Supply Chain Performance Program - On Time, In Full Implementation

Supply Chain Performance Program - On Time, In Full Implementation
Supply Chain Performance
Program – On Time, In Full
Implementation




©2017 CVS Health and/or one of its affiliates: Confidential & Proprietary
Supply Chain Performance Program - On Time, In Full Implementation
Announcement in January

•   In January, we communicated some
    modifications to our Vendor
    Compliance Program.

       •      Replacing current Ship-to-Arrive
              (STA) Compliance Program, with On
              Time and In Full Program (OTIF).

       •      Expense offset structure changing
              from a flat fee per P.O. structure to a
              % of COGS structure.

       •      Incorporating P.O. Fill Rate
              measurement

       •      Incentive Program built in

       •      Advanced Ship Notice (ASN)
              required for all shipments


    © 2017 CVS Health Confidential & Proprietary        1
Supply Chain Performance Program - On Time, In Full Implementation
Reaffirmation in June

                                               •   In June, we sent an additional
                                                   communication meant to reaffirm the
                                                   upcoming modifications.

                                                    •   Performance will be measured
                                                        monthly.

                                                    •   Expense offset structure will be
                                                        variable based on vendor
                                                        performance (Performance/Incentive
                                                        Based Compliance).

                                                    •   Expense offset structure to be
                                                        applied to any portion of PO not
                                                        delivered On Time.

                                                    •   Webinar training scheduled week of
                                                        June 18’th to provide guidance on
                                                        the administration of program rules.


© 2017 CVS Health Confidential & Proprietary                                                   2
Supply Chain Performance Program - On Time, In Full Implementation
Agenda
 •         Supply Chain Performance Objectives

 •         Administration of Program
           • Supply Chain Performance Portal
           • Assessment of Purchase Orders (Timing)
           • Application of Qualifying Receipts (On Time)
           • In Full Assessment
           • Performance Based Incentive Program
           • Charge Calculation
           • Vendor Visibility / Timing
           • Disputes

 •         Portal Administration
           • Logging in and setting up access

 •         Key Dates/Next Steps

© 2017 CVS Health Confidential & Proprietary                3
Supply Chain Performance Program - On Time, In Full Implementation
Note:
•      The purpose of today’s webinar will be to discuss the administration
       of the OTIF program in the vendor portal.

•      We have included illustrative examples in this presentation however
       views and reports generated in the CVS vendor portal will differ, not
       in content but in format.

•      There will be an additional vendor training scheduled in July to
       demonstrate standard operating procedure for the vendor portal and
       explanation of key reports.




© 2017 CVS Health Confidential & Proprietary                                   4
Supply Chain Performance Program - On Time, In Full Implementation
Goal of the Supply Chain Performance Program
  is to Drive Sales and Margin and reduce Supply
  Chain Costs        Incremental
                                                    Incremental
                                                        Sales
                                                       Sales



                                                 KEY IMPERATIVE:          Decrease Lead
        Improved                                                              Time -
         In-Stock                               DRIVE OPERATIONAL          Improve F&R
                                                  EFFICIENCY AND             Process

                                                  EXCELLENCE IN
                                                    EXECUTION

      Inventory                                Superior SCP Performance    Improved
                                                                             Dock
      Reduction                                          Drives:
                                                                           Efficiency



© 2017 CVS Health Confidential & Proprietary                                              5
Supply Chain Performance Program - On Time, In Full Implementation
OTIF Objectives and Parameters
Program Objective
To ensure purchase orders are delivered consistently with the Ship‐to‐Arrive date and in accordance with
original purchase order quantities.


                                On Time                                                          In Full
   A compliant PO meets the following criteria:                             A compliant PO must be filled to 95% of the
                                                                            original order quantity*.
   PREPAID (Vendor Managed Freight):
   PO arrives on or before the STA date                                     CVS will measure the Fill Rate at the PO SKU
                                   ‐OR‐                                     level. Each SKU must be filled to 95% of the
   A requested delivery date that falls within a 5 business day             original order quantity.
   compliance window (PO STA date or 4 business days prior).
                                                                            METRIC:
   COLLECT (CVS Managed Freight):                                           Quantity of units received in first receipt on PO
    Compliant POs meet the following criteria:                              at a CVS Distribution Center (DC) divided by
   1) Shipping information is submitted to CVS at least 72 hours prior      the original quantity on the PO, SKU or PO Line
   to available pickup (include business calendar M‐F), and                 level.
   2) Ample transit time is provided to CVS to meet the STA date upon
   pickup (transit times defined in Routing Guide).                         *Overages of a single item on the PO do not
                                                                            apply towards total units shipped/received on
   BACKHAUL (CVS Managed Freight):                                          a PO.
   1) 4 days is provided to CVS to meet STA date upon pickup
   (measured as days between Available for Pickup date and STA date)


