DIAGNOSTICS

Purchasing Management: An Introduction to

the Purchasing Decision Beyond Just Price

ADD-00056801 October 25, 2017

WHAT IS IMPORTANT WHEN MAKING A
PURCHASING DECISION?

Technology
&
Value
Innovation
Clinical
Results

Quality
Price

People Service &

Reputation
Support

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 WHAT IS IMPORTANT WHEN MAKING A
PURCHASING DECISION?

Purchase
Model: Mercedes GLK Price Difference Model: BMW X3
Purchase Price: $36,377 $2,431 Purchase Price: $38,808
Transmission Automatic Transmission Automatic
Engine 2.1L Engine 2.0L
Drive Train 4WD Drive Train 4WD

Proprietary and confidential — do not distribute Source: KBB.com. 3

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WHAT IS IMPORTANT WHEN MAKING A
PURCHASING DECISION?
Model: BMW X3 Model: Mercedes GLK
TCO
Difference
$3,487

Fuel: $8,285

Fuel: $8,722

5 Year Insurance: $8,400 5 Year

Operating Operating
Insurance: $4,540 Cost: Cost:
$20,486 $24,099
Repairs: $2,560 Repairs: $4,078

Maint: $4,664 Maint: $3,366

Proprietary and confidential — do not distribute Source: KBB.com. 4

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CONTINUOUS PRESSURE TO DO MORE WITH LESS
Industry challenges are pushing you and your organization to transform

Cost Pressures

Patient Demand Patient Expectations

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ARE YOU RECEIVING VALUE FOR MONEY?
WHAT IS “VALUE”?
A company needs
to quantify and
prove the value or
it is meaningless

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IMPROVING VALUE WILL HELP SOLVE HEALTH
SYSTEM CHALLENGES
Total Economic Value
TCO = Total Cost of Ownership TVO = Total Value of Ownership

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UNDERSTANDING THE FULL POTENTIAL OF THE LAB
MEANS CHANGING THE CRITERIA OF VALUE
From To

Instruments Operating System-wide

and Reagents Costs Impact

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MANAGING TOTAL COST OF OWNERSHIP (TCO)
OVER THE DURATION OF YOUR CONTRACT IS
CRITICAL TO ENSURING YOU MAKE THE CORRECT
PURCHASING DECISION

4%

85%
of a lab’s budget
50%
31%
Labor
Supplies
Reagents
Other
is spent on non
reagent costs
15%
Budget breakdown for illustrative purposes
Your lab’s budget may differ

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 TVO HELPS YOU MAKE A BETTER PURCHASING
DECISION
Reagent Price Only TVO Benefit Summary

Purchase decision based only

on reagent price ignores • Provides confidence to
other significant costs management that total costs will be
controlled and not only a small
portion of spending

• Facilitates better purchasing

decisions?

• Evidence based. Abbott has White

Papers and studies to prove it
controls total costs better than the
competition. Less reruns. Less
maintenance. Less staff required

• Abbott will partner with you to

maximize the value of your lab.

Source: Internal Budget breakdown for illustrative purposes. Your lab’s budget may differ
MANY “HIDDEN” FACTORS IMPACT LAB COSTS

Labor Overhead

Quality Control Maintenance

Utilities Waste

Training

Floor Space

Reagent Inventory
Management Management

DOES YOUR CRITERIA INCLUDE THESE ELEMENTS?

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 LABORATORY’S IMPACT ON YOUR HEALTH SYSTEM
IS SIGNIFICANT

Laboratory data 30 minute test Accurate test Clinical pathways

influences 60-70% result delay results help decrease overall
of all critical = 5% increase physicians make costs by 9%3
decision making1 in emergency better decisions
room LOS2

1. Forsman RW. Why is the lab an afterthought for managed care organizations? Clin Chem 1996; 42(5): 813-816
2. Li, L et al. The effect of laboratory testing on emergency department length of stay: a multi hospital logitudnalstudy applying a cross-classified random effect modeling approach.
Academic Emergency Medicine. Jan 2015. Vol 22:1 pp. 38-46.
3. Futrell, K. The Value of the Laboratory in the New Healthcare Model. Diagnostic Information: The New Currency in the Future of Healthcare. Accessed January 20, 2015.
Retrieved from http://www.orchardsoft.com/files/white_paper_value_lab.pdf

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 VALUE CHAIN: FROM TCO TO TVO

Specialized Assays

Total Healthcare Value Improved Clinical Decision

Support
(Government, Payers)

