Medical Supply Chain Sourcing Optimization Initiative Update

1. Medical Supply ChainSourcing Optimization InitiativeUpdate Presented to: Navy Medical Logistics Symposium Nancy Richardson Team Lead, Joint Implementation TeamMedical Customer Operations DirectorateDLA Troop Support Forward Cell June 6th, 2012

2. Agenda • Background and Overview of Sourcing Optimization Initiative • Realized cost reduction update 2nd 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

3. Optimization & Time Saving

4. 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 2012-2016 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

5. Sourcing Optimization – 8 Initiatives 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%

6. Realized Cost Reduction Tracking Tool • Initial Cost Tracking Prototype up and functioning as designed • Base: 4th Quarter, FY2011…data loaded • Target: 1st 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 * CPOC: Customer Pharmacy Operations Cell 6

7. Medical Supply Chain Sourcing Optimization Initiative 2nd Quarter 2012 Realized Cost Reductions 1ST QTR Realized Reductions $9.9 million High Probability of Full Implementation Medium Probability of Full Implementation Low Probability of Full Implementation 7 * Anticipated realization of reductions: Year 1—10%; Year 2—15%; Year 3—25%; Year 4—25% and Year 5—25%

8. Medical Supply Chain Sourcing Optimization InitiativeCost Reductions Projected vs. Actual To Date High Probability of Full Implementation Medium Probability of Full Implementation Low Probability of Full Implementation 8 * Anticipated realization of reductions: Year 1—10%; Year 2—15%; Year 3—25%; Year 4—25% and Year 5—25%

9. Medical Supply Chain OSD CostReductionInitiative 1st and 2nd Quarter 2012 Cost Reductions By Service

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

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

12. OSD Cost Reduction – Lessons Learned • 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 Leading the effort allows us the opportunity to control our own destiny 12

13. Approach To Future Cost Reduction Initiatives • 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 DLA…your mission Partner for quality optimized Medical Supply Chain solutions 13

14. What to do at MTF • 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

15. Questions