Improving the Supply Chain Through Compliance

1. Improving the Supply Chain Through Compliance

2. Introductions • Katie Blanchard • Supplier Compliance Manager • Carol Anne Carr • Inbound Transportation Manager • Suzanne Lussier • Supplier Compliance Analyst

3. Agenda • Compliance Programs • What are they? • Why do they exist? • How do they evolve? • Implementation options? • CVS Caremark • Who are we? • Why did CVS implement a Compliance Program? • Where is CVS’ Compliance Program going? • What lessons have we learned along the way?

4. What is a Supplier Compliance Program?

5. Compliance Programs A performance improving initiative designed to optimize supply chain efficiencies and increase profitability through enhanced planning, execution and reporting.

6. Goal Reduce costs by providing: • The right product • At the right time • In the right quantity • In the right condition • To the right DC/Store

7. Typical Functions • Identify and document supply chain-related failures • Assess financial penalties • Communicate Supplier Performance • Collaborate with Suppliers to eliminate non-compliance

8. Why do Supplier Compliance Programs exist?

9. Mitigate Risks Lost sales Lost or unhappy customers Product Returns Less reliable forecasts Missed Margin Targets Unsold merchandise Increased safety stock Higher labor costs Markdowns LOST PROFITS

10. Improve Outcomes • Reduces lead times • Improves execution • Reduces costs • Improves customer service • Increases sales

11. What is the typical evolution of a Supplier Compliance Program?

12. Initial Stage • Limited scope • Predominantly manual data collection • Focus – Detecting errors & assessing fines • Viewed as antagonistic to relationship building • Reactive while adding little value to the Supply Chain • Not an effective gauge of a Supplier’s overall performance

13. Intermediate Stage • Limited automation • Viewed as a reliable source of actionable information with scorecard capabilities • Collaborative in nature • Focus - Performance improving initiatives

14. Advanced Stage • Fully integrated data capture, analysis and reporting tool • Provides visibility in a controlled fashion to trading partners • Serves as a central repository of Compliance information for the integrated relationship scorecard • Enables continuous process improvement

15. What are Supplier Compliance Program implementation options?

16. Options • Build it in-house • Purchase Software • Hire a consultant

17. CVS Caremark Case study

18. Who is CVS Caremark?

19. Background • Retail Pharmacy & Healthcare Company • Headquartered in Woonsocket, RI • Approximately $85 Billion in annual revenue • Ranked 24th on Fortune 500 for 2008

20. Service Offerings • Retail Stores • Prescription Benefits Management • Mail Order • Specialty Pharmacy Division (Procare) • Retail based health clinics (MinuteClinic) • CVS.com

21. Ranked #1 • Provider of Prescriptions • Store Count • Specialty Pharmacy • Retail Clinic Operator • Retail Loyalty Program

22. General Information • 15 Distribution Centers • 190,000 Associates • Serve 4 Million+ customers in the CVS/pharmacy stores each day • CVS Charitable Trust

23. Distribution Network (Beverage Only)

24. DC Store Distribution

25. Evolution of CVS Caremark’s Supplier Compliance Program

26. 1997 • CVS/pharmacy • 1,400 stores • 3 Distribution Centers • Northeast Corridor • Acquired Revco Drug • 2,600 stores • 7 Distribution Centers • Ohio Valley & Southeastern US

27. 1998 • Acquired Arbor Drug • 207 Stores • 1 Distribution Center • Michigan • Hired Accounting Firm to benchmark retail compliance programs and create a compliance program

28. Original Tracking Tool • Deliverables: • Program Design • Routing Guide • Excel based data capture tool

29. 1999 • Implemented Supplier Compliance Program • Issued Routing Guide & Supplier Compliance Instructions • Began assessing financial penalties for non-compliance with CVS’ freight handling requirements • Released Mission Statement

30. Mission Statement To lower the operating cost of the Distribution Center Network by increasing receiving efficiencies through improved awareness and compliance with CVS’ inbound freight handling requirements.

31. Issues • Inadequate compliance management tools • Inconsistent application of compliance standards • Reliance on unaudited data • Resistance from Internal Departments and Supplier Community

32. 2000 • Met with Top 25 Suppliers at the NACDS • Met with Departments and other Suppliers • Monitored compliance • Provided Suppliers with exception-related data • Develop a framework for an integrated relationship scorecard

33. Issues • Suppliers view Program as a retail revenue stream • Suppliers focus on the financial penalties • CVS Resource Emphasis - Providing supporting documentation rather than identifying trends and improving performance • No Supplier Compliance Scorecard

34. 2001 • 89% of issues are related to 5 Compliance Attributes • Missed Appointments • Late Appointments • Bills of Ladings • Packing Slips • Cancelled Purchase Orders • Benchmarked top 5 Compliance Attributes • Dock Door vs. Labor Hours • Revised Supplier Compliance Program • Reduced the number of attributes to top 5 • Lowered compliance fees • Brought Inbound Transportation Program in-house

35. 2002 • Began working collaboratively with Suppliers to improve supply chain efficiencies • Pre-Appointments • Standing Appointments • CPFR Implementation • Special Projects • Introduced Supplier Compliance Scorecard

36. Compliance Scorecard

37. Compliance Scorecard

38. Compliance Scorecard

39. 2003 • Viewed as a reliable supplier of actionable information for purposes of cooperation, coordination and decision-making. • However, the application was stand alone and we needed to integrate information to further improve efficiencies.

40. 2004 • Implemented Access tool • Single source of data • Integrated with other data sources • Improved accuracy • Reduced administration • Provided DC specific reporting capabilities

41. Accomplishments • Improved awareness and compliance with CVS’ inbound freight handling requirements • Increased receiving efficiencies • Lowered operating cost of the DC Network • Established excellent working relationships with affected Internal Departments and the Supplier Community

42. Where We’re Going

43. Future State • An integrated e-commerce solution • A single platform for communication • Real-time cost effective access to operational information • Enhanced supply chain integration, data analysis capabilities and program control • A central repository of information for the integrated relationship scorecard

44. eTool • A fully accessible supply chain tool for: • Routing • Scheduling • Compliance Tracking • Reporting • Supply Chain Visibility

45. Cross Functional Provides cross-functional benefits • Examples: • System captures on-time delivery failures based on check-in time • System provides information and documentation for Supplier reconciliation processes

46. Search Capability Users can quickly find answers to their questions This search engine allows Users to drill down on specific references and obtain detailed information.

47. Enhanced Reporting Users can select criteria for report generation

48. Relationship Scorecards The system serves as a central repository for Supplier-related scorecards

49. Future Data Capture Tool The tool enables: • Data validation • Dynamic Deduction capture • Deductions based on performance standards rather than occurrences

50. Data Filtering Data processed on pre-set parameters Example: Assigning a “Preferred Carrier” status will: 1. Prevent a Supplier fine for on-time failures 2. Prevent the failure from effecting the Supplier Scorecard 3. Assign the failure to the Carrier’s Scorecard