Beth Krenzer, Cardinal Health - Speaker at the marcus evans Medical Device Manufacturing Summit Spring 2012, held in Las Vegas, NV, delivered his presentation entitled Staying Relevant in a High Volume, Commoditized, Medical Device Product Line in Manufacturing (Insourced and Outsourced)

1. Staying relevant in high-volume,
commoditized, IMPORTANT medical devices
Beth Krenzer
SVP,
SVP Manufacturing
July 4, 2012
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2. The volume is there….but !?!
• SURVIVAL !!!
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3. Agenda
• Who is Cardinal Health?
• Surgical gown journey
– Network studies:
– Effective transfer: Product/process/people
• Risk management and compliance
• Journey continues
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4. Cardinal Health helps healthcare
p
providers focus on patient care
p
while reducing costs, enhancing
efficiency and improving quality
quality.
21st $103B 32K+
32K
on Fortune 500 in annual revenue employees
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across the globe

5. Did you know?
We deliver to We deliver
more than approximately Approximately We dispense
nearly
60K
healthcare sites in the
1/4
of all medications
1/2
of all surgeries
12M
U.S. each day. prescribed in the U.S. in the U.S. use radiopharmaceutical
each day
day. our products.
products doses annually.
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6. Two segments: Pharmaceutical and Medical
Pharmaceutical Segment Medical Segment
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7. Medical Segment
Business structure
Channel Management Category Management
Global Manufacturing and Supply Chain
Functional Support (QRA, OpEx, HR, Legal, IT, Public Affairs)
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8. Medical Segment strategy
Integrated supply chain excellence
National brand
Surgery
Private b
P i t brand
d Hospital
center
(Sourced) Ambulatory Care
Home
Self-manufactured Cardinal Health healthcare
Ambulatory Care
Contract-manufactured Physician
Ph i i
office Laboratory
Ambulatory Care Scientific products
3PL service provider
Value creation for supplier partners and customers
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8

9. Global Manufacturing and Supply Chain
Key strategic issues
• Customer responsiveness: Improving the
connectivity and flexibility of our demand and supply
networks
• Cost containment: Responding to new cost pressures
to
t ensure market competitiveness (including
k t titi (i l di
commodity and currency fluctuations)
• Risk management and compliance: Ensuring robust
business continuity plans while managing through the
increased focus on regulatory requirements
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10. Surgical gown journey: Self-mfg and outsourced
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11. Gown manufacturing process
Cutting Logo Stamp
Sleeve Cuff Sleeves
Belt
Assembly
11 Binding Folding Gown Packaging
11

12. Quest for LOW-COST gowns:
Growing volumes and cost pressures
Mexico China
1. El Paso, TX since 1970 A. Lian Yun Gang since 2004
2. Juarez from 1970 to 2008 B. Chang Zhou and Suzhou since 2005
3. Chihuahua from 1979 to 2006 C. Xu Chang since 2011
4. Cuauhtémoc since 1990
5. Delicias since 1989
USA China
China
• Chang Zhou since
1 2004
2 Texas
• Lian Yun Gang A
since 2005
Mexico 3 C
• Xu Chang since
4 5 2011 B
Chihuahua
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13. Lessons: Approaching network studies
• Use LEAN/Six Sigma Tools
• Engage HR early – people impacts planning
• Consider steering team to guide execution
• E
Expect the unexpected – “Bl k S
t th t d “Black Swan” events
” t
• Decide where on the spectrum you need to be with
outsourced parties – teach vs. tell, strategic vs. transactional
vs tell vs
• Develop ongoing operational excellence approach with key
metrics, audits, kaizens, criteria to stay/leave
, , , y
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14. Key variables in gown network study
Total Delivery Cost
DIOH OC OS GO OH Labor
WC Whse
DIO H M ex
S ingapore F ix O H
WC F reight A llocation
D IO H DR D irect Labor
E LP Whse
FX V ar O H
D IO H A sia S ingapore
E LP F reight
Total
T t l
C ost
F X D R O H V ar
DR
O utbound F X DR O H F ix
DR Taxes S crap
D R Inbound F X D R DL
Raw
M aterials A sia F X M ex O H V ar
A sia Taxes O utbound C SF
F X M ex O H F ix
A sia Inbound
F X M ex DL
RM Taxes Freight C SF FX
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15. Cost sensitivity
example
Scatterplot of FX impact, DL Rate, Transp Rate, CSF Rate, ... vs %
Variable
1000 FX impact
DL Rate
Transp Rate
CSF Rate
500 Tax Rate
000's)
0
$ (0
-500
-1000
-1500
1500
-20.00% -10.00% 0.00% 10.00% 20.00%
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%Change 15
%Fav

