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| 2 0 1 4 M A T E R I A L H A N D L I N G & L O G I S T I C S C O N F E R E N C E S P O N S O R E D B Y D E M A T I C | W W W . M H L C . C O M |
2
Brent Wigington
▪ http://intermountainhealthcare.org
▪ 801-706-6706
▪ Intermountain Healthcare
▪ Lean Logistics Manager
| 2 0 1 4 M A T E R I A L H A N D L I N G & L O G I S T I C S C O N F E R E N C E S P O N S O R E D B Y D E M A T I C | W W W . M H L C . C O M |
Abstract
3
Total Cost of Ownership (TCO) is the discipline of making better
holistic decisions by examining ALL costs associated with Supply
Chain Management. The tactics of TCO are scalable and universal.
This presentation will start you on the journey to applying lean
principles and strategies to decrease various costs and wastes in
areas like labor, inventory, space, SKU reduction, lead times, and
rework. Come on now, we could all stand to drop a few pounds,
no?
| 2 0 1 4 M A T E R I A L H A N D L I N G & L O G I S T I C S C O N F E R E N C E S P O N S O R E D B Y D E M A T I C | W W W . M H L C . C O M |
Agenda
4
Total Cost of Ownership Defined
Cost Elements and Drivers
Case Study 1a,b
- Outcomes
Case Study 2a
Case Study 2b,c
- Outcomes
Key Takeaways
Conference Cloud
Questions
| 2 0 1 4 M A T E R I A L H A N D L I N G & L O G I S T I C S C O N F E R E N C E S P O N S O R E D B Y D E M A T I C | W W W . M H L C . C O M |
Introduction
5
| 2 0 1 4 M A T E R I A L H A N D L I N G & L O G I S T I C S C O N F E R E N C E S P O N S O R E D B Y D E M A T I C | W W W . M H L C . C O M |
Definitions
6
Total Cost of Ownership
The discipline of understanding the downstream
effects of the decisions you are making upstream
Lean
The discipline of reducing waste and improving
operations
| 2 0 1 4 M A T E R I A L H A N D L I N G & L O G I S T I C S C O N F E R E N C E S P O N S O R E D B Y D E M A T I C | W W W . M H L C . C O M |
System Focused
7
TC
O
Waste Better
Operations
Better
Decisions
System
Improvement
Lean
“A system is a network
of interdependent
components . . .
A system must be
managed.”
- Edward Deming
“We tend to focus on
isolated parts of the
system and wonder
why our deepest
problems never get
solved.”
- Peter Senge
| 2 0 1 4 M A T E R I A L H A N D L I N G & L O G I S T I C S C O N F E R E N C E S P O N S O R E D B Y D E M A T I C | W W W . M H L C . C O M |
Whack-A-Mole
8
| 2 0 1 4 M A T E R I A L H A N D L I N G & L O G I S T I C S C O N F E R E N C E S P O N S O R E D B Y D E M A T I C | W W W . M H L C . C O M |
TCO – Cost Elements and Drivers
9
| 2 0 1 4 M A T E R I A L H A N D L I N G & L O G I S T I C S C O N F E R E N C E S P O N S O R E D B Y D E M A T I C | W W W . M H L C . C O M |
Cost Elements Cost Drivers8 Product/Inventory Safety stock, storage, turns, non-
delivery, carrying costs
9 IT System
Transactions
GS1, EDI capability, system capability,
manual
10 Life Cycle Useful life, obsolescence cost, zero
use, ownership
11 Initial Price Long-term price stability, discounts,
terms
12 Opportunity Costs Other project's demands
13 Customer Related User satisfaction, service level
14 Social & Political Evaluation and change management
15 Miscellaneous Administrative, legal, financing costs
TCO – Cost Elements and Drivers (continued)
10
| 2 0 1 4 M A T E R I A L H A N D L I N G & L O G I S T I C S C O N F E R E N C E S P O N S O R E D B Y D E M A T I C | W W W . M H L C . C O M |
Case Study 1
11
Story problem #1a: If a company creates a Supply Chain Organization; and
that SCO has a goal to save $20m COG in just one year,
what will be the most likely course of action?
