LEAN IT Across the Enterprise

1. LEAN IT Across the Enterprise How to deliver IT Products and Services Faster, Better, and Cheaper than ever before!

2. Today’s discussion… • A quick overview of CVS Caremark and what we are dealing with in our industry. • One man’s view (and research) of what Lean IT and Continuous Improvement looks like, from the “Outside-in” • Where CVS Caremark is heading to on our Lean IT journey • A review of what we are doing to get where we have to be.

3. CVS Caremark Overview • Retail and Healthcare verticals • Fortune 20 Company, >$90B in revenue • >7,200 stores and over 200,000 employees • Over 10 major acquisitions in the past 10 years

4. What we were dealing with at CVS… • A very regulated industry (HIPPA, PCI, PII, PHI, etc…) • Revenue and margin pressures do to very competitive environment • ROI and ROA focus • Real time information needing to be more readily available to make fast and intelligent decisions • A need to reduce the time wasted debating the “facts”. • People feeling stressed out and not in control….. • Then lets see if we can discuss some of the why’s….

5. What’s Most Important to the “Outside”…

6. Faster Better Customer Delight! Cheaper What’s Most Important to All our Customer’s?

7. CVS Caremark’s Top Initiatives for 2011 • Manage Drug Costs and Improve Health Care Outcomes • Enhance Productivity / Effectiveness of Pharmacy Infrastructure • Grow Revenue and Margin • Hold or lower our unit cost structure • Enhance our Performance-driven Culture • Become “Operationally Excellent “ • Improve Talent Management (accountability and recognition) • Raise Colleague Engagement (information and career paths) • Great internal service leads to great external service • Enhance Shareholder Value

8. Where We Are Going as an Operation? Level 4 The People, Process & Technology “Journey” • Value • Demand Forecasting • Supply Chain Mgmt • Service Cost Mgmt. • Strategic Sourcing • Competitive Intelligence • Output Efficiency and Effectiveness Optimization Level 3 • Services • Service Catalogs • Service-Level Mgmt. • Cost Definition and Tracking • Process Engineering • Resource Mgmt. • Knowledge Mgmt. • Capacity Planning • Activity-Based Costing • Relationship Mgmt. • Quality Assurance • Focus on prevention Today Level 2 • Proactive • Monitoring • Availability Mgmt. • Arch/Engineering Mgmt. • Security Mgmt. • Quality Control • Change Mgmt. • Configuration Mgmt. • Asset Mgmt. • Software Control & Distrib. • Bill or Chargeback • Contingency (DR) Planning IT CMMI Level 1 • Reactive • Help Desk • Problem Mgmt. • Limited visibility • Low connectivity • Focus on fixing “Margin” Mgmt. Effectiveness: Anticipate business direction & consistently meet requirements Efficiency: Understand requests & consistently meet requirements Key Concepts Metric mgmt. tool leveraging and “lean” enterprise methodologies (End-to-End, Integrated Process Delivery Teams)

9. Enterprise IT Services “…enabling effectiveness and efficiency across IS and CVS” Who We Are and What We Do… Our mission is to provide our Business Partners with highly Reliable, Available and Scalable systems and services in the most effective and cost efficient manner possible. We accomplish this through high quality technical consultation, solutions, and end-to-end operational processes that have connected metrics, controls, and continuous improvement frameworks, methodologies, and tools. Our goal is to guarantee that our Business Partners consistently receive the right products and services at the right time, place, and cost, with just the right level of quality and reliability.

10. So, How Are We Going To Get There? Or better yet… How do we meet our customer’s needs better today and in the future? by thinking, and doing, things differently!

11. A New Operating Model: The Business of IT Requires that we have: Service Management “Architecture” 2. An Organization aligned for Service Delivery 1. Visibility and Cost transparency connected end-to-end • Managed Service Levels • Cost Transparency • Standardized Offerings • Service “Storefront” • Consolidate Demand 3. Well Defined Services that allow business to compete 4. Empowered Business Partners Our competitive strategy is not simply to be a low cost provider, but to be able to control costs and differentiate ourselves from our competitors.

