Tuesday, February 12, 2013

Cardinal Health – Industry Leader in Lean Supply Chain Practices

This blog post is built on the article “Factory Efficiency Comes to Hospital Now” and it discusses about another established lean supply chain practices leader in the Health Care industry - Cardinal Health. Cardinal Health is primarily a services company that designs products and services that enhances the supply chain or inventory performance thereby enabling the hospital staff to focus primarily on patient care. The implication is that a nursing staff shall no longer worry about the availability, expiry or misplacing of medical equipment. This restores 50% of a nursing staff’s time back to patient care.

The following are some of the innovative products & services that have changed the medical landscape in many hospitals:

CIM – Cardinal Inventory Management[1] is the system helps manage the inventory - most valuable asset next to staff. It strives to maintain high service levels for the patient besides maintaining a lean inventory. The system auto generates replenishment orders in line with the operational decisions dynamically. When the demand levels and the reorder points are set, the system operates with minimum human intervention. In case of an unforeseen change in demand, the system allows the hospital staff to change the values for individual items, packages dynamically. It also monitors the expiry of goods and prioritizes orders accordingly.

Distribution of Pharmaceuticals: These costly items easily go waste when the storage temperatures go beyond certain warm levels. Hence transporting these materials usually involved high cost storage conditions. The alternative – frozen gel packs were unreliable low cost solutions. Cardinal in this case understood the needs right and developed a reusable, non-toxic, environment friendly USDA that maintains a narrow temperature range irrespective of the changes in environment. This innovation is managing pharmaceutical items close to 17bn a year[2]. Since this material is reusable, Cardinal has virtually eliminated all the waste in transporting pharmaceutical items.

It all started with the Cardinal Health’s aim of achieving zero lost revenue, zero errors and zero wastage. We saw a couple of their products that eliminated errors and wastage respectively. They have managed to achieve a 99% fill rate thereby achieving close to zero lost revenue. Error rates were reduces by 30% in just a 3 year period after the deployment of lean practices[3]. The supply chain design is very adaptive and the inputs are predictive models designed incorporating historical seasonal variations and current transactional inputs from the customers (similar to POS system by Wal-Mart). This helps CH to understand the fluctuations and process the order rates at exceptionally accurate response rates.

How were they able to see opportunities to improve the health care industry which in other vendor eyes had actually reached optimal levels of service? Keller – VP of Inventory Management team explains the idea behind this transformation in the form of three simple questions. It is time that we see imperfections as opportunities and ask ourselves what CH asked itself -  “What do we really need?”, “What is a ‘nice-to-have’ option?” and “What is a sufficient alternative?”


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