Through an ambitious modernization plan, Cardinal Health has big changes in store to improve facilities and the work experience of its employees.
When a chief supply chain officer for a hospital or health system awards business to Cardinal Health, the gravity of that decision isn’t lost on James Sembrot, the company’s SVP, Supply Chain for U.S. Medical Products & Distribution. “They’re in essence turning over their supply chain to us,” said Sembrot. “You don’t want to disappoint your customers in any industry, but particularly when your industry is as meaningful to the world as ours.”
Unfortunately, the pandemic served as a great disruptor to U.S. healthcare providers and the businesses who served them. Service levels weren’t being met, and resiliency became top-of-mind for an economic sector that may have taken it for granted in the past.
For its part, Cardinal Health used the pandemic as a trigger point in launching a multi-year warehousing and modernization plan. The goal of this ambitious effort is to increase service levels and supply chain resiliency with increased inventory and expanded physical infrastructure. The company said these investments will also enable the team to integrate automation and more modern technologies; improve safety, service, quality and cost; and be more efficient in managing variations in volume and labor availability.
Infrastructure and technology
The investments include a new, nearly 600,000-square-foot distribution center that opened in early 2023 in Central Ohio, as well as a $50 million inventory management project that, when completed, will collectively add nearly 1.5 million square feet to Cardinal’s replenishment center network.
Cardinal Health looked at not just square footage, but the cube footage of its facilities, to see if they were maximizing the space they had. Could they build storage and shelf space up? Or, did they need to build more modern facilities that were taller than current distribution centers? “Where it made sense, we made investments in growing our ability to hold inventory on behalf of our customers,” Sembrot said.
At the same time, the distributor (and manufacturer) has deployed several new technology systems to improve efficiencies with how it transports and tracks goods. For instance, through FourKites, a visibility solution, Cardinal Health is creating connectivity with all carriers across the supply chain, “from large national carriers to couriers in the final mile,” the organization said in a release.
“When an item is ordered, where is it in the supply chain?” Sembrot said. “We’re pretty good at knowing within a facility, is the product there or not? What we’re not always good at historically has been knowing where it is in the manufacturing cycle. If it’s a shipment from overseas, which ship is it on? Which port is it in? Which carrier is it on during transit? So, this is connecting, from a visibility perspective, where all our customers’ orders are and where our inventory is throughout the supply chain.”
Advanced planning software products like Kinaxis® enable Cardinal Health to enhance its supply chain through concurrent planning and end-to-end network visibility. “With Kinaxis®, we can factor in seasonality and balance demand and supply while accounting for capacity safeguards,” the company said. “And we can more easily simulate various product supply scenarios to create best-fit solutions for customers.”
And then there are the autonomous mobile robots (AMRs). Cardinal Health has partnered with Locus Robotics to implement AMRs working in a complementary way with operations team members. The robots are integrated with a facility’s warehouse management system, receive picking instructions, are loaded with plastic totes by employees, and, using sophisticated artificial intelligence (AI) and optimization algorithms, determine the most efficient routes for traveling from one pick to the next to optimally satisfy the customer order. The pictures displayed on touchscreen devices help employees accurately identify the correct products in the requested quantities. Employees scan the items into the robot’s digital system, then place the products into the robot’s totes. Once the totes are fully packed, the robot moves them to a staging area for loading onto delivery trucks.
With the AMRs, Cardinal Health has seen a marked improvement in defects per million opportunities, or DPMOs, a key performance indicator the organization tracks. “It doesn’t seem like much to move from a 4.1 to a 4.3 sigma, but it’s almost 1,500 defects per million opportunity improvement,” Sembrot said. “Things like that move the needle and allow us to do what we do even better.” Safety has also improved. Rather than team members pushing around 400-pound carts, the AMRs are coming to the team members at pack stations.
Approximately 400 robots have been deployed across eight U.S. distribution centers supporting the medical product business, with plans to continue optimizing the benefits of the technology.
