trimming waste and cost with the tools of total cost of ownership (tco) 6 - operate/t6s8...

Trimming Waste and Cost with the Tools of Total Cost of Ownership (TCO)

Track 6 Session 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 |

2

Brent Wigington

▪ http://intermountainhealthcare.org

▪ 801-706-6706

▪ [email protected]

▪ Intermountain Healthcare

▪ Lean Logistics Manager

http://intermountainhealthcare.org/



mailto:[email protected]


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?


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


Introduction

5


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


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


Whack-A-Mole

8


TCO – Cost Elements and Drivers

9


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


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


Outcomes – Short Term

12

Y = • Saved $20+ million , but . . .


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


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!



15

Labor Logistics

Packing

Case Qty

Initial Price

Discounts

Product

Storage

TCO – Product Management

Counting


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.


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?


Evidence

18



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


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


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


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


Ownership – Management Triangle

23

$

Supplier Physician

Hospital

Ownership

L

R

$


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


Handheld Use

25

Labor

Hand-Held

Handheld project at Primary. Reduce the need to count.

K

L


Kan Ban – 2 Bin – Visual Indicators

26

Kan Ban

L

H

L


Smart Label

27

Label

L

H

K


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

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on

Alt

a V

iew

LDS

H

Riv

ert

on

Ce

ntr

al L

ab

IMC

Av

en

ue

s S

urg

ica

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TO

SH

Am

eri

can

Fo

rk

De

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Ore

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alle

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Fill

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Se

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Sa

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Pa

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He

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Dix

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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


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


Outcome – Long Term

30

.

.


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


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.


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


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





http://www.accenture.com/us-en/search/Pages/Results.aspx?k=total+cost&s=AllAccenture&sType=basic+search







http://management.about.com/od/money/a/TCO.htm

https://www.youtube.com/results?search_query=total+cost+of+ownership




Questions

35

trimming waste and cost with the tools of total cost of ownership (tco) 6 - operate/t6s8...

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