Staying Relevant in a High Volume, Commoditized, Medical Device Product Line in Manufacturing...

Staying relevant in high-volume, commoditized, IMPORTANT medical devices

Beth KrenzerSVP Manufacturing

© Copyright 2011, Cardinal Health, Inc. or one of its subsidiaries. All rights reserved.

July 4, 2012SVP, Manufacturing

The volume is there….but !?!

• SURVIVAL !!!

© Copyright 2011, Cardinal Health, Inc. or one of its subsidiaries. All rights reserved.2

Agenda

• Who is Cardinal Health?• Surgical gown journey

– Network studies:– Effective transfer: Product/process/people

• Risk management and compliance• Journey continues


Cardinal Health helps healthcare providers focus on patient carep pwhile reducing costs, enhancing efficiency and improving qualityefficiency and improving quality.

32K+21st $103B© Copyright 2011, Cardinal Health, Inc. or one of its subsidiaries. All rights reserved.

32Kemployees

across the globe

21ston Fortune 500

$103Bin annual revenue

4

Did you know?

We deliver to more than

We deliver approximately Approximately We dispense

nearly

60Khealthcare sites in the

U.S. each day.

1/4of all medications

prescribed in the U.S. each day

1/2of all surgeries in the U.S. use our products

nearly

12Mradiopharmaceutical

doses annually.each day. our products. doses annually.


Two segments: Pharmaceutical and Medical

Pharmaceutical SegmentPharmaceutical Segment Medical SegmentMedical SegmentPharmaceutical SegmentPharmaceutical Segment Medical SegmentMedical Segment


Medical Segment

Business structure

Category ManagementChannel Management

Global Manufacturing and Supply Chain

Functional Support (QRA, OpEx, HR, Legal, IT, Public Affairs)


Medical Segment strategyIntegrated supply chain excellence

HospitalHospital SurgerySurgeryP i t b d

National brand

Cardinal Health

HospitalHospital

Ph i iPh i i

centerAmbulatory CarecenterAmbulatory Care

Home healthcareAmbulatory Care

Home healthcareAmbulatory Care

Private brand(Sourced)

Self-manufactured

PhysicianofficeAmbulatory Care

PhysicianofficeAmbulatory Care

LaboratoryScientific productsLaboratoryScientific products

Contract-manufactured

3PL service provider

Value creation for supplier partners and customers

© Copyright 2011, Cardinal Health, Inc. or one of its subsidiaries. All rights reserved.© Copyright 2011, Cardinal Health, Inc. or one of its subsidiaries. All rights reserved.

8

Global Manufacturing and Supply ChainKey strategic issues

• Customer responsiveness: Improving the connectivity and flexibility of our demand and supply networks

• Cost containment: Responding to new cost pressures t k t titi (i l dito ensure market competitiveness (including commodity and currency fluctuations)

• Risk management and compliance: Ensuring robust• Risk management and compliance: Ensuring robust business continuity plans while managing through the increased focus on regulatory requirements

© Copyright 2011, Cardinal Health, Inc. or one of its subsidiaries. All rights reserved.99 © Copyright 2011, Cardinal Health, Inc. or one of its subsidiaries. All rights reserved.

Surgical gown journey: Self-mfg and outsourced


Gown manufacturing process

Cutting Logo Stamp

Belt Sleeve SleevesAssembly

Cuff

11Binding Folding Gown Packaging11

Quest for LOW-COST gowns: Growing volumes and cost pressures

Mexico

1. El Paso, TX since 1970

China

A. Lian Yun Gang since 2004 2. Juarez from 1970 to 20083. Chihuahua from 1979 to 20064. Cuauhtémoc since 1990 5. Delicias since 1989

B. Chang Zhou and Suzhou since 2005 C. Xu Chang since 2011

China• Chang Zhou since

USA China

1 2004• Lian Yun Gang since 2005• Xu Chang since 2011

A

BCMexico

Texas1

2

34 5 2011 B

Chihuahua

4 5


Lessons: Approaching network studies

• Use LEAN/Six Sigma Tools

• Engage HR early people impacts planning• Engage HR early – people impacts planning

• Consider steering team to guide execution

E t th t d “Bl k S ” t• Expect the unexpected – “Black Swan” events

• Decide where on the spectrum you need to be with outsourced parties – teach vs tell strategic vs transactionaloutsourced parties – teach vs. tell, strategic vs. transactional

• Develop ongoing operational excellence approach with key metrics, audits, kaizens, criteria to stay/leave, , , y