Allaying concerns
But what would team members think working in tandem with these robots? When discussing the deployment of AMRs in their distribution centers, Cardinal Health leaders knew that acceptance from team members would be key. The first step would be to discuss the initial rollout and allay any fears the workers had related to safety and job security.
“That was a concern, absolutely,” Sembrot said. “It takes communication, transparency and then providing reasons why the organization is adopting the new technology.” These proof points can come from within the industry or how the technology is used in other companies. Sembrot described the visual of a run chart: this is what the world was like before there was an event, and then this was how the world was after. Is it better, or worse?
Timing was another consideration. The introduction of the AMR technology has come as suppliers across industries are experiencing higher turnover rates in shipping facilities, mainly due to overtime hours. “Overtime is expensive, but more than the expense, it’s disruptive to our employees’ schedules and our organization’s timelines,” Sembrot said. Cardinal Health leaders met with its facilities teams and walked them through how the assistance of the AMRs could actually cut down on overtime hours, particularly with the second shift.
Making transportation top of mind
Sembrot doesn’t mind the complexities and scope of the modernization plan. If anything, the veteran supply chain leader said it’s confirmation that he has one of the best roles in the industry. “The largest segment of GDP devoted in our economy is to healthcare,” he said. “The second largest is transportation distribution. I get to work in both. It’s fantastic, and meaningful.”
With such a critical role, it’s important for supply chain leaders to stay up to date on several aspects related to how they receive and ship products. Sembrot listed several:
- “Resiliency is a big deal,” he said. A few months back, a lot of people in supply chain watched with worry as one of our country’s largest package delivery service providers negotiated with its drivers to avoid a strike. While the organization and its team members worked out an agreement, supply chain leaders were having flashbacks to the pandemic and disruptions caused in receiving and shipping products.
- Predictability is increasingly important to businesses. A couple years ago, companies were paying $25,000 per container to get something from Asia to the United States, about ten times what it was pre-pandemic. Fortunately, freight cost has significantly dropped back down to pre-pandemic levels. “Being predictable isn’t just your load showing up on time – there’s a predictability to your financials,” Sembrot said. “The CEO and CFO want to know that you’re going to be resilient, have backup plans so that you don’t have a shock to the financials like many companies experience when transportation capacity really tightens up.”
- Visibility is something consumers and companies want more of into the supply chain. “Customers across industries don’t want to just know when a truck is arriving. They want to know when their item that happens to be on the truck is arriving.”
- New capabilities are happening at a rapid rate. Whether it’s drone delivery, new modes of transportation, or new market entries, transportation leaders have to keep an eye on the latest developments. One example is Uber Freight. “The company didn’t exist 15 years ago and now they’re delivering everything.” Another example is the U.S. Postal Service. The massive supply chain and transportation organization has seen their business change due to email and other market entrants. “So, what are they doing? They’re refocusing. They’re transforming. They’ve launched a new product called Ground Advantage where they’re trying to compete with UPS and FedEx.”
At the end of the day, Sembrot said what he loves most about working in healthcare and the transportation of goods is how people-focused the work is. “Many times, it is the driver that’s the face of Cardinal Health to our customers,” he said. “They are who our customers know. So, it’s really important that we are cognizant of it, and that it informs our strategy of how we approach transportation. This is just a super exciting industry to work in.”
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Innovation lab
The new distribution center in Central Ohio is home to a major investment in future innovations for Cardinal Health. The facility houses a 4,000-square-foot innovation lab, where team members can develop and test solutions, while building and evaluating new capabilities in a real-world environment. Cardinal team members experiment with everything from handhelds like scan guns, to other robots that have different capabilities than the Locus AMRs, Sembrot said.
“We’re looking at other technologies where goods actually come to the person,” he said. “Locus AMRs are great at moving little items that can be put in a tote, but we also move pallets. We’re picking layers for customers and exploring other technologies that help us achieve those with multiple pilots.”