16. Effective transfer: Product/process/people
(What we did not expect !!!)
• Chinese gown convertors picked up more raw material
q
quality issues then our Mexican p
y plants did. Culture
opportunity to break the NIH (“Not Invented Here”)
syndrome
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17. Effective transfer: Product/process/people
(What we did not expect !!!)
• Key people in the Chinese suppliers moved companies
more frequently than we expected. Led to expanding
q y p p g
supplier base.
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18. Effective transfer: Product/process/people
(What we did not expect !!!)
• Following key procedures in areas like leveling
container shipping to p
pp g ports was more variable than
expected. Auditing supplier performance expanded into
new areas.
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19. Effective transfer: Product/process/people
(What we did not expect !!!)
• Maintaining some small amount of gown manufacturing
in Mexico was more helpful for leverage and mutual
p g
learning than we expected. Led to Cardinal Health
exploring more options worldwide for the future.
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20. 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 concepts
new suppliers
• Kaizens: Gowns/Operator/Hour – healthy competition
• Balancing 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
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21. LEAN Six Sigma examples
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22. Process optimization - Kaizen
C/T=13 sec Current Layout
0.75 Neck Folding Wrapping
Shoulders
Sho lders 1 Slee e
Sleeve 2 Slee e
Sleeve
0.75
0.75
C/T=12 sec C/T=12 sec C/T=11.9 sec C/T=11.6 sec C/T=12 sec C/T=20 sec C/T=11 sec
C/T=15 sec
C/T=13 sec Future Layout Neck Folding Wrapping
0.7
1 Sleeve 2 Sleeve 0.7
0.7
C/T=21 sec C/T=24sec C/T=20 sec C/T=20 sec C/T=12 sec
C/T=15 sec
* 0.2 Material Handler
Time trap
C id
Consider
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23. Process optimization - Kaizen
Materials Flow
M t i l Fl
Current Future
Change yielded:
Linear Flow
Shorter distance to
travel
Less operators per
line
More visibility to
process and
product quality
Higher speed
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24. Value Stream Mapping current state – China
Takt time
Supplier Supplier
(US) (China) ELP PO CHS PO CONTRA CHS FG ELP APO Forecast
CTOR PO MATERI DRP
MPS
MRP
ALS
DEMAN Black
Order History
CUSTOMER
DC Shipping
Customer
DMG
Belt
D
PLANNI
3 days NG MPS
MRP
Lot Size/ Lead
CUST Time
SERV
US WH
PORT PORT CGT SAP
(CHINA) WEST
COAST
TRAFFIC
Load Leveling
Black 35 days 10days
Pull
Belt
A
Black FG
B
INVENT
15 days ORY WH
Belt C
5 days D
5 days
DC
RECEIVI
NG
1 day
PLT=157.5 days
PCE 39%
PCE=.39%
Black 9 days
CVA=.61 days
2-Bin Kanban
Belt
CUTTING GOWN
ASSEMB
PACK -
OUT
LOAD
CONTAI
STERILI PORT PORT WEST A Pull
PICK
CONTRA CONTRA CONTRA FG 1 days ZATION 4 days (CHINA) (US) 1 days COAST AND
LY NER B
Kaizen
TOR CTOR CTOR INVENT RC RC FG SHIP
RECEIVI WIP WH WIP WH ORY WH INVENT
NG WH 14 d
days C
ORY WH
D
25 days 1 days 1day 1 days 3.5 days 6 days 1 days 29 days 2 days
6.54 sec 370 sec 42 sec
14.5 hrs Black
6.54 sec 370 sec 42 sec
Pull FLOW
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25. China gowns FG shipment optimization
Impact of misses on up/downstream operations: Key Shipment Activities:
Upstream:
Secure containers
– Inability to secure needed containers Sea Shipment to
2 weeks in
– Late delivery of empty containers US Port
Production Planning
g
advance
– D l
Delayed FG Shi
d Shipment f
t from plants
l t Adjustments
– Higher cost for expediting containers If severe delays
Costly Air Shipments Receive
In-Land shipment
containers at Mfg
Downstream - Asia Bottlenecks/Under to US Sterilizer
site
– Missed vessel capacity utilization of
assets at
t t
– Excess days of hold at port docks intermediate
processes
– Demurrage charges at port of origin Load within 24 In-Land shipment
hours to US RC
Downstream - US Service
Levels
– Missed capacity at the sterilizer
Impact
– Late arrival at the RC
In-land shipment
– Late distribution from RC DC Customers to Asia Ports
• Close monitoring of supplier ordering patterns and performance
96%
• Container allocation program by carrier to ensure weekly capacity is available Shipment
• Tight control of production output to match container delivery requirement Adherence
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26. 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 well
• Expectations are:
– Fewer process defects
– Reduction of waste (labor/RM) Optimized capacity
– Enhanced product flow and enhanced
– Enhanced labor efficiencies supply chain
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27. Risk management and compliance
“Black Swan” events
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© Copyright 2011, Cardinal Health, Inc. or one of its subsidiaries. All rights reserved.

28. Risk management and compliance
Mitigating supply chain risk
Cardinal Health applies generally accepted supply
chain 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”
events
• Monitoring key indicators, warning signs
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28

29. 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 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 p
g g y plans
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29

30. Story is NOT over for gown mfg worldwide
Supplier business relations helps ensure
Effective
effective responsiveness and collaboration on Supplier
mfg/supply chain improvements Management
Recognition of the interdependencies between
mfg and related supply chain activities Cause & Effect; Accurate
and Gap Forecasting &
Analysis across Capacity
entire SC Optimized Management
Processes
Mfg Improvements Supply Chain Improvements Mfg + SC
Supplier LEAN integration VSM
Pull systems Container management
Production
P d ti management t Carrier
C i management t
Operational Application of
Capacity management Interlinking up & Consistencies Lean Processes
downstream operations to Up/Downstream & Tools
Operational oversight
mfg
Inventory reduction
Shipment adherence
Communications
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31. Survival Tips?
S i l Ti ?
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