Total Economic Value

(Healthcare System)

Total Value of
Operation (Lab)

Total Value of
Ownership
(Instrument
Ecosystem)

Data management, TAT,

benchmarking
Infomatics
Operational Productivity
VALUE BEYOND THE LABORATORY
ARCHITECT HSTNI ACHIEVES EXCELLENT NPVS FOR
SAFE RULE OUT STRATEGIES, FASTER THAN STANDARD
OF CARE 1-5

Less overcrowding in Emergency Department and Shorter

waiting time

NPV=negative predictive values

1. Rubini Giménez M, et al. Int J Cardiol. 2013;168(4):3896-3901

2. Shah AS, et al. Lancet. 2015;386(10012):2481-2488
3. Rubini Gimenez M, et al. Am J Med. 2015;128(8):861-870
4. Cullen L, et al. Clin Biochem. 2014;47(6):321-326
5. Keller T, et al. JAMA. 2011;306(24):2684-2693
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DO YOUR TENDER CRITERIA ENSURE YOU
PURCHASE THE SOLUTION WITH THE LOWEST TCO?

Traditional Model Alternatives Models

Sensitivity to
Water $0.1M
Absence of
Technical 30% Technical 30% onboard dilution $0.15M
aliquotting $0.1M
Reruns and
QCs
Labor
Efficiency Offer 1 Offer 1
Price Value Comp A Comp A
70% 70%
Price $1M $1M

Utilities
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ABBOTT’S APPROACH MAKES A DIFFERENCE

Gather insights

People
Enhance
results Align goals

Insights
Measure
impact
Recommend
solutions

Technology
Enact plan

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 ABBOTT DELIVERS MEASURABLE IMPACT ON YOUR
TOTAL COST OF OWNERSHIP
Labor
70% less hands-on maintenance with ARCHITECT’s1
75% reduction in labor with inventory management 2
60% reduction of labor by reducing platforms from 7 to 5 3

Supplies 4%
50% less consumable waste produced with ARCHITECT’s

85%
immunoassay testing 1
Labor
31% Supplies
Reagents 50% Reagents
$640,000 annual reagent savings by reducing platforms from of a lab’s budget
13 to 2 4 is spent on non Other
reagent costs 15%
Other
Space Budget breakdown for illustrative purposes
34% smaller analyzer foot print 1 Your lab’s budget may differ

46% less warehouse space 5

37% less cold room space 5
Utilities
35% less power and 71% less water then competitor 5

1. “The Value of Clinical IVD Systems.” Enterprise Analysis Corporation. ADD-0005064 The results represented are based on those achieved by an account.
2. Saint Francis Health System testimonial. ADD-00003951 Your results may be greater or less based on actual implementation.
3. Boston Medical Center testimonial. ADD-00002880.
4. Baptist Health System. testimonial. ADD-00005089.
5. Citilab, Moscow, Russia: Patrick Gontard; CEO
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ABBOTT’S TOTAL COST OF OWNERSHIP UNLOCKS THE
HIDDEN OPPORTUNITIES FOR SAVING
“Our goal…was to establish a consolidated “Economics is a goal…we have
very lean laboratory concept. It was to be able to cut costs. In the
planned to save 10 positions as part of this first year with Abbott we’ve
project and we have almost reached our been able to cut costs by
goal.” 4%,…that’s in my opinion, quite
impressive.”
Mr. Ulf Oesinghaus, Head of Purchasing Department – Diagnostics
Universitätsmedizin Göttingen (UMG)
Dr. Niels Korsgaard, Lab Director, MD
Sydvestjysk Sygehus, Esbjerg, Denmark

“By using best practices, we reduced

inventory by 30% in 4.5 months, eliminated “In order to make evidence
overnight shipping, and redirected staff to based procurement decisions,
provide services rather than managing we determined TCO. We found
inventory.” Saint Francis reduced inventory the Abbott ARCHITECT
on balance sheet by $269,000 and annual consumes 35% less power and
operating expenses $169,000. uses 71% less water”
Barry Steichen, Executive Vice President, Chief Operating
Patrick Gontard, Director, CitiLab
Officer Saint Francis Health System

ADD-00056801 Proprietary and confidential — do not distribute The results represented are based on those achieved by an account.
Your results may be greater or less based on actual implementation. 18
ABBOTT’S TOTAL COST OF OWNERSHIP UNLOCKS THE
HIDDEN OPPORTUNITIES FOR SAVING
“Financially speaking this [transition] has been
very positive for us. We’re seeing a positive
impact on our bottom line in the [core]
laboratory, and at our satellite hospitals as well. “[The Abbott solution] decreased
The savings at each of the facilities has been the number of analyzers needed
substantial”. $640,000 in reagent savings alone by 100 creating a savings of $15 –
were achieved at Baptist Health System. 16 million.”

