical Prime Vendor Optimize Use of Med/ Surg Business Intel Tools $4.0M$1.5M37% Med/Surg & Pharm MILSTRIP Orders Redirect MILSTRIP Orders to Ecommerce $12.0M$4.4M36% AreaApproach FY 2012 Projected Reductions Year Realized Reductions FY 2012 To Date Percent of Goal Year. Pharmaceutical Prime Vendor Optimize use of Pharm Business Intel Tools $6.0M$16.7M279% Ecommerce Expansion Add VA and GSA FSS Items To ECAT/PV $0.51M$0.095M19% VA FSS Pharmaceutical Prices Compel VA to enforce its rules on use of Prime Vendor Clause $2.1M$0.00% Pharmaceutical Prime Vendor Eliminate VA Industrial Funding Fee $0.6M$0.00% Pharmaceutical Prime Vendor Pay Prime Vendors in 1 day versus 10 to 15 days $0.22M$0.00% High Probability of Full Implementation Medium Probability of Full Implementation Low Probability of Full Implementation * Anticipated realization of reductions: Year 1—10%; Year 2—15%; Year 3—25%; Year 4—25% and Year 5—25% $25.41M$22.7M89% Medical Supply Chain Sourcing Optimization Initiative Cost Reductions Projected vs. Actual To Date 8

WARFIGHTER FOCUSED, GLOBALLY RESPONSIVE SUPPLY CHAIN LEADERSHIP 9 1 st and 2 nd Quarter 2012 Cost Reductions By Service Medical Supply Chain OSD Cost Reduction Initiative

WARFIGHTER FOCUSED, GLOBALLY RESPONSIVE SUPPLY CHAIN LEADERSHIP 10 Business Intelligence Tools Prior to and During Gen IV Transition All users continue to use Best Pharm and National Contract Compliance reports for pharmaceuticals Sites transitioning in June and beyond –Review eZSAVe recommendations through month prior to transition –Validate key recommended items using Medical Master Catalog (MMC) portal to confirm availability in GEN IV post transition All sites –No eZSAVe Med/Surg recommendations available the month of and month after transition to Gen IV Allow GEN IV catalog and receipt data to be collected and analyzed MedPDB will continue to be available before/during/after Gen IV transition –MedPDB useful to research items for: Product Sourcing Requests for items not in Medical Master Catalog Commercial items pricing benchmarks Functional equivalents Available items at other sites Packaging and pricing data

WARFIGHTER FOCUSED, GLOBALLY RESPONSIVE SUPPLY CHAIN LEADERSHIP 11 Business Intelligence Tools Post Gen IV Implementation All users continue to use Best Pharm and National Contract Compliance reports for pharmaceuticals DMLSS users: DMLSS-Retail Sourcing Optimization tools –Best Med Report for Med/Surg items Identifies lower priced PVON for identical item Recommends equivalent items (requires clinical review) Phase I … manual build of sourcing record upon selection Phase II…system automatically builds sourcing record upon selection –DLA Sourced NSN – Commercial Sourcing Pending Action Identifies commercial sources for NSN items –Automatically builds sourcing record upon selection –eZSave provides supplemental sourcing optimization functionality TEWLS users continue to use eZSAVe for Sourcing Optimization of Med/Surg items MedPDB will continue to be available after Gen IV transition

WARFIGHTER FOCUSED, GLOBALLY RESPONSIVE SUPPLY CHAIN LEADERSHIP 12 WARFIGHTER FOCUSED, GLOBALLY RESPONSIVE SUPPLY CHAIN LEADERSHIP 12 Leading the effort allows us the opportunity to control our own destiny Data-driven, Collaborative Effort –DLA - Enabled, Service - Executed Proactive, Forward-leaning Engagement –Services empowered to focus efforts where greatest potential returns Clinically-driven Decisions –No decrement to quality of medical care Transparency in Data and Processes –Mission partners enjoined in achieving unified goals Goals based on empirical data versus theoretical projections –Set realistic expectations early in the process Measure and publish actualized results to leadership –Maintain Accountability, Grow Credibility, Prepare Responsibly for next budget challenge OSD Cost Reduction – Lessons Learned 12

WARFIGHTER FOCUSED, GLOBALLY RESPONSIVE SUPPLY CHAIN LEADERSHIP 13 WARFIGHTER FOCUSED, GLOBALLY RESPONSIVE SUPPLY CHAIN LEADERSHIP 13 Prepare now –Formalize Joint Medical Team…Expand current strategies/explore new –Continue to invest in and leverage Business Intelligence tools to identify opportunities to further reduce costs –Assign best and brightest to the DLA Customer Optimization Office to refine its capabilities and effectiveness and return expertise to Services Further reduce DoD materiel costs –Maximize use of Ecommerce –Optimize transition to less expensive equivalents –Increase agility to exploit market changes…expiration of patents, etc. –Optimize pharmaceutical channel bandwidth (retail, mail order, MTF) –Improve, track and recognize discipline, accountability and management Level spending across the fiscal year Manage and use of Prime Vendor credits Approach To Future Cost Reduction Initiatives DLA…your mission Partner for quality optimized Medical Supply Chain solutions 13

WARFIGHTER FOCUSED, GLOBALLY RESPONSIVE SUPPLY CHAIN LEADERSHIP 14 WARFIGHTER FOCUSED, GLOBALLY RESPONSIVE SUPPLY CHAIN LEADERSHIP 14 eZ SAVe –Follow eZ SAVe SOP on NMLC Web Page –Take action on monthly eZ SAVe recommendations, top 20 or all >$1,000 PPR Best Pharm Report –Have pharmacist download, review, and make changes, top 10 recommended changes National Contract Compliance Report, –Realign item or sourcing for non-compliant purchases, top 10 PPR recommendations What to do at MTF

WARFIGHTER FOCUSED, GLOBALLY RESPONSIVE SUPPLY CHAIN LEADERSHIP 15 WARFIGHTER FOCUSED, GLOBALLY RESPONSIVE SUPPLY CHAIN LEADERSHIP 15 Questions