12. Start with Well Defined OUTPUT & CONTROL Metrics 18 November 2019 Page 12 12

13. Clients Service Component Piece A(work order) Outcome A Service Request (Sales Order) SLA with Lead time Process AStep 1 Process AStep 2 Process AStep 3 Service Component Piece B(work order) Outcome B Process BStep 1 Process BStep 2 PROCESS: what delivers the OUTPUT Operations Engineering-Production

14. Business / Application Clients Arch / Eng. Support Telecom / Network Support Desktop Support Order intake Support Database and Storage Support Customer Service Support ICC Help Desk Break-fix Monitoring Server Support Service: Application Hosting – Standard / Complex Sample Process Pieces: firewall mgmt., database mgmt., production control, data center mgmt. Service: Basic or EU Support Sample Process Pieces: user I/D account maintenance; PC configuration, install, maintenance; trouble shooting, first-level/just-in-time help Process Automation INPUT:Service Development & Demand Planning Vertical Skill of Platform-Based Silos Give Way to Horizontal Process Teams

15. X HP Quality Center Serena Dimensions RM Lombardi Blueprint IBM RSA Serena Business Manager EMC Process Analyzer HP ITSM End-to-End Product Delivery Process… Workflow IT STRATEGY IT APPLICATIONS IT OPERATIONS STRATEGIC + OPERATIONAL DEMAND Business Service Management IT Service Management Portfolio and Financial Management Software Engineering Process (SEP) End-user and business transaction management Consolidate event and performance management Network lifecycle management Consolidated service desk Manage service operations processes Self service catalog and knowledge Continual service improvement Asset management Manage enterprise portfolio Manage projects, programs, and costs Manage business process Manage requirements Verify functional quality Ensure application security Validate performance Enterprise Architecture DESIGN BUILD SOA governance Release decision support Run book automation Business Service Automation Data enter automation (change execution, compliance, audit for server, network, storage) Client automation (change execution, compliance and audit) SOA PPM BSM BSA RBA Configuration Management System (Federated CMDB) Metrics # new products # BSRs # modifications to process models # of use cases Compare cost to original quote # requirements aligned to a release Requirements burn-down/Velocity # Change orders after start of build # of requirements aligned to test cases # defects found by criticality Defect fix turnaround time # of defects by severity # defects by phase of origin Defect Aging

16. CHEAPER : Demand & COGS Mgmt Cost Drivers Cost Variables Demand from customer’s or systems How much do you need? (Qty of Units) Variable Cost Total Cost Labor TC=FC+(Q*VC) How much does it cost? (Cost Per Unit) Material Fixed & Variable Cost Overhead

17. Current State : End to End PC Installation START START 7 e - mails received 6 e - mails received for order and ship for installation T 7 : End User If PC was not If retiring an old T 2 : T 4 : T 6 Enter PR in : contacts DCC to End User discards bought by user , PC , initiate User Ships old PC End User T 1 : Decide on PC BuySmart ; choose End User End User End User boxes Converge picks up schedule DCC Tech Installs empty boxes for user must change Redeployment to Redeployment Type to Order New or physically Receives PC in old PC PC for disposition Installation ( via PC at user site . new PC PIN using Asset Process in Center Redeployed Receives PC Buysmart RequestIT ) Transfer tool . Buysmart END T 10 BuySmart automatically sends Approved PR PR submitted to T 3 : PR to Manager PR PR to Manager for NO email to user becomes PO and Buysmart , Email to BuySmart for Approval Approved ? Approval reminding them to order goes to End User receive PC . RDC YES DCC sends email T 8 : Run Daily extract DCC records DCC Report goes T 9 : to End User DCC NO from Buysmart DCC contacts End installation to Asset Center END prompting them to DCC Tech Installs with all PC’s User to Schedule complete in with User PIN and ? New PC schedule PC PC at user site . ordered Installation database PC S . N . installation . T 16 T 17 Received PC triggers Asset Center assigns PC to Asset Center receives info . YES Invoice Payment which Asset Center END User PIN via Asset Center on old PC disposition from triggers Pin to SN entry in Asset Transfer report or DCC Redeployment Center and Asset Center report updates Database HP Deliver PC to end Vendor sends invoice PC Vendor user within 7 days Redeployment Center Redeployment Process Redeployment T 11 : T 12 : T 13 Will : YES Ship PC to end user determines if old PC Ships Boxes to RDC retired PC be RDC emails End RDC receives PC in 1 to 3 days is Redeploy or End User to pack redeployed User to confirm for redeployment Disposition up old PC ? NO Converge ( Outside Contract - Peabody , MA ) T 15 Invoice from T 14 RDC changes Converge bills LM Disposition Converge picks Converge triggers invoice in Converge ships monthly for up dispositioned change in Asset PC on User’s desk Buysmart boxes to End User dispositioned PC’s PC’s Center Old PC redisposition Process Improvement = Process Visibility

18. Future State : PC Provisioning in New Model BuySmart No PC Request is Approved Install User Verifies Refer to Standard LM Config List Submit New PC Request in BuySmart Requested ? Initiation Completed Customer Request Yes PC Request is Approved r o d n e V PC is Built Per Send PC p LM Specifications to User o t k s e D y r e v i l e D Verify Security, Network Connectivity Load and Configure LM Applications Desktop Operations Receive Deliver PC e Receives PC Request c i PC to User v Notification r e S n o i t a r t s Provide i Update Asset n Software / i m Database License d A Process Improvement is about Flow…