Key variables in gown network study

DIOH OCOS GO OH Labor

Total Delivery Cost

F ix O HA llocationSingapore

WC F reight

WC WhseDIO H Mex

T t l

Direct Labor

V ar O HSingaporeFX

ELP F reight

ELP Whse

DIO H A sia

DIO H DR

CostTotal

FX DR O H V ar

FX DR O H F ix

FX DR DLScrap

O utboundDR

DR InboundDR Taxes

MaterialsRaw

FX DR DL

FX Mex O H V ar

FX Mex O H F ix

FX Mex DL

C SF

DR Inbound

O utboundA sia

A sia Inbound

A sia Taxes

© Copyright 2011, Cardinal Health, Inc. or one of its subsidiaries. All rights reserved. 14

RM Taxes Freight CSF FX

FX Mex DL

14

Cost sensitivity example

Variable

Scatterplot of FX impact, DL Rate, Transp Rate, CSF Rate, ... vs %

1000

500

FX impactDL RateTransp RateCSF RateTax Rate

Variable

500

0

000'

s)

Tax Rate

-500

$ (0

-1000

1500


20.00%10.00%0.00%-10.00%-20.00%-1500

%(Unfav) %Change %Fav15

Effective transfer: Product/process/people(What we did not expect !!!)

• Chinese gown convertors picked up more raw material quality issues then our Mexican plants did. Culture q y popportunity to break the NIH (“Not Invented Here”) syndrome



• Key people in the Chinese suppliers moved companies more frequently than we expected. Led to expanding q y p p gsupplier base.



• Following key procedures in areas like leveling container shipping to ports was more variable than pp g pexpected. Auditing supplier performance expanded into new areas.



• Maintaining some small amount of gown manufacturing in Mexico was more helpful for leverage and mutual p glearning than we expected. Led to Cardinal Health exploring more options worldwide for the future.


Optimizing gown manufacturing process flow-through Mexico and China → neck and neck

Key optimization tools used for enhancing overall Process Lead Time (PLT) and cost from mfg and through the supply chain

• Value Stream Mapping (VSM): Great way to see issues and TEACH ne s ppliers conceptsTEACH new suppliers concepts

• Kaizens: Gowns/Operator/Hour – healthy competition• Balancing Supply with Demand: Pseudo Level LoadingBalancing Supply with Demand: Pseudo Level Loading• Optimizing Mfg Capacity: Spaghetti Diagrams• Shipment OptimizationTake advantage of the steady p p g y

medical flow – little seasonal


LEAN Six Sigma examplesLEAN Six Sigma examples


Process optimization - Kaizen

Current LayoutSho lders 1 Slee e 2 Slee e

Neck Folding0.75 WrappingC/T=13 sec

C/T=12 sec

Shoulders

C/T=11.9 sec

1 Sleeve

C/T=11.6 sec

2 Sleeve

C/T=12 sec C/T=20 sec

0.750.75

C/T=11 secC/T=12 sec

C/T=15 sec

Future Layout1 Sleeve 2 Sleeve

Neck Folding0.7 WrappingC/T=13 sec

0.7

C id* 0.2 Material Handler

C/T=21 sec C/T=24sec C/T=20 sec C/T=20 sec

0.7

C/T=12 sec

C/T=15 sec

Time trap


ConsiderTime trap

22

Process optimization - KaizenM t i l FlMaterials Flow

Current Future

Change yielded:Linear FlowShorter distance toShorter distance to travelLess operators per lineMore visibility to process and product qualityHigher speedHigher speed


Value Stream Mapping current state – China

Supplier(US)

Supplier(China) CHS POELP PO

Takt time

CUSTOMER DC Shipping

(US) (China) APO DRP

ELP MATERI

ALSDEMAN

D PLANNING MPS

MRPCUST SERV

CHS FG PO

CONTRACTOR MPS MRP

CHS POELP PO Forecast

Order History

Lot Size/ Lead Time

Customer DMG

3 days

BlackBelt

WH PORT

(CHINA)

35 days

SAPCGTWEST COAST

TRAFFIC

US PORT

10days

Pull

Load Leveling

BlackBelt

5 days

FG INVENTORY WH15 days

A

D

C

B

Belt

BlackBelt

DC RECEIVI

NG

PLT=157.5 days

PCE= 39%

5 days

1 day

CUTTING GOWN ASSEMB

LY

PACK -OUT

LOAD CONTAI

NER

PORT (CHINA)