   ‐ Any non‐compliant portion of a PO may be subject to performance penalties
   ‐ Performance is assessed monthly
   ‐ Penalty amount is variable based on vendor’s monthly OTIF Effectiveness Score

©2017 CVS Health and/or one of its affiliates: Confidential & Proprietary                                                       6
Supply Chain Performance Program - On Time, In Full Implementation
Administration of the Program –
 Supply Chain Performance Portal
                                    COMPLIANCE                                                             Vendor
                                                               ACCOUNTS
             CVS                    NETWORKS                                         SUPPLIERS           Performance
                                                                PAYABLE
                                    (3RD PARTY)                                                              Team
Order and Delivery                 Weekly Charges              Deductions          Disputes Created      Disputes
 Data sent to CN                     Calculated                 Applied                                  Resolved



                               OTIF Performance Reporting
                                   •    Suppliers
                                   •    Vendor Performance Team
                                   •    Vendor Collaboration Team
                                   •    Inventory Planning
                                   •    Category Management




                                         Work together to    Measure performance     Improved customer
       Review Data
                                       improve performance      improvement               service




 © 2017 CVS Health Confidential & Proprietary                                                                          7
Administration of OTIF Program -
         Assessment of Purchase Orders (Timing)
     •        Purchase orders are assessed for OTIF 10 calendar days after first
              receipt



             Sunday                    Monday                Tuesday
                                                                            July
                                                                             Wednesday        Thursday        Friday        Saturday
1                             2                         3              4                 5               6             7


                                     FR
8                             9                         10             11                12              13            14


                                                                                              OA
15                            16                        17             18                19              20            21




FR – First Receipt
OA – OTIF Assessment


         © 2017 CVS Health Confidential & Proprietary                                                                                  8
Administration of OTIF Program -
     Assessment of Purchase Orders (Timing)
•     Any receipts occurring within 5 business days after the first receipt are
      included in the OTIF assessment for the purchase order


         Sunday                    Monday                Tuesday
                                                                        July
                                                                         Wednesday        Thursday        Friday        Saturday
1                         2                         3              4                 5               6             7



                                  AD*                    AD                 X              AD             AD            X
8                         9                         10             11                12              13            14



          X                        AD                                                     OA
15                        16                        17             18                19              20            21




*First Receipt – 7/2
OA – OTIF Assessment
AD – Assessment Day – Receipts recorded locally at the CVS distribution center included in
assessment
X – Non Business day (Holiday or Weekend)

     © 2017 CVS Health Confidential & Proprietary                                                                                  9
Administration of OTIF Program -
      Application of Qualifying Receipts (On Time)
  •       All receipts included in the OTIF assessment are then evaluated to
          determine whether they meet the on time requirements

                 PREPAID                                           COLLECT                                      BACKHAUL
          Vendor Managed Freight                              CVS Managed Freight                           CVS Managed Freight


PO arrives on or before the STA date, or             Based on timing of freight information        Based on timing of freight information
                                                     entered into transportation portal:           entered into transportation portal:
A requested delivery date that falls within          Shipping information is submitted to CVS      4 days is provided to CVS to meet STA
a 5 business day compliance window                   at least 72 hours prior to available pickup   date upon pickup (measured as days
(PO STA date or 4 business days prior).              (include business calendar M-F), and          between Available for Pickup date and
                                                                                                   STA date)
                                                     Ample transit time is provided to CVS to
                                                     meet the STA date upon pickup (transit
                                                     times defined in Routing Guide).