Y = 365d * x
a) x = hire good shoppers
b) x = call big suppliers
c) x = do benchmarking
| 2 0 1 4 M A T E R I A L H A N D L I N G & L O G I S T I C S C O N F E R E N C E S P O N S O R E D B Y D E M A T I C | W W W . M H L C . C O M |
Outcomes – Short Term
12
Y = • Saved $20+ million , but . . .
| 2 0 1 4 M A T E R I A L H A N D L I N G & L O G I S T I C S C O N F E R E N C E S P O N S O R E D B Y D E M A T I C | W W W . M H L C . C O M |
Outcomes – Long Term
13
Y = Other events occurring at that same time:
• Inventories started to grow
• Large amounts of obsolete products (asset and
expense) started showing up
• SG&A costs were going up
• Cross-functional collaboration was at an all time low
| 2 0 1 4 M A T E R I A L H A N D L I N G & L O G I S T I C S C O N F E R E N C E S P O N S O R E D B Y D E M A T I C | W W W . M H L C . C O M |
Case Study 1 (continued)
14
Story problem #1b: A supplier approaches Intermountain about a product
cost reduction.
The supplier has 10% of its comb business. If
Intermountain agrees to give them 50% of the business,
the supplier will offer a 5% percent discount. It’s a win-
win!
| 2 0 1 4 M A T E R I A L H A N D L I N G & L O G I S T I C S C O N F E R E N C E S P O N S O R E D B Y D E M A T I C | W W W . M H L C . C O M |
Case Study 1 (continued)
15
Labor Logistics
Packing
Case Qty
Initial Price
Discounts
Product
Storage
TCO – Product Management
Counting
| 2 0 1 4 M A T E R I A L H A N D L I N G & L O G I S T I C S C O N F E R E N C E S P O N S O R E D B Y D E M A T I C | W W W . M H L C . C O M |
Case Study 1 Wrap Up
16
Sale 5% off
All Red Tag Items
Today Only
These signs condition us as household consumers.
Our brains love to save money and save it fast.
| 2 0 1 4 M A T E R I A L H A N D L I N G & L O G I S T I C S C O N F E R E N C E S P O N S O R E D B Y D E M A T I C | W W W . M H L C . C O M |
Case Study 2
17
Story problem #2a If a VP of Finance traveling down the hall at 2 mph
meets an OR Director going the opposite direction at 1
mph . . .
. . . how likely is it that they will talk about excess
inventory?
| 2 0 1 4 M A T E R I A L H A N D L I N G & L O G I S T I C S C O N F E R E N C E S P O N S O R E D B Y D E M A T I C | W W W . M H L C . C O M |
Evidence
18
| 2 0 1 4 M A T E R I A L H A N D L I N G & L O G I S T I C S C O N F E R E N C E S P O N S O R E D B Y D E M A T I C | W W W . M H L C . C O M |
Case Study 2 (continued)
19
Story problem #2b&c: If the current $55 million inventory is spread among 22
ORs, how much will Finance calculate as excess?
What will be the most likely course of action?
Y = 22f / x
a) x = buy less product
b) x = blame something else
c) x = hide it
| 2 0 1 4 M A T E R I A L H A N D L I N G & L O G I S T I C S C O N F E R E N C E S P O N S O R E D B Y D E M A T I C | W W W . M H L C . C O M |
Outcome – Short Term
20
Y = • Accounting called
• Surgical Services sent a meeting invite
• SG&A costs were already high (about 800k per FTE)
• You don’t understand our business
| 2 0 1 4 M A T E R I A L H A N D L I N G & L O G I S T I C S C O N F E R E N C E S P O N S O R E D B Y D E M A T I C | W W W . M H L C . C O M |
Case Study (continued)
21
Labor IT System
Kan Ban PAR levels
Label
Exp2 Asset
Product
Standards
Life Cycle
Reports
TCO – Product Management
P
S
I
E
P
L
H
K
Hand-Held
L
L
R
Storage S Ownership O
| 2 0 1 4 M A T E R I A L H A N D L I N G & L O G I S T I C S C O N F E R E N C E S P O N S O R E D B Y D E M A T I C | W W W . M H L C . C O M |
Report Samples
22
Life Cycle
Reports
O ITEM# ITEM_DESC QTY COST EXTND LAST_USED_DATE SUPPLIER