PORT (US)

WEST COAST

RC

PICK AND SHIP

1 days 4 days

14 d

STERILIZATION

PCE .39%

CVA=.61 days9 days

CONTRACTOR

WIP WH

FG INVENTORY WH

CONTRATOR

RECEIVING WH

RC FG INVENTORY WH

CONTRACTOR

WIP WH

1 daysPullA

C

B

2-Bin Kanban

Kaizen

BlackBelt


25 days 1 days 1day 1 days 3.5 days

14 days

6 days 1 days 2 days

NG WH

14.5 hrs

14.5 hrs42 sec

42 sec

370 sec

370 sec

6.54 sec

6.54 sec

ORY WH

29 days

D

C

Pull FLOWBlackBelt

China gowns FG shipment optimizationImpact of misses on up/downstream operations:Upstream:– Inability to secure needed containers– Late delivery of empty containers

D l d FG Shi t f l t

Secure containers 2 weeks in advance

Sea Shipment to US Port

Key Shipment Activities:

Production Planning – Delayed FG Shipment from plants– Higher cost for expediting containers

Downstream - Asia– Missed vessel capacity

Receive containers at Mfg

site

In-Land shipment to US Sterilizer

gAdjustments

If severe delays Costly Air Shipments

Bottlenecks/Underutilization of

t tMissed vessel capacity– Excess days of hold at port docks– Demurrage charges at port of origin

Downstream - US

Load within 24 hours

In-Land shipment to US RC

assets at intermediate processes

ServiceLevels– Missed capacity at the sterilizer

– Late arrival at the RC– Late distribution from RC DC Customers

In-land shipment to Asia Ports

LevelsImpact

• Close monitoring of supplier ordering patterns and performance• Container allocation program by carrier to ensure weekly capacity is available• Tight control of production output to match container delivery requirement

96% 96% Shipment Shipment

AdherenceAdherence


Still LEARNING…. Integration of LEAN Mfg into suppliers’ sites

• Integration of LEAN mfg concepts and tools into our supplier operations and supply chain is key to improvements

• LEAN should be applied to mfg process covering the end-to-end process as wellExpectations are:• Expectations are:– Fewer process defects– Reduction of waste (labor/RM) Optimized capacity– Enhanced product flow– Enhanced labor efficiencies

Optimized capacityand enhanced supply chain


Risk management and compliance“Black Swan” events

© Copyright 2011, Cardinal Health, Inc. or one of its subsidiaries. All rights reserved.27© Copyright 2011, Cardinal Health, Inc. or one of its subsidiaries. All rights reserved.

Risk management and complianceMitigating supply chain risk

Cardinal Health applies generally accepted supply chain risk mitigation approacheschain risk mitigation approaches• Volume builds around key events (e.g., Chinese New Year• Port monitoring for early identification of container availability g y y

and congestion• Geographic diversity to help mitigate regional “black swan”

eventsevents• Monitoring key indicators, warning signs

© Copyright 2011, Cardinal Health, Inc. or one of its subsidiaries. All rights reserved.© Copyright 2011, Cardinal Health, Inc. or one of its subsidiaries. All rights reserved.

28

Risk management and compliance Future supply chain challenges

• Increased volatility will continue to challenge the supply chain– Geopolitical stability– Increased regulation– Remote supplier locations to optimize labor / currency positionsRemote supplier locations to optimize labor / currency positions– Potential container shortages– Unpredictable fuel costs

• Cardinal Health is taking a proactive role in improving supply chain flexibility, gathering intelligence and building our contingency plansg g y p



Story is NOT over for gown mfg worldwide

Supplier business relations helps ensure effective responsiveness and collaboration on mfg/supply chain improvements

Effective Supplier

Management

Recognition of the interdependencies between mfg and related supply chain activities Accurate

Forecasting & Capacity

Management

Cause & Effect; and Gap

Analysis across entire SC Optimized

ProcessesProcesses Mfg + SCMfg Improvements

Supplier LEAN integrationPull systemsP d ti t

Supply Chain ImprovementsVSMContainer managementC i t

Application of Lean Processes

& Tools

Operational Consistencies

Up/Downstream

Production managementCapacity managementOperational oversightInventory reduction

Carrier managementInterlinking up & downstream operations to mfg

Shipment adherenceCommunications


S i l Ti ?Survival Tips?


Staying Relevant in a High Volume, Commoditized, Medical Device Product Line in Manufacturing...

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