Dr. Şuayip Birinci, Genel Sekreteri

Paula Bowen, MT, System Lab Director Kuzey Kamu Hastaneler Birliği, Turkey
Baptist Health System, USA

“It took away a lot of manual work they had to do before and
the Abbott solution helps us achieve cost savings and
reduced time to train employees. Previously we had to train
someone for half of a year to work at specimen reception.
Today you just need a half an hour of training
to be able to do the job.”

Ginny Foo, Chief Operations Officer

Innovative Diagnostics, Singapore

ADD-00056801 Proprietary and confidential — do not distribute The results represented are based on those achieved by an account.
Your results may be greater or less based on actual implementation. 19
 TRANSFORM HOW YOU THINK ABOUT THE
PURCHASING DECISIONS

Find out how Abbott can partner with you to

maximize the value of your lab.
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 DIAGNOSTICS

Case Studies – Total Value Of Ownership

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ADD-00056801 October
October 25, 2017
25, 2017 22
2 CASE STUDIES
RUSSIA & SOUTH KOREA

Case Study 1 Case Study 2

• Citilab • KCL (Phil Lab)

• Private Lab • Private Lab
• 10,000 samples per day • 1,000 samples per day
• Multiples Sites • Single Site
• Russia • South Korea

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 DIAGNOSTICS

Citilab - Russia
…How a purchasing decision based
on 30% initial savings resulted in a
solution which was 25% more
expensive

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CITILAB

OBJECTIVE:
Identify clinical lab systems’ impact on
laboratory key performance indicators

CUSTOMER:
Citilab, Russia
More than 10,000 samples per day

SYSTEMS OBSERVED:
• Competitor A
• Abbott ARCHITECT

PARAMETERS:
• Cost of products
• Variable direct costs
• Variable indirect costs

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WHAT COSTS ARE PART OF LAB TCO?

Not directly related

Consumed in
to creating result
creating results
but necessary

DIRECT INDIRECT

• Reagent • Workflow
VARIABLE
Expenses change • Consumables • Inventory Management
with volume • Intelligent mapping • Quality
• Power consumption • Informatics

TOTAL COST OF OWNERSHIP

• Laboratory staff • Overhead staff
Expenses don’t change
FIXED

• Laboratory space • Technology ancillary

with volume • Instruments • Building (real estate)
• Quality control overhead cost

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RESULTS
33% Lower
36% Lower
IA
56% Lower

17% Higher

Starting point ‒ Second step ‒ Third step ‒ Fourth step ‒

Cost of products Cost of products plus Costs including Total costs
variable direct cost variable indirect (including all
costs fixed costs)

27% Lower 26% Lower

CC

29% Higher
26% Higher

Starting point ‒ Second step ‒ Third step ‒ Fourth step ‒

Cost of products Cost of products plus Costs including Total costs
variable direct cost variable indirect (including all Abbott ARCHITECT
costs indirect costs) Competitor A

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REASONS FOR DIFFERENCES: IA

33% Lower
36% Lower

56% Lower

17% Higher

Starting point ‒ Second step ‒ Third step ‒ Fourth step ‒

Cost of products Cost of products plus Costs including Total costs
variable direct cost variable indirect (including all
costs fixed costs)

• Difference due to workflow savings, consumables, disposables,

and power consumption
• Workflow = reagent management
Abbott ARCHITECT
Competitor A

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REASONS FOR DIFFERENCES: IA

33% Lower
36% Lower

56% Lower

17% Higher

Starting point ‒ Second step ‒ Third step ‒ Fourth step ‒

Cost of products Cost of products plus Costs including Total costs
variable direct cost variable indirect (including all
costs fixed costs)

• Difference due to maintenance, reruns and waste disposal costs

Abbott ARCHITECT
Competitor A

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REASONS FOR DIFFERENCES: CC

27% Lower 26% Lower

29% Higher
26% Higher

Starting point ‒ Second step ‒ Third step ‒ Fourth step ‒

Cost of products Cost of products plus Costs including Total costs
variable direct cost variable indirect (including all
costs indirect costs)

• Difference due to maintenance protocol, dilution, sensitivity to

water,

Abbott ARCHITECT
Competitor A

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REASONS FOR DIFFERENCES: CC

27% Lower 26% Lower

29% Higher
26% Higher

Starting point ‒ Second step ‒ Third step ‒ Fourth step ‒

Cost of products Cost of products plus Costs including Total costs
variable direct cost variable indirect (including all
costs indirect costs)

• Difference due to
• Laboratory floor space consumed by analyzers

Abbott ARCHITECT
Competitor A

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Results of Citilab TCO 2015

Gontard & CIE Group – Copyright 2017

Gontard & CIE Group – Copyright 2017
Gontard & CIE Group – Copyright 2017
Gontard & CIE Group – Copyright 2017
Gontard & CIE Group – Copyright 2017
 DIAGNOSTICS

KCL Lab – South Korea

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PURCHASING DECISION BASED ON TVO YIELDED
>20% IMPROVEMENT IN PROFIT

“Abbott’s TCO-based approach creates

improvements to EBITDA and attracts, and
retains customers.”
-Sung Ik-jung, COO of KCL

“Improved level of satisfaction among employees after

adoption of the solution ffered by Abbott”
Cho Kyung-ja, Medical Director of KCL
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TCO LOOKS AT ALL PROCESSES…
FROM PHLEBOTOMY TO DELIVERY OF RESULTS

Post
Pre-Analytics Analytics
Analytics

45 Action items across all

areas designed to improve
operational efficiency and
quality in the Lab

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LONG JOURNEY WITH PHIL LABORATORY
...and how Abbott will help Phil laboratory to achieve this
2001 Nov 2015
Roche TCO Introduction
Phase 1. Introduction
• Roche user for nearly 16 years
• Seeking automation solution &
partner to prepare them for
future growth
• Introduced TCO concept and
initial workshop
- Workflow & Process
improvement consulting
• Partnership with Abbott
CHOOSE TRANSFORMATION
Jan 2016 Mar 2016 May 2017 Jul 2017 Aug 2017
Abbott TCO Workshop TCO Case Story LEAN AWO 1 LEAN AWO 2
Phase 3. TCO Case Study &
Phase 2. TCO Workshop
LEAN Action Work-Out
• 3 day TCO workshop (3/29~31) • Execute the action items
• Identified 45 areas to improve identified in TCO workshop
• TCO assessment and scoring tool • Analyzed the finance outcome
• Establish TFT implementation compare to same period of
Roche
• Delivered “LEAN”
Actions
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 HOW TO ACHIEVE THE GROWTH
...What makes Phil Laboratory to accomplish 12% growth

Change in EBITDA after the TCO based Labor Savings • Resource optimization
approach through the solution offered by (Workflow, • (10)
Abbott…even 7% higher price compare to Automation, • Lab process 8%
Maintenance, improvement (from
Roche consumables 3shifts to 2shifts &
Reruns) reducing workflow)

• Reduce the rerun &

retest (10%->2%)
Quality • Quality management
2%
12% Improvement (reducing complaints
from customer and
retest)

• Enhancement on sales
Competency
Improvement
and marketing 2%
- sales increase (~10%
test exam increase)

CHOOSE TRANSFORMATION ADD-00001234 | Presentation Title | Date | 41

 HOW TO ACHIEVE THE GROWTH
...What makes Phil Laboratory expecting to accomplish additional 10% growth

Change in EBITDA after the TCO based • Deploy the portable

approach through the solution offered by centrifuge into clinics in
order to reduce 5%
Abbott…even 7% higher price compare to
hemolysis (reducing
Roche Quality retest & increase clinical
Improvement outcome
• Change the bar code
label & tube (reducing
re-test)
10% • Reducing manual tests
• Reducing manual test to
12% increase overall
Workflow
workflow and quality
improvement
• Developed a new test 2%
request form (color
coding and bar code)

• Leveraging the new test

request form to increase
Sales & volume through new
Marketing test introduction and
trigger more exam based 3%
on care pathway
(guideline)

CHOOSE TRANSFORMATION ADD-00001234 | Presentation Title | Date | 42

 A TCO/TVO APPROACH HELPS FACILITATE A
BETTER PURCHASING DECISION BEYOND JUST
PRICE
Reagent Price Only Summary

Purchase decision based only

on reagent price ignores
• Total Cost of Ownership offers
other significant costs
a wider financial perspective
and facilitates better
purchasing decisions?

• Is Total Cost of Ownership part

of any purchasing criteria or
tender specifications that you
use today?

• Abbott can partner with you to

maximize the value of your lab.

Source: Internal