Cardinal rules for supply chain excellence: interview with Scott Nelson
As logistics challenges go, running a supply chain in the high-stakes healthcare sector has to be near the top of the list. Scott Nelson of Cardinal Health keeps his operation on track by following five basic principles of logistics excellence.
For someone training in accounting, Scott Nelson has touched a lot of different areas of the healthcare supply chain business over the past three decades. Although he did begin his career in finance, he quickly developed an interest in operations and went on to serve in a variety of tactical roles before moving into his present position as senior vice president of supply chain at Cardinal Health.
In his current capacity, Nelson oversees national supply chain operations for the medical segment of Cardinal Health. This includes the transportation and distribution of a vast portfolio of Cardinal Health-brand and national brand medical/surgical products to healthcare providers and suppliers across the U.S.
Nelson first joined Cardinal Health in 1995 as a region controller and worked his way up the organizational ladder, serving as director of operations at the company's pharmaceutical DC in Hudson, Wis.; director of customer development in pharmaceutical generic product purchasing; and director of healthcare supply chain services. In 2009, he left Cardinal Health for a six-year stint at Resource Optimization and Innovation (ROi), an integrated provider-owned supply chain organization in healthcare, where he held a variety of operational positions, including chief operating officer, before rejoining Cardinal Health in 2015.
He spoke recently with DC Velocity Group Editorial Director Mitch Mac Donald about the unique pressures of managing a hospital supply chain, the five basic principles of logistics excellence, and the one big logistics challenge the healthcare giant has yet to overcome.
Q: Describe your operation and the role of logistics in your company.
A: The medical segment operations at Cardinal Heath consist of more than 60 replenishment and distribution centers across the U.S. and Canada. We deliver a broad line of medical products to hospitals, ambulatory care and surgery centers, physician centers, and at-home patients every day. We manage a large portfolio of ambient, hazardous, refrigerated, and frozen SKUs (stock-keeping units) across numerous supply chain nodes, adhering to stringent regulatory requirements.
There is little room for error in the hospital supply chain because it puts patients at risk. It's crucial to have the right product at the right time. This makes the role of logistics vital. Our team provides a high level of service and quality at a very low cost.
Q: How do you ensure your team is meeting those ultra-high expectations?
A: We absolutely recognize the significant responsibility and seriousness of servicing the healthcare supply chain as well as the potential consequences of a failure. A hospital supply chain survey we conducted last fall found that 18 percent of hospital staff have seen or heard of a patient being harmed due to a lack of necessary supplies.
At Cardinal Health, we make a tremendous effort to ensure everyone who works here connects with our aspiration of being the "wings" for those who care for patients. To achieve this, we must operate a highly reliable and predictable supply chain. We exert a lot of energy assessing and mitigating risk, collaborating directly with healthcare providers and manufacturers to understand the unique needs of the end-to-end supply chain, and practicing continuous improvement through operational excellence to enhance processes.
Q: What parts of your personal skill set serve you best in the work you do each day?
A: I think there are three skills that best serve me in the work I do. The first is listening to customers and co-workers. By listening to our customers, we can learn what is important to them, including the needs and issues we can help them address. Listening to my co-workers helps me understand the obstacles they face and how we can help them be more successful and rewarded in their work.
The second is learning. Our industry is constantly changing, and it's important to stay abreast of new thinking and advancements. For a culture of continuous improvement, it's critical to remain vigilant in studying what others are doing and build on great ideas.
The third is coaching and teaching. I get great energy from being able to share what I've learned with others and seeing the individuals and the business grow and develop.
Q: What are the biggest challenges you face in achieving logistics excellence?
A: Logistical excellence comes from optimizing the entire supply chain, but the end-to-end supply chain is constantly changing and evolving—new suppliers, channels, and nodes. Understanding the trade-offs across the continuum is incredibly complex, and being able to quickly solve the equation and provide maximum benefit while still honoring the goals of the individual links is an ever-present challenge.
Q: Why has logistics become so critical in the optimization of a supply chain strategy?
A: In today's consumer-driven world, companies need to provide speed and service at a low cost in order to survive. The supply chain is intertwined throughout all the critical functions of the business, and if there are breakdowns and inefficiencies in those interactions, none of those outcomes will be realized. Understanding, aligning, and customizing logistics to these new customer expectations is what will differentiate the winners from the losers.
Q: What are some of the biggest changes you've observed in logistics operations over the past decade?
A: The biggest changes I've observed are a greater focus on capital deployment and speed (leadtime reduction) of the supply chain, the impact of digitalization and mobile technology, and globalization of the supply chain.
Q: What are some the basic principles of logistics excellence that remain the same, despite those changes?
A: I believe there are five basic principles of logistics excellence that still remain valid today: understanding the value stream, making processes visible across the value stream, creating flow based on demand signals at the point of consumption, focusing on total cost of ownership (vs. piece price), and identifying and eliminating waste.
Q: What does the future hold? What is, if you will, the "next big thing?"
A: Digitizing assets is still a major untapped opportunity in the supply chain. We have the technology to capture real-time data at the point of use across the supply chain. This is the gateway to collecting a large and rich set of data and advanced analytics.
This is why Cardinal Health is continuing to invest in advanced data capture and analytics that can be integrated with other data platforms for valuable insights that can improve decision-making. A whole new world of opportunities to improve supply chain quality and cost will open up once assets become "smart" across the entire logistics platform.
Q: What do you consider to be the biggest logistics challenge that you've faced but were unable to overcome? What were the issues? What did you learn from the experience?
A: Gaining good visibility into true demand at the point of care in a hospital is the biggest logistics challenge we haven't been able to overcome. The healthcare industry has traditionally been slow to invest in technologies that will enable frontline providers to spend less time managing inventory and more time with patients. We recently surveyed more than 400 hospital staff and learned that physicians and nurses currently spend, on average, nearly 20 percent of their workweek on supply chain and inventory management.
There are solutions available that support patient safety, reduce costs, and improve workflows, providing necessary data and analytics to optimize supply chain efficiency, but many healthcare providers have yet to adopt them. Our survey found that 78 percent of respondents are manually counting inventory in some parts of their supply chain and only 17 percent have implemented an automated technology system to track products and inventory in real time.
The key learning from this is that we need to help healthcare providers think differently about supply chain and couple the financial and operational improvements with the clinical benefits that follow.
Q: Any closing thoughts or comments?
A: A highly effective supply chain can be a strategic asset and competitive advantage for any healthcare organization. The influence supply chain leaders wield continues to grow—not only in improving service, predictability, and cost but also in developing organizational capabilities and bringing innovative solutions to their customers.
We need to seek out and develop talent that will bring diverse thoughts and experiences into the decision-making process and help us envision a high-performing, reliable supply chain from the bedside and back.
About the Author
Group Editorial Director
Mitch Mac Donald has more than 30 years of experience in both the newspaper and magazine businesses. He has covered the logistics and supply chain fields since 1988. Twice named one of the Top 10 Business Journalists in the U.S., he has served in a multitude of editorial and publishing roles. The leading force behind the launch of Supply Chain Management Review, he was that brand's founding publisher and editorial director from 1997 to 2000. Additionally, he has served as news editor, chief editor, publisher and editorial director of Logistics Management, as well as publisher of Modern Materials Handling. Mitch is also the president and CEO of Agile Business Media, LLC, the parent company of DC VELOCITY and CSCMP's Supply Chain Quarterly.
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