      © 2017 CVS Health Confidential & Proprietary                                                                                          10
Administration of OTIF Program -
  Application of Qualifying Receipts (On Time)
Example 1:
     STA Date                    First Request   First App Appnt   Second Request   Trailer Arrival Date    Conclusion
     7/2/2018                       7/2/2018         7/2/2018           N/A               7/2/2018          Compliant




Example 2:
     STA Date                    First Request   First App Appnt   Second Request   Trailer Arrival Date    Conclusion
     7/2/2018                       7/2/2018         7/2/2018         7/5/2018            7/5/2018         Non Compliant




Example 3:
     STA Date                    First Request   First App Appnt   Second Request   Trailer Arrival Date   Conclusion
     7/2/2018                       7/2/2018         7/3/2018         7/5/2018            7/5/2018         Compliant




  © 2017 CVS Health Confidential & Proprietary                                                                             11
Administration of OTIF Program -
Application of Qualifying Receipts (On Time)
Collect On Time Requirements
1) Shipping information is submitted to CVS at least 72 hours prior to available pickup (include business calendar M-F), and
2) Ample transit time is provided to CVS to meet the STA date upon pickup (transit times below).
       1) Assume Origin: CA, Destination: TX
       2) Zone 5 to Zone 3 => Required Transit: 5 days

  System Entry Date                     Days   Available for Pickup   Days            STA Date            Conclusion
      6/18/2018                          3          6/22/2018          5              7/2/2018            Compliant




© 2017 CVS Health Confidential & Proprietary                                                                                   12
Administration of OTIF Program -
Application of Qualifying Receipts (On Time)
Backhaul On Time Requirements
1) 4 days is provided to CVS to meet STA date upon pickup (measured as days between Available for Pickup date and
STA date)




    Available for Pickup                       Days                  STA Date                    Conclusion
         6/22/2018                              5                    7/2/2018                    Compliant




© 2017 CVS Health Confidential & Proprietary                                                                        13
Administration of OTIF Program -
    In Full Assessment

•        Receipts deemed to be On Time are included in In Full assessment below
•        In Full is measured at the purchase order line (SKU) level
•        OTIF Effectiveness is the % of original purchase order quantities that
         were delivered on time.

Example PO # 1                                               Purchase Order Details                                On Time Receipts
         Item                 Units Ordered                        Unit Cost                  PO Cost         Qualifying Receipt Quantity   OTIF Effectiveness Rate
   SKU A                                           100   $                            1   $             100                            50                         50%
   SKU B                                           100   $                            1   $             100                          100                        100%
   SKU C                                           100   $                            1   $             100                            95                         95%
   SKU D                                           100   $                            1   $             100                            90                         90%
   Total                                           400                                    $             400                          335                          84%




    © 2017 CVS Health Confidential & Proprietary                                                                                                                        14
Administration of OTIF Program -
   Performance Based Incentive Program
Assess Monthly    Drive vendor performance in critical business metrics (On Time and In Full) and reward vendors providing best in class
Performance       service with reductions or exemptions in COGs offsets.



Performance
Measurement       Vendor Performance is assessed according to OTIF Effectiveness.



                                                              Invoice cost associated with product received On Time
                               OTIF Effectiveness
                                                                                Total invoice cost


                  Vendor performance is assessed monthly at the PO vendor level.


Assign                    OTIF Effectiveness                 Penalty Offset
Performance
Tier               At or Above 95%                                       Exempt

                   Below 95% and at or above 85%                            1.5%

                   Below 85%                                                3.0%



Calculate
                  Apply penalty offset above to portion of any PO deemed non compliant.
Penalty Offsets
Administration of OTIF Program -
    Monthly Summary Charge Calculation
Example PO # 1
           Item           Units Ordered             Unit Cost           Invoice Cost             OTIF Compliant         OTIF Non Compliant         OTIF Compliant ($)    OTIF Non Compliant ($)   Chargeable Non Comp
   SKU A                                  100   $               1   $                  100                         50                    50    $                    50   $                  50    $                  50
   SKU B                                  100   $               1   $                  100                        100                      0   $                   100   $                ‐       $                ‐
   SKU C                                  100   $               1   $                  100                         95                      5   $                    95   $                   5    $                ‐
   SKU D                                  100   $               1   $                  100                         90                     10   $                    90   $                  10    $                  10
   Total                                  400                       $                  400                        335                     65   $                   335   $                  65    $                  60


Example PO # 2
           Item           Units Ordered             Unit Cost           Invoice Cost             OTIF Compliant         OTIF Non Compliant         OTIF Compliant ($)    OTIF Non Compliant ($)   Chargeable Non Comp
   SKU A                                  100   $               1   $                  100                         0                    100    $                    ‐    $                100     $                100
   SKU B                                  100   $               1   $                  100                         0                     100   $                    ‐    $                100     $                100
   SKU C                                  100   $               1   $                  100                         0                     100   $                    ‐    $                100     $                100
   SKU D                                  100   $               1   $                  100                         0                     100   $                    ‐    $                100     $                100
   Total                                  400                       $                  400                         0                     400   $                    ‐    $                400     $                400



Example PO # 3
           Item           Units Ordered             Unit Cost           Invoice Cost             OTIF Compliant         OTIF Non Compliant         OTIF Compliant ($)    OTIF Non Compliant ($)   Chargeable Non Comp
   SKU A                                  100   $               1   $                  100                         95                     5    $                    95   $                   5    $                ‐
   SKU B                                  100   $               1   $                  100                        100                      0   $                   100   $                ‐       $                ‐
   SKU C                                  100   $               1   $                  100                        100                      0   $                   100   $                ‐       $                ‐
   SKU D                                  100   $               1   $                  100                         95                      5   $                    95   $                   5    $                ‐
   Total                                  400                       $                  400                        390                    10    $                   390   $                  10    $                ‐



                                                                                             OTIF Effectiveness Calculation                                                Performance Tier             Penalty
                                                                                             Total Invoice Cost       $               1,200                                                95%                     0.0%
                                                                                             OTIF Compliant Cost      $                 725                                                85%                     1.5%
                                                                                             OTIF Effectiveness                      60.42%                                              < 85%                     3.0%

                                                                                             Monthly Penalty Calculation
                                                                                             Total Chargeable Non Comp                         $                   460
                                                                                             Penalty Tier                                                         3.0%
                                                                                             Monthly Penalty                                   $                 13.80




                                                    Includes only lines with OTIF less than 95%
                                                    of original order quantity

    © 2017 CVS Health Confidential & Proprietary                                                                                                                                                                          16
Vendor Visibility
•      Beginning 7/13, Vendor Portal is updated every Friday with OTIF performance data.
       Includes all OTIF Assessments for prior week
•      Beginning 7/14, Vendor Portal will push out reporting every Saturday for the previous
       week’s assessment to the vendor community. Distributed Via E-mail, by pay vendor number.



                                                                     July
         Sunday                    Monday             Tuesday         Wednesday        Thursday        Friday        Saturday
1                        2                     3                4                 5               6             7




8                        9                     10               11                12              13            14


                                                                                       OA1             UP1           WR1
8                        9                     10               11                12              13            14


                                                                                                       OA2
15                       16                    17               18                19              20            21

                               OA2                   OA2              OA2              OA2             UP2           WR2

OA – OTIF Assessment                                UP – Portal Update Date            WR – Weekly Report distributed
© 2017 CVS Health Confidential & Proprietary
                                                                                                                                17
Vendor Visibility
•         Monthly OTIF Assessments include all purchase orders with receipts for the month.
•         Final OTIF Assessment to occur 10 calendar days after month end
•         Portal is updated at the end of the following week and reports distributed to vendors
•         Note: Webinar to be scheduled for mid July to review the 2 main summary reports.




           Sunday        Monday        Tuesday
                                                 July Wednesday        Thursday        Friday        Saturday        Sunday        Monday
                                                                                                                                                 August
                                                                                                                                                 Tuesday        Wednesday        Thursday        Friday        Saturday
      1             2             3              4                5               6             7                                                          1                2               3             4




      8             9             10             11               12              13            14              5             6             7              8                9               10            11


                                                                                                                                   FA                                                            UP            MR
      15            16            17             18               19              20            21              12            13            14             15               16              17            18




      22            23            24             25               26              27            28              19            20            21             22               23              24            25


                                                                                       LR            EP
      29            30            31                                                                            26            27            28             29               30              31




LR – Last Receipt of Month                                              EP – OTIF Evaluation Period     FA – Final OTIF Assessment July
UP – Portal Updated                                                     MR – Monthly Vendor Report July


                                                                                                                                                                                                                          18
© 2017 CVS Health Confidential & Proprietary
Administration of Program
Deductions Disputes

•      Vendor disputes will be
                                                 Vendors
       managed in the new vendor
       portal

•      Dispute period is 90 days from
       monthly dispute communication
                                               Vendor
•      Reversals (if applicable) are
       processed every Friday for any
                                               Portal
       dispute approved

•      Further instruction on disputes            Supply
                                                   Chain
       will be published in the SCP             Performance
                                                   Team
       Guide later this month


© 2017 CVS Health Confidential & Proprietary                  19
Logging in and Setting up Access

  Supply Chain Performance Portal available to suppliers 6/26
     Hosted by third party company, ComplianceNetworks
     Login Page: https://cvs.compliancenetworks.com
     Vendors will receive login credentials via e-mail

  Suppliers should consider doing the following from 6/26 to 7/1:
     Test access utilizing login credentials
     Navigate the system
     Review training video and documents
     Set up access for new users
             One administrator has been assigned for each supplier




© 2017 CVS Health Confidential & Proprietary                          20
Logging in and Setting up Access –
Training Videos/Documents
  Several training resources are available for users and are
   accessible through the “Self Help” toolbar located at the top of the
   screen




© 2017 CVS Health Confidential & Proprietary                              21
Logging in and Setting up Access –
 Training Videos/Documents

 Recommended Training Videos:
    Request account, log in,
     navigate
    Research chargebacks
    Create and research disputes
    Leverage data in grids




 © 2017 CVS Health Confidential & Proprietary   22
Logging in and Setting up Access –
Setting up Access

 The "Manage Users" page enables admin users
 to:

 •       Add users and their associated vendors,

 •       Enable a user to receive vendor compliance
         emails,

 •       Enable and disable user access to the web
         portal, and

 •       Edit existing users’ contact information.

 To access the “Manage Users” page select
 "Manage Users" from the "Admin" menu (located
 on the left hand toolbar)




© 2017 CVS Health Confidential & Proprietary          23
Logging in and Setting up Access –
Setting up Access

 Upon clicking, “Manage Users” in the “Admin” menu, the portal will display the “Manage Users” page
 with the “Search” area open.

 •       To create a new portal user click the “Add User” button.

 •       The portal will display the “Manage User Detail” screen.




© 2017 CVS Health Confidential & Proprietary                                                          24
Logging in and Setting up Access –
Setting up Access
 •       Enter the user’s details in the “Contact Info” area. The contact name in the “Contact” field and the
         user’s email address in the “Email” field are required.

 •       To associate a vendor to the user click the “Add Vendor” button.




© 2017 CVS Health Confidential & Proprietary                                                                    25
Logging in and Setting up Access –
Setting up Access




© 2017 CVS Health Confidential & Proprietary   26
Key Dates/Next Steps
  Step                                         Details                                   Timing

  Training                                     •   Webinars to discuss facilitation of   06/19 & 06/20
                                                   SCP Program


  Webinar slides published                     •   Made available to CVS Vendor          6/25
                                                   Community via
                                                   www.cvssuppliers.com

  Supply Chain Performance                     •   Made available to CVS Vendor          06/29
  User Guide                                       Community via
                                                   www.cvssuppliers.com
  Program Go-Live                              •   PO’s with 7/1 STA reviewed under      7/01
                                                   OTIF Program

  First Assessment                             •   OTIF violation summary available      7/13
                                                   for supplier viewing and reporting

  Additional Vendor                            •   Demonstration of key reports and      7/18
  Demonstration                                    screens from vendor portal


© 2017 CVS Health Confidential & Proprietary                                                             27
Key Dates/Next Steps
Vendor Readiness Checklist
 Step                                            Timing

 Log into Vendor Portal once Credentials         06/25
 have been provided


 Ensure all personnel within your organization   06/25 – 07/01
 have appropriate access


 Attend Webinar Demonstration                    07/18




© 2017 CVS Health Confidential & Proprietary                     28
THANK YOU


                                 Thank you for attending today’s session

                                 Any questions can be addressed to:

                                               SupplyChainPerformance@CVSHealth.com




© 2017 CVS Health Confidential & Proprietary                                          29
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