How Cardinal Health pivoted its business during COVID-19 to improve its medical supply chain

The COVID-19 pandemic exposed critical flaws in hospital supply chains for vital equipment like ventilators and personal protective gear.

Many health systems struggled with shortages and often competed with each other for necessary supplies, according to media reports and a Department of Health and Human Services Office of Inspector General report.

The PPE supply chain was wracked by not only unprecedented demand but also manufacturing problems at overseas companies.

Healthcare services company Cardinal Health is applying important lessons in 2020 to help make the medical supply chain more resilient, according to Mike Kaufmann, Cardinal Health’s CEO.

Cardinal Health specializes in the distribution of pharmaceuticals and medical products and saw demand for PPE supplies soar last year.

“It’s hard to imagine how much demand exceeded supply. We saw up to 12x demand for the supply that was in the marketplace so it was difficult for the actual supply of products to catch up,” he said Tuesday during Fortune Magazine’s Brainstorm Health virtual event.

RELATED: Moody’s: Supply chain changes due to COVID-19 to cause hospital costs to increase

The good news, he said, is that when product hit the shores of the U.S., the distribution network “worked incredibly, effectively well.”

“What needed to change was the acquisition of the product,” Kaufmann said.

Cardinal Health has made a number of changes to make its supply chain processes more efficient and resilient.

Early in the pandemic, exports of N95 respirators, ventilators, hospital gowns and other products from China faced massive delays.

“The changes we’ve made include the concentration of the types of products and where you buy them,” he said. “Before, we would look on average across our supply chain and ensure that no more than 5% of products were bought in a certain country. Now, we look at it individually by item so not one item is concentrated in one country.”

RELATED: HHS defends falling short of PPE goals on Strategic National Stockpile as some shortages linger

Cardinal Health also increased its near-shore and on-shore U.S. manufacturing capacity and is utilizing technology and different production techniques to improve production processes. The company has increased its production of syringes by 15 million in the past year and the production of masks by 150 million, Kaufmann said.

The company also is carrying more inventory levels of drugs and PPE across its supply chain network. “We’ve increased our inventory levels for things you know you’re going to need in times of crisis,” he said.

Cardinal Health also worked with data companies and the U.S. government to collect data on COVID-19 “hotspots” around the country to have real-time information on where supplies were needed most.

“We’re able to collect good data that says the hot spot on this day is New York City and we need to divert supply from other places to New York, and then the next day or next week, it could be Florida or Texas. Those learnings around how to understand where the hot spots are enable us to move product to where it’s most needed,” he said.

RELATED: Gloves in demand for hospitals facing shortages due to COVID-19

Cardinal Health also leveraged its 50/50 generic drug sourcing joint venture with CVS Caremark to use data and technology to pinpoint COVID-19 hot spots. The two companies signed an agreement in 2013 to form the largest generic sourcing entity in the U.S.

“That team was able to tell us quickly when hot spots were occurring with certain drug manufacturers and where we anticipated we would have supply issues later for certain drugs. We were able to move procurement from one manufacturer to another ahead of problems in the supply chain,” Kaufmann said. “I think technology can continue to improve the supply chain.”

Earlier this month, Cardinal Health was awarded a $58 million contract by the U.S. government to help replenish the Strategic National Stockpile. Cardinal will store 80,000 pallets of PPE across its U.S. medical facilities and distribute that PPE to healthcare providers as needed.

With its expansive distribution network, Cardinal Health can provide rapid deployment and delivery of Strategic National Stockpile products throughout the U.S. to assist with critical PPE needs in response to the COVID-19 pandemic as well as other national or localized public health emergencies, the company said. 

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