70031604 PIN CLAMP ASSY W/O POST HOFF *NLM 6 511.84 3071.04 1/15/2010 STRYKER ORTHOPAEDICS
70031760 ROD MONO COUPLING MED HOFF2 4920-1-100 4 539.18 2156.72 5/3/2007 STRYKER ORTHOPAEDICS
70170329 CLAMP 10 HOLE HWM 4920-2-060 STRYKER NLM 2 861.92 1723.84 9/18/2008 STRYKER ORTHOPAEDICS
70120290 PLATE LOCKING EPICONDYAL LATERAL LONG RT 2 720 1440 5/2/2008 ACUMED
70192828 PLATE POSTERIOR ELBOW PL-ELPO ACUMED 2 720 1440 5/2/2008 ACUMED
ITEM# DESCRIPTION TOTAL_VALUE ON_HAND USAGE_QTY Each Price potential reduction years to use
91004937 STAPLER RELOAD ECHELON 60 GOLD 28528.01 125.00 2.00 228.22$ 28,528.01$ 62.5
74110586 SCREW TI MATRIXMIDFACE 10MM SELF TAPPING 3224.20 49.00 1.00 65.80$ 3,224.20$ 49.0
90022682 ELECTRODE SPATULA TIP COATED 0619 6/BX 992.26 49.00 1.00 20.25$ 992.26$ 49.0
91002527 STAPLER LOAD STRAIGHT ENDO GIA 45-4.8 4527.74 49.00 1.00 92.40$ 4,527.74$ 49.0
76192152 SCREW SELFTAP 2.4X20MM 401.520 SYNTH 5PK 3027.64 48.00 1.00 63.08$ 3,027.64$ 48.0
70146964 SCREW CRANIO 1.0X04MM 400.504 SYNTHE 5PK 2860.06 46.00 1.00 62.18$ 2,860.06$ 46.0
74129938 SCREW RIB TI MATRIX 2.9MMX6MM SYNTHES 6273.00 45.00 1.00 139.40$ 6,273.00$ 45.0
02016756 STAPLER RELOAD LINEAR CUTTER THIN 55MM 12326.66 84.00 2.00 146.75$ 12,326.66$ 42.0
Zero Use Report
Years to Use Report
| 2 0 1 4 M A T E R I A L H A N D L I N G & L O G I S T I C S C O N F E R E N C E S P O N S O R E D B Y D E M A T I C | W W W . M H L C . C O M |
Ownership – Management Triangle
23
$
Supplier Physician
Hospital
Ownership
L
R
$
| 2 0 1 4 M A T E R I A L H A N D L I N G & L O G I S T I C S C O N F E R E N C E S P O N S O R E D B Y D E M A T I C | W W W . M H L C . C O M |
IT Systems Management
24
IT System
PAR level
Exp2 Asset 1. Expense to Asset:
You can’t manage what you can’t see
2. Par Level Management
| 2 0 1 4 M A T E R I A L H A N D L I N G & L O G I S T I C S C O N F E R E N C E S P O N S O R E D B Y D E M A T I C | W W W . M H L C . C O M |
Handheld Use
25
Labor
Hand-Held
Handheld project at Primary. Reduce the need to count.
K
L
| 2 0 1 4 M A T E R I A L H A N D L I N G & L O G I S T I C S C O N F E R E N C E S P O N S O R E D B Y D E M A T I C | W W W . M H L C . C O M |
Kan Ban – 2 Bin – Visual Indicators
26
Kan Ban
L
H
L
| 2 0 1 4 M A T E R I A L H A N D L I N G & L O G I S T I C S C O N F E R E N C E S P O N S O R E D B Y D E M A T I C | W W W . M H L C . C O M |
Smart Label
27
Label
L
H
K
| 2 0 1 4 M A T E R I A L H A N D L I N G & L O G I S T I C S C O N F E R E N C E S P O N S O R E D B Y D E M A T I C | W W W . M H L C . C O M |
Standardization Modeling
28
Standards
Justify & Standardize (JNS) Modeling
Ho
me
Ca
re
Be
ar
Riv
er
Log
an
McK
ay
McK
ay
Su
rgic
al
IMA
T
PC
MC
PC
Riv
ert
on
Alt
a V
iew
LDS
H
Riv
ert
on
Ce
ntr
al L
ab
IMC
Av
en
ue
s S
urg
ica
l
TO
SH
Am
eri
can
Fo
rk
De
lta
Ore
m
Uta
h V
alle
y
Fill
mo
re
Se
vie
r
Ca
ssia
Sa
nP
ete
Pa
rk C
ity
He
be
r
Dix
ie
Va
lley
Vie
w
Me
dic
al G
rou
p
Item# Description Size 109 120 130 132 364 113 138 375 116 128 139 153 154 363 370 118 125 134 144 127 142 122 140 143 148 126 146 400
60000635 GEL ULTRASOUND AQUASONIC 5L 01-50 5000 mL 0 0 9 1 0 0 4 0 1 0 3 0 0 0 0 2 0 0 0 0 0 0 0 0 0 0 0 0
33750167 GEL ULTRASOUND SCAN 70322-050 4GL/CA 3785 mL 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 5 0 0 0 0 0 0 0 0 0
33970070 GEL ULTRASOUND AQUASONIC 100 5 LITER 5000 mL 0 0 1 0 0 1 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 19
96002746 GEL ULTRASOUND 5L 61222 CHESTER 5000 mL 0 0 0 0 0 0 0 0 0 3 0 0 4 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
