Commercial and Operational Evaluation of 4PL Arrangement

Cardinal Health Australia (CHA) is a subsidiary of Cardinal Health. CHA engaged a leading Logistics Service Provider (LSP) to handle all supply chain operations. The costs charged by the LSP to CHA exceeded the original estimates and were significantly higher than comparable markets. Cardinal wanted to review its logistics operations and costs for its Australian operations to help identify savings/optimization/efficiency opportunities.

Cardinal Health, Inc. is a global, integrated healthcare services and products company, providing customized solutions for hospitals, health systems, pharmacies, ambulatory surgery centers, clinical laboratories and physician offices worldwide.

Cardinal Health Australia 401 Pty Ltd (CHA) is Cardinal Health's Australian subsidiary. CHA services cover its customers across the continent through an elaborate omnichannel distribution network comprising of hospitals, health systems, pharmacies, laboratories, and physicians’ offices.

CHA has engaged a leading logistics service provider (LSP) to handle all supply chain operations from port to customer (receiving, stocking, transportation, returns, local compliances, order to cash, etc.).

• LSP costs to CHA exceeded the original estimates and were significantly higher than comparable markets.
• Additionally, the recent acquisition of Medtronic’s patient care business posed concerns to CHA’s management on the potential for increased supply chain costs as scale increased.
• Nexdigm (SKP) undertook an exercise to review logistics operations and costs for its Australian operations to help identify savings/optimization/efficiency opportunities.

• A capable project team was quickly assembled to review logistics operations and costs for Cardinal's Australian operations.
• A multi-phased approach was designed to understand root causes, identify cost drivers, unearth optimization opportunities, develop more efficient operating
• Models, identify levers, and design dashboards for Cardinal to manage and control costs.
• The project was executed with minimal face time in Sydney, since the consulting team in India did most of the analytical and background work.

Phase 1

• Analyzed historical costs
• Measured metrics
• Critically evaluated commercial terms with LSP
• Carried out an operational review of both CHA and LSP

Phase 2

• Developed Optimization models and scenarios to look for improvements in the network, inventory management, and terms of engagement with LSP

Phase 3

• Designed and developed management dashboards for performance monitoring of logistics partner
• Prepared a re-negotiation checklist for dealing with the LSP

After reviewing the operations and costs, Nexdigm (SKP) identified opportunities for cost savings of over AUD 0.8 million in annual costs. We evaluated opportunities to reduce order receiving costs by 89%. We also created smarter palletization models coupled with inventory pruning of low-value slow movers to drive potential cost-savings of up to 60%.

Overall, Nexdigm (SKP) managed to achieve 33% annual cost savings in regard to the LSP.