This document provides an overview of McKesson Corporation's business operations and strategies for optimizing its order fulfillment and distribution processes. McKesson is a major distributor of pharmaceuticals and medical supplies that services over 23,000 retail pharmacies, 2,000 hospitals, and other healthcare providers. The document outlines McKesson's initiatives to reduce operating costs and margins through automated order entry, increased warehouse efficiency, and customized IT systems. It also discusses McKesson's role in connecting different players in the healthcare industry and its strategies around specialty distribution and reverse logistics.

1. Prepared By:
Business Process Redesign
Bhavik Doshi (B013)
Maulin Patel (B014)
Brijesh Kakadiya(C003)
Kakadiya(C003)
Punit Patel (C013)
Palak Prasad (B006)
Garima Kumar (B003)
Under Guidance of:
Prof. Pathik Shah

3. 360˚ View: Value at Every
Point of Care
Retail Pharmacies
Over 23,000
location Manufacturers
McKesson
Healthcare Providers
2,00,000 physicians
Over 27000
hospitals
11,600 LTC facilities
2100 home care
Consumers
50 million covered
lives
1500
pharmaceuticals
1425 medical
surgical
1050 consumer
products

4. By the Numbers

5. SQUEEZING OF OPERATING MARGINS
Government:
• Reducing rate of pharmaceuticals’
price increases through managed
care strategies
•New Federal health care plans
Competitors:
• Intense cost and service
competition from Bergen-Brunswig
• Formation of regional competitors
into buying groups to match
purchasing power of major players
Pharmacies/Hospitals:
• Increased power due to
consolidation
• Increased emphasis on price
• Threat of failure of independent
stores has capped price increases
Manufacturers:
• Increased power due to
consolidation
• Threat of vertical integration
• Capped forward inventory
purchases in anticipation of price
increases
McKesson’s
Margins

6. McKesson as Backbone for Health Systems
• Software and robotics for health systems
• EHR, financials, analytics and supply chain
• Imaging
• Automation

7. Solutions
• SAP ERP & CRM
• Process automation – SAP Dreamweaver
• Sales & Operations Planning – SAP HANA
• SQL Webserver2006

8. Redesign Process: Starts with
Customer
Step 1 Step 2 Step 3 Step 4 Step 7
No Do
Define
specifications
system to
meet
customer
needs
Full scale
implementation
of new process
Evaluate
developme
nt and
implemen-tation
costs and
benefits
Re-evaluate
process
against
original
customer
needs
Design
process to
meet new
needs
Is it
worth
it?
Yes
No
Yes
benefits
outweigh
costs?
No
Does
solution
meet
needs?
No
Are there
significant
problems?
No
Test
process
on limited
basis and
evaluate
benefits
Identify
problems
with new
process
Yes
Yes
Yes
Step 5 Step 6
Identify
customer
need or
service
improvement
Are IT
systems
required?

9. Order Entry and Fulfillment Process By State-of-
the-Art Technology
Customer Data Center Distribution Center
Retailer enters
product IDs and
order quantities
through handheld
electronic order
entry devices
Automatically
transmit order
via McKesson’s
800 watts line
to data center in
California
• Print and insert price tags
• Confirm order through
voice synthesizer
• Update prices and
inventories
• Sort orders
geographically
• Transmit orders to
distribution centers via
VSAT satellite
communications
system
• Sort orders by truck
loading in route/stop
sequence
• Insert tote on
conveyor system
• Transport tote to
appropriate picking
station
• Track tote with
barcode scanners
Order
Complete?
• Route to appropriate loading
dock
• Load truck
• Deliver to customer
• Acknowledge delivery with
portable data glove
• Send invoice
• Adjust accounts receivable
POS terminal or
other inventory
tracking system
orders product
• Place products in tote
• Update inventory and
order
No Yes