75151324 GEL ULTRASOUND AQUASONIC 250ML 12/BX 250 mL 0 0 1 0 0 1 2 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 25
58048497 GEL ULTRASOUND SCAN 8OZ 11-08 236 mL 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 0 0 0 0 0 0 0 0 0
60151305 GEL ULTRASOUND TRANS AQUASONIC 100 8OZ 236 mL 0 0 15 21 0 0 13 1 5 12 6 0 26 1 0 10 2 2 25 2 2 3 2 7 3 17 11 1
75002733 GEL ULTRASOUND AQUASONIC 20G FOIL 48/BX 20 mL 0 0 1 0 0 0 1 0 2 1 1 0 7 0 0 1 0 0 5 0 0 0 1 0 0 0 2 0
96250089 GEL ULTRASOUND SCAN 1/GAL 11-28 PARKER 3785 mL 0 0 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Usage Basic Cost Total Spend Contract Manufacturer
74 15.90$ 1,176.95$ *NONE PARKER LABS
118 14.52$ 1,713.65$ *NONE PARKER LABS
86 19.53$ 1,679.57$ *NONE GRAHAM-FIELD
120 14.98$ 1,797.72$ *NONE CHESTER LABS
1655 2.00$ 3,316.88$ *NONE GRAHAM-FIELD
144 1.87$ 269.40$ *NONE PARKER LABS
10478 1.81$ 18,991.37$ *NONE PARKER LABS
2541 1.08$ 2,741.39$ *NONE PARKER LABS
27 15.89$ 429.02$ *NONE PARKER LABS
P Product
S
| 2 0 1 4 M A T E R I A L H A N D L I N G & L O G I S T I C S C O N F E R E N C E S P O N S O R E D B Y D E M A T I C | W W W . M H L C . C O M |
Storage Redesign
29
Value Saved is Value
Earned
4'
8'
12'
16'
20'
24'
28'
32'
36'
40'
44'
48'
52'
56'
4' 8' 12' 16' 20' 24' 28' 32' 36' 40' 44' 48' 52' 56' 60' 64' 68' 72' 76' 80' 84' 88' 92'
4'
8'
12'
16'
20'
24'
28'
32'
36'
40'
44'
48'
56'
52'
96' 100' 104' 108' 112' 116' 120' 124'
Cupboards
Fili
ng
Ca
bin
et
Fili
ng
Ca
bin
et
Fili
ng
Ca
bin
et
Fili
ng
Ca
bin
et
DESK DESK
Co
un
ter
P
S
Storage
| 2 0 1 4 M A T E R I A L H A N D L I N G & L O G I S T I C S C O N F E R E N C E S P O N S O R E D B Y D E M A T I C | W W W . M H L C . C O M |
Outcome – Long Term
30
.
.
| 2 0 1 4 M A T E R I A L H A N D L I N G & L O G I S T I C S C O N F E R E N C E S P O N S O R E D B Y D E M A T I C | W W W . M H L C . C O M |
Additional Outcomes – Long Term
31
Y = • Saved $5+ million
• Inventory was shrinking
• Obsolete products (asset and expense) reduced
• SG&A costs going down (1 FTE = $1.2m inventory)
• Front-line workers had tools and performance measures
• Cultural frustration declined and workers empowered
• Cross-functional collaboration was growing
| 2 0 1 4 M A T E R I A L H A N D L I N G & L O G I S T I C S C O N F E R E N C E S P O N S O R E D B Y D E M A T I C | W W W . M H L C . C O M |
Conclusion
32
“Collaboration is vital to sustain what we call profound,
or really deep change, because without it, organizations
are just overwhelmed by the forces of status quo.”
― Peter Senge
Total Cost of Ownership is more than just another
improvement tool. Like lean, TCO elevates us into a new
way of systems thinking.
| 2 0 1 4 M A T E R I A L H A N D L I N G & L O G I S T I C S C O N F E R E N C E S P O N S O R E D B Y D E M A T I C | W W W . M H L C . C O M |
33
Key Takeaways
TCO provides a better framework for making
systematic decisions
TCO provides better long-term outcomes
All TCO planning and execution can be done
better with collaboration
We all drink downstream
| 2 0 1 4 M A T E R I A L H A N D L I N G & L O G I S T I C S C O N F E R E N C E S P O N S O R E D B Y D E M A T I C | W W W . M H L C . C O M |
Conference Cloud Additional Resources
http://www.atkearney.com/site-search?q=tco
http://www.accenture.com/us-
en/search/Pages/Results.aspx?k=total+cost&s=AllAccenture&sT
ype=basic+search
http://www.mckinsey.com/search.aspx?q=total+cost
http://management.about.com/od/money/a/TCO.htm
https://www.youtube.com/results?search_query=total+cost+of+o
wnership
34