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SUMMER 2014
cardinal health integrated logistics services healthcare
www.cardinalhealth.com / Projected 2013 revenue: $101 billion / Headquarters: Dublin, Ohio / Employees: 33,000 / Specialty: Third-party logistics
Rob Doone,vice president of integrated logistics services: “We focus on the technology and make the investments to make sure we stay ahead of the curve.”
Work Together
Cardinal Health ILS consolidates the logistics needs of medical
suppliers and producers to lower their costs. By Russ Gager
When medical device
suppliers and manufacturers maintain
their own distribution
centers and vehicle
fleets, these assets are
NAME
ROB
DOONE
HERE
not always used to their
Position
vice
president
goes here
fullest. The distribution
of integrated
logistics services
center might have areas
that are vacant, or the trucks might
be delivering less than truckloads
(LTLs). That unused capacity adds
costs to the healthcare system.
Cardinal Health Integrated
Logistics Services (ILS) was set
up as a separate business unit by
Cardinal Health Inc. in 2011 to
eliminate those costs by acting as
a third-party logistics (3PL) provider. Instead of maintaining their
own warehouses and trucking
fleets – or paying high prices for
shipping LTLs with trucking companies – medical device suppliers
and manufacturers can reduce
their shipping and warehousing
expenses by using the 3PL services
of Cardinal Health Integrated
Logistics Services.
Cardinal Health Inc. provides
pharmaceuticals and medical
products and services to more
Cardinal Health provides
pharmaceuticals and
medical products and services
to more than 100,000 locations
each day.
than 100,000 locations each day,
and also is a direct-to-home medical supplies distributor. Additionally, the company manufactures
medical and surgical products,
including gloves, surgical apparel
and fluid management products. It
also operates the nation’s largest
network of pharmacies that dispense radioactive pharmaceuticals
to aid in the early diagnosis and
treatment of disease.
“We’ve actually performed 3PL
services for 16 years, but about
three years ago, we set up ILS as a
strategic initiative to serve a new
SUMMER 2014 Supply Chain World
healthcare cardinal health integrated logistics services
Cardinal Health has 39 medical
distribution centers in the United
States, as well as 10 centers in
Canada and 11 in China.
market,” explains Rob Doone,vice
president of integrated logistics
services. “There was a need in the
market for a company with healthcare DNA and an understanding of
how to move products. So we created this business unit to expand
on the customer base we’ve had
over an extended period of time.”
Heathcare is evolving rapidly
on several fronts, Doone says. The
number of people who have access
to healthcare is increasing, and
where they are receiving services
is shifting. “As more treatment
has moved away from acute care
to surgery centers or the doctor’s
office, to the lab or home, you see
things moving all the way across
that spectrum,” Doone relates. “As
a manufacturer, it is difficult to
Supply Chain World SUMMER 2014
cover the complexity of all those
different points. We as a 3PL can
leverage our infrastructure which
delivers to all those points.”
Technology Investment
Cardinal Health ILS offers the
competitive advantage of being
able to track medical products
from manufacture to patient.
“As restrictions around products
become tighter and regulations
require tracking of products such
as implants throughout the supply
chain, you need to be able to track
that product’s serial number so
it is associated with a patient,”
Doone emphasizes. “If there is any
issue with that product, you can
see its entire path through the supply chain and know which patient
has that implant and you can treat
them accordingly. Those are the
kinds of things that as a company
specifically focused on healthcare
are second nature to us.”
ILS benefits from the corporate
healthcare expertise of Cardinal
Health. “All we do is healthcare,”
Doone points out. “We make
investments to stay abreast of
the latest regulatory changes. A
generic 3PL can’t make that kind
of investment because they don’t
have the scale we have.”
The company continually updates its advanced inventory and
warehouse management software.
“We just completed a little over a
year ago a very large investment
in our overall enterprise resource
planning system, which we use
cardinal health integrated logistics services healthcare
The company’s medical
segment’s fleet includes
approximately 425 tractors and
600 trailers to provide logistics
for thousands of customers.
in 3PL to get to the next level,”
Doone says. “We continually make
investments in that space. We
focus on the technology and make
the investments to make sure we
stay ahead of the curve.”
Fixed Price
The regulatory environment continues to be a challenge for medical device manufacturers. “As an
industry, we’ve seen a 300 percent
increase in regulatory inspections
within the last five years,” Doone
maintains. “Additionally, what
used to be your revenue drivers are
now cost drivers.” For example, instead of paying for each procedure
– such as an X-ray and an MRI to
analyze a broken arm – insurance
companies just pay a flat fee to heal
the arm regardless of how many
tests or procedures are required.
“That reimbursement model
puts a lot of pricing pressure on the
manufacturers because providers
are looking for significant price reductions in their products.” Doone
says. This means manufacturers
cannot afford anymore to pay for
half-empty warehouses and LTLs
for their products. “What happens
is you end up with a lot of waste in
the overall sector,” Doone stresses.
“You really need to get to the point
where you’re sharing transportation and facilities for warehousing
to eliminate that waste.”
Cardinal Health has 39 medical distribution centers in the
United States where the company
consolidates the inventory needs
of its medical segment customers,
along with 10 in Canada and 11 in
China. The medical segment’s fleet
of approximately 425 tractors and
600 trailers can provide logistics
for thousands of customers. “That
is the solution we bring to the table,” Doone asserts. “We have that
infrastructure in place already and
the technology where we can bring
a shared solution, where manufacturers can aggregate their freight
and bring full loads to the entire
supply chain.”
For the future, Doone foresees
continuing growth. “We see a
compelling need in the industry,”
he predicts. “Forces out there are
driving people to look at the world
differently in the healthcare sector. We’ve seen analogies to other
industries in the past, such as automotive in the 1970s. Manufacturers were fragmented from suppliers and there was a lot of waste.
New entrants – the Japanese
manufacturers, with a streamlined
approach to manufacturing and a
lot of collaboration – turned that
world upside down.
“We see a strong corollary to that
in healthcare,” he concludes. “Manufacturers need to collaborate and
pursue the solutions we are proposing. Consolidate freight from
multiple manufacturers and get
out of the LTL business. Move out
of your own dedicated warehouse
sites into a shared facility. That is
where you leverage across multiple
manufacturers and don’t bear the
entire cost yourself. Use shared
facilities. You can reap significant
economic benefits. There’s a strong
interest in that market relative to
3PL, and I expect that to continue
to grow fairly dramatically.”
Published by Phoenix Media Corporation Tel: 312.676.1101 Fax: 312.676.1280
On behalf of Cardinal Health Integrated Logistics Services © 2014 Phoenix Media Corporation. All rights reserved.