19. Simplify Eliminate non-value added work where possible (Ask the “5 Why’s” to determine if process step can be eliminated). Streamline and consolidate work intake, process steps, procedures (ways of doing work), handoffs, work layouts, and measurement-reporting. Design for continuous first pass yield and flow and eliminate rework loops! Standardize Where variability doesn’t create value With SOPs, work task templates and checklists, frameworks and process methodologies, tools, partner metrics, training, systems, etc Then Automate Go for repetitive steps and handoffs first, also work intake-starters (IS order and call handling processes) and metrics-reporting. Then go back and do it again! Our Repeatable Process for Continuous Improvement is to constantly … 19

20. Efficiency:it’s a whole new Language for most people • Operations Management….. It’s been around forever and the practices, processes and measurements are thoroughly proven. • It’s all about process control, metrics and analytics; • COGS or COSS (cost of service sold) • Throughput: (actual quantity out over defined time) • Capacity or Capability: (Labor, direct or indirect, materials mgt) • Cycle-time: (e-to-e, VOC, variance to forecast) • Defects: (quantity, type, location) • Cost/Unit of Service: (affordable, competitive) • Cost of Quality: (balanced) • Failure (COPQ / waste) • Preventative • Appraisal • Productivity (what it’s really all about!) = valued output / resources consumed

21. Lean Reduce Waste – Increase Speed Goal: Improved efficiencies through reduced waste & increased process speed Focus: Identify non-value added steps and cause of delay Method: Flow improvement through Value Stream mapping, waste reduction and Kaizen events Lean Tech. Enable Six Sigma Quality (Faster Cycles of Experimentation/learning; Simplified Processes) Six Sigma Reduce Variation – Reduce Defects Goal: Improve effectiveness on Critical Customer Requirements Focus: Use DMAIC with Quality tools to eliminate variation Method: Management engagement, dedicated BB and GB resources, VOC & data Six Sigma Quality Enables Lean Speed (Fewer Defects Means Less Time Spent on Rework, controlled speed!) Lean Six Sigma…What is it? The integration of 2 powerful business approaches that allows companies to dramatically improve their bottom line by designing and monitoring everyday business activities in ways that minimize waste and variation and improves resource utilization,while at the same time increasing customer satisfaction.

22. LEAN, Six-Sigma and Waste Some Causes of Waste • Non-standardized Work Methods • Lack of SOPs • Poor adherence to procedures • Lack of process • Ineffective scheduling • Training deficiency • Disorganization • Lack of, or capability of, material and equipment • Supplier reliability/quality problems • Searching for data The 7 Types of Waste • Defects- errors, scrap, rework, non-conformance • Waiting - for info., materials, people, maintenance etc. • Poor process design - too many-few steps, non-standardization, inspection rather than prevention • Motion- inefficient layouts at workstations, in offices, poor Ergonomics • Inventory - raw materials, work in progress, finished goods, papers, electronic files etc • Overproduction – making-doing more than is required or earlier than needed • Transport - moving people-goods around-between sites

23. Our Process for Operational Excellence Gain meaningful VISIBILITYinto our work output and activities… Ensure high quality, end-to-end, IS product and service understanding and performance through clear and connected metrics and reporting, from application conception through production and then retirement. Get end-to-end CONTROLof our output processes … Develop connected and predictable, end-to-end, service delivery process that ensure the highest level of Reliability, Availability and Performance (with associated process maps and metrics) for all IS products and services. Apply PROCESS IMPROVEMENT to the big Y’s first Reduce defects, variances, duplications, and other process wastes in order to reduce service delivery cycle-times, and spend, on non-essential process costs, and increase quality of the operational processes used to deliver IS products and services to the business units And in the end grow your CAPABILITY & SUSTAINABILITYby… Developing a systematic approach to identify, share, and introduce industry and cross-IS best practices that have measurable benefits; be a “learning” organization. 23

24. Leadership All of this Operational Supply and Demand talk is great, and most of it is based in metrics and facts, but the real challenge in all of this, and where most of the issues occur that cause these initiatives to fail, is in the area of organizational change management, and that all starts with the management-leadership team.

25. Closing the “GAP” – Cultural Adjustments Traditional IT Process IT Optimizes Attributes Likely Transition Obstacles: - Maverick behaviors - Mistrust by team members- Ego-based resistance and posturing - Management command and control

26. Individual Commitment to Change Ownership Adoption Acceptance Level of Commitment Understanding Awareness Time Continuous Improvement Culture… (new ideas consistently being brought to the table) Different Results and Outcomes! (needles moving in the planned direction) Behave Differently… (data being used for decisions, processes changing) Think Differently… (language, questions) 26