10. The Order Entry and Fulfillment
Process
Customized IT systems include:
AcuMax
• Portable computer
system for directing
manual order
fulfillment activities
MAPS
•High-speed
automated
order-filling
system
Economost
•Electronic order
entry and
fulfillment system
FlexMaster
•Semi automated
warehouse
management and
fulfillment system
• How to reduce order
entry costs?
• How to enable
independent
pharmacies,
McKesson’s principal
customers, to compete
better?
-How to increase
stocking and
picking efficiency?
-How to reduce
warehouse labor
costs?
-How to increase
picking efficiency?
-How to reduce
picking errors?
-How to increase
picking
efficiency?
-How to reduce
warehouse labor
costs?

12. Increased Order Fulfillment
Productivity
– Fulfills and delivers orders to shipping stock without
human intervention
– System directs and tracks every worker, container,
component, and item
– Filling system handles over 10,000 items per hour
– Order is delivered within 12-18 hours at speeds 15 times
higher than traditional methods
– Systems eliminate product processing and shipping errors
– Pickers receive instructions on computer screen on
forearm
Key
Characteristics
•Highly automated
•High capacity
•Quick
•Accurate
•Paperless
Specific
Examples

13. McKesson’s Order Entry Process Asks
Customers, not Staff, to Enter Orders
– Order entry costs reduced, since customers enter data
– Reduces time customers spend on ordering and stocking
– Barcode scanners allow customers to easily enter product codes
– Voice synthesizers confirm customer data entries
– System prints price tags and invoices to retailer specifications
– Each customer receives monthly profitability reports
– Order entry allows variety of formats (e.g., voice, electric device,
POS terminal, etc.…)
•Cost effective
•User friendly
•High value-added of
information
•Flexible
Key
Characteristic
s
Specific
Examples

14. Automated Order Entry Benefits
Benefits to McKesson Benefits to Customers
– Reduced order entry staff from 700 to 15,
despite six fold increase in orders
– Reduced sales people by 50%, while sales
increased more than 400%
– Translated into a larger share of
customers’ business, increasing sales and
operating margins
• Lower transaction costs:
-Labor required to enter and stock order reduced
by 80%
-Rationalization of operations resulted in larger,
less frequent orders with minimal errors
• Reduced product costs through McKesson’s
lower operating costs
• Reduced inventory holding costs through more
efficient ordering from McKesson
• Increased satisfaction through reliable systems
and quality sales support

15. McKesson’s Process
Improvements
Order Fulfillment
• Simplified and
accelerated fulfillment
activities
• Increased dependence
on IT
Sales
• Shifted from taking
orders to consulting
retailers
Customer
• Eliminated customer
management of
back-room inventory
MIS
• Increased responsibilities
• Established as innovators
of efficiency
Order Entry
• Transferred order taking
activity to customers
• Significantly reduced staff

16. Connection Between Technology Solutions &
Players

17. Connectivity & Patient Care

18. Speciality Distribution Strategies

19. Reverse Logistics – McKesson Strategy
“Today, reverse logistics is a process that crosses many functions and disciplines throughout the
company. It was a pioneer process in terms of integration; part of a new dynamic for McKesson
starting about five or six years ago.”
—Scott Bradford, vice president, reverse logistics
Four primary objectives of reverse logistics transformation:
• Simplify the process for organization’s distributions centres and the customer
pharmacies
• Promote a secure supply chain
• Improve asset recovery and mitigate costs
• Develop expertise within organization & educate internal and external partners

20. Key Metrics
Reverse logistics measures and manages to key five metrics:
• Percent of reclamation to inventory on hand
Inbound reclamation/ average total inventory
• Customer return rate
Customer return to distribution centres or customer purchases
• Returnable percent of expired returns
Reclamation returns meeting manufacturers return policy as a percent of total
reclamation returns
• Collection rate on McKesson returned product
Manufacturer credits collected / expected value of returned products
• Reverse Logistics
Profit/Loss and other costs of goods (Most important)

21. McKesson Distribution Handling