FedEx Corp. and health care services giant Cardinal Health said today they have formed a partnership fusing their third-party logistics capabilities in an effort to capture a larger share of the health care supply chain market.
The relationship will combine Memphis-based FedEx's transportation and logistics network with Cardinal's health care expertise and warehouse and distribution center infrastructure, the companies said in a joint statement. Cardinal, based in Dublin, Ohio, operates 39 medical distribution centers in the United States.
Today's agreement dramatically broadens the existing relationship between the two companies, which up until now was limited to FedEx providing transportation services for Cardinal. The original agreement will remain in force but will be separate from the compact announced today, according to Rob Doone, Cardinal's vice president of integrated logistics services.
The new agreement will target product manufacturers by offering integrated logistics services, Doone said in an interview. Either FedEx or Cardinal will be the customer's main point of contact, depending on the customer-specific circumstances, Doone said. The other party will essentially serve as a subcontractor, Doone added. Customers "will deal with only one of us," he said.
Cardinal will be able to leverage FedEx's global shipping and logistics network, which could help to expand Cardinal's international presence, Doone said. China is Cardinal's primary market outside the U.S.
"Through this collaboration, customers will have access to deploy their inventory at over 40 distribution points across the country, access to two proven networks that reach every U.S. ZIP code, and end-to-end inventory and transportation visibility," Carl Asmus, vice president, supply chain solutions & market development, for FedEