Driving Operational Excellence John Haydon Senior Vice President, Operations the new QUEST |
Safe Harbor Disclosure This presentation may contain forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date that they are made and which reflect management's current estimates, projections, expectations or beliefs and which involve risks and uncertainties that could cause actual results and outcomes to be materially different. Risks and uncertainties that may affect the future results of the company include, but are not limited to, adverse results from pending or future government investigations, lawsuits or private actions, the competitive environment, changes in government regulations, changing relationships with customers, payers, suppliers and strategic partners and other factors discussed in "Business," "Risk Factors," "Cautionary Factors that May Affect Future Results," "Legal Proceedings," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and "Quantitative and Qualitative Disclosures About Market Risk" in the company's 2011 Annual Report on Form 10-K and "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Quantitative and Qualitative Disclosures About Market Risk," and "Risk Factors" in the company's Quarterly Reports on Form 10-Q and other items throughout the Form 10-K and the company's 2012 Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. the new QUEST |
Operation's Report Card: 30 days in Strengths o Strong focus on all aspects of quality o Customer/patient service levels o A strong lean six sigma foundation o Experienced operations talent base o Technical and laboratory expertise o Operations team wants to win Improvement Opportunities o Complex vertical organization model: too many competing priorities o No E2E enterprise wide architecture plan o To drive cost excellence across the entire enterprise - make it a part of our DNA o To implement "standardization" that will - Make it easier for our customers to do business with us - Enable our sales force to spend more time with customers and less time in the value delivery chain Renewed Focus on Operational Excellence the new QUEST 5 Drive Operational Excellence 3 |
Operational Excellence will drive customer satisfaction, employee engagement, and shareholder value through four strategic imperatives - designed to close the competitive cost gap and strengthen our foundation for growth Operational Excellence 1 Enterprise Architecture o Master Data o Business Process Framework o Standard IT Systems 2 End to End Customer Value Chain o Simplification o Optimization o Standardization o Automation 3 Business Performance Tools o Improvement Methodologies o Project Management o Breakthrough Management o Change Management 4 Cost Excellence - Invigorate o Organizational excellence o IT excellence o Procurement excellence o Lab excellence o Service excellence o Billing excellence Customer Satisfaction - Employee Engagement - Shareholder Value the new QUEST 5 Drive Operational Excellence 4 |
Strategic Imperative 1 - Enterprise Architecture A standard framework for data, processes and systems Master Data o Define data standards for key data elements - Customer/Patient data - Supplier data - Enterprise data Business Process Framework o Map core processes, end to end, leveraging APQC Process Framework o Define best practice standardized processes, metrics and performance targets o Effectively manage process evolution Standard IT Systems o Convert non-standard sites to standard laboratory system suite o Convert to modular systems to reduce complexity o Leverage commercial, off-the-shelf applications v. internal custom-built Enterprise Architecture o Seamless volume movement across sites o One view of customers and patients o Improved business continuity o Faster deployment of new capabilities o Improved management control (cost & quality the new QUEST 5 Drive Operational Excellence 5 |
Strategic Imperative 2 - End to End Customer Value Chain Built on process excellence Customer Value chain Management Processes Business Vision and Strategy Operating Processes Value Creation Generate ideas Create value propositions Develop tests and solutions Introduce to market Manage life cycle Value Proposition Develop channel strategies Build regional market strategies Acquire new customers Generate demand Engage existing customers Value Delivery Collect Transport Test Provide insights Bill Service Customer Enabling Processes Legal Human Resources Finance Information Technology Procurement Quality Simplify & Optimize, Standardize & Automate the new QUEST 5 Drive Operational Excellence 6 |
Strategic Imperative 3 - Business Performance Tools Applied enterprise-wide Improvement Methodologies Time-Phased Top Level Summary Initiative # Description Success Metrics & Targets R/Y/G Status Past 2 Trend If off track, why? Corrective Actions Necessary Risk Assessment scale of 1-10 5xLxD What could go wrong? What is the impact? How likely to occur is this failure? Would there be any warning? detection Total Score Action to Take Resp Due Date example only data is incorrect in system make the wrong decisions 10 we are already changing data on the report to very likely No warning: no way to know until we validate data against raw information 810 validate data for LMNOP report George Project Management Controlling and Monitoring Change Control form Initiating Planning Executing Closing Project Initiation Project Management Plan Project Updates Project Final Results Charter Scope Stakeholders Scope definition Work Breakdown structure / Tasks Sequence Duration Communication plan Risk assessment Budget/Costs Resources Project Team Communications Measurements Deliverables Goals achieved? Performance Process in place Closeout Initiation form MS Project Plan Project Management Plan Status Reports Bullets Major stages Areas covered at each stage Project Management Deliverables Breakthrough Management Step 1 Long-term objective Step 2 Annual Goal Step 3 Top Priorities Step 4 Specific Targets Step 5 Owners Grow Physician Addressable market Share to 25% Increase share of LPP by 10 points in 2013 1 Penetrate LPP market 2 Develop preferred service pathway 3 Create LPP information service 1 Select 50 LPP targets Jane Doe 2 Train 10 Lpp reps John Doe 3 Establish LPP QDCA Database 1 Build client tracking codes in Client Service 2 Deploy text messaging alert service to LPP reps Jack Smith 3 train RSRs on LPP messaging Sally Doe 1 finalize Client Master to link LPP sites 2 Finalize informatics feed cross LOBs Jack Doe 3 Design 5 standard report dashboards Sally Smith Change Management Model of Roles and Responsibilities for Change Senior Leaders o Actively and visibly support change o Build the group leading change o Communicate directly with employees Human Resources o Develop change management strategy and plans o provide support to managers and employees Change Management Managers o Coach employees through the transition and manage resistance Employees o Survive and thrive during the organization change the new QUEST 5 Drive Operational Excellence 7 |
Strategic Imperative 4 - Invigorate is our Cost Excellence Program $600 million in run rate savings exiting 2014, on the path to $1 billion 2012-2014 Financial Goals Invigorate - Phase 1 o Achieve $600M run rate in savings over 2011 baseline to close the cost gap and invest in growth OE Programs 6 Flagship Programs o Focused on End to End Value Chain and supported by Business Performance Tools Beyond 2014 Invigorate - Phase 2 o Target $400M additional savings over 2014 baseline to build competitive advantage Enterprise Architecture o Providing a sustainable platform for additional savings and growth the new QUEST 5 Drive Operational Excellence 8 |
Cost Structure - Invigorate Baseline 2011 Quest Diagnostics ($B) Other $0.6 10% Bad Debt $0.3 4% Procurement $2.2 35% SWB $3.1 51% o SWB o Procurement Total cost = $6.2B the new QUEST 5 Drive Operational Excellence 9 |
Invigorate consists of 6 flagship programs to drive savings and improve performance across the customer value chain 6 Flagship Programs Opportunity Savings ($millions) 1 Organization Excellence Simplify organization structure and reduce management layers $65-$80 2 IT Excellence Standardize and simplify systems and reduce fixed costs $55-$65 3 Procurement Excellence Reduce unit cost and improve total cost of ownership $125-$150 4 Service Excellence Automate processes and leverage scale across enterprise $55-$65 5 Lab Excellence Optimize capacity and facility footprint, automate processes and apply lean manufacturing principles $125-$150 6 Billing Excellence Reduce bad debt and improve collections efficiency $75-$90 the new QUEST 5 Drive Operational Excellence 10 |
We have a structured plan in place for each of the six flagship Invigorate programs 1 ORGANIZATION EXCELLENCE $65-$80 million o SWB - $3.1 billion - Targeted savings of $65-$80 million - Simplify organization to speed decision making and reduce management by 400-600 positions - Key Initiatives - New organization structure designed for simplicity and accountability ? one business from value creation to value delivery - Reducing management layers from 10 to 7 and increasing spans of control by 20% - Deploying shared services and outsourcing strategies to reduce ongoing G&A spend 2 IT EXCELLENCE $55-$65 million o IT annual spend approaching 6% of revenue - Phase 1 - Targeted savings of $55-$65 million - Phase 2 - Enterprise architecture drives significant additional savings opportunities - Migrate to standard systems and data, reducing IT spend to 4% of revenue o Key initiatives: - Lower infrastructure costs: Implement role based mobile and PC policies to reduce total number of assets Move to cost effective cloud hosting services. Align service levels with standard process requirements - Increase application efficacy: Focus on fewer Hi-Impact projects. Increase percent of offshore sourcing. Reduce custom development and move to packaged solutions - Systems rationalization: Retire over 50 obsolete applications and eliminate associated hosting, license and labor costs the new QUEST 5 Drive Operational Excellence 11 |
We have a structured plan in place for each of the six flagship Invigorate programs (continued) 3 PROCUREMENT EXCELLENCE $125-$150 million o $2.2 billion annual spend - Targeted savings of $125-$150 million - Currently achieving low single-digit annual cost savings and driving to improve by 25-30% o Key Initiatives - Building global sourcing capabilities to deliver best overall value - Revamping strategies with IVD supply base for a sustained competitive advantage - Leveraging supplier technology portfolio to further automate and standardize technology platforms - Targeting G&A spend reduction opportunities through category excellence 4 SERVICE EXCELLENCE $55-$65 million o $1.3 billion in spend, 150 million patient & client encounters annually - Targeted savings of $55-$65 million - Automate processes, leverage enterprise scale, rationalize access footprint o Key Initiatives - New logistics operating platform to optimize dispatch, network planning & performance monitoring - Market-based analytics to optimize patient access placement and mix (PSCs, IOPs, 3rd Party, other) - Call center optimization plus new self-serve options to provide lower cost access to results, services and medical expertise the new QUEST 5 Drive Operational Excellence 12 |
We have a structured plan in place for each of the six flagship Invigorate programs (continued) 5 LAB EXCELLENCE $125-$150 million o Nationwide footprint processing over 500,000 requisitions each night - Targeted savings of $125-$150 million - Increase productivity and efficiency by 10-15% while optimizing lab footprint o Key initiatives: - Consolidating automated testing to leverage scale and enable capacity planning - Automating sample handling and testing - Integrating existing facilities, including recently acquired operations, driving process standardization - Creating a sustainable new operating model - Sustainable quality and productivity gains based on culture and capability of continuous improvement - Building the first "lab of the future" in New England for UMass 6 BILLING EXCELLENCE $75-90 million o Build on industry-leading performance - Targeted savings of $75-90 million - Reduce cost of billing by 15-20% through standardization and automating key processes o Key initiatives: - Increasing utilization of electronic billing - Expanding convenient payment strategies like "EZ-Pay" in patient service centers - Placing all operations on standard billing system - Partnering with payors to improve efficiency: real-time adjudication - Improving productivity by using "middleware" to simplify administration the new QUEST 5 Drive Operational Excellence 13 |
Key Take-Aways o Strengthening the foundation for growth - Enterprise IT architecture - Customer value chain - Business performance tools o Our cost excellence/Invigorate program is delivering results - Projecting $150 million in exit run rate savings for 2012 - Plans in place to achieve $600 million exit run rate/$500 million savings rate in 2014 - Targeting $400M from 2015 and beyond to hit a $1 billion run rate savings Operational Excellence will drive customer satisfaction, employee engagement and shareholder value the new QUEST 5 Drive Operational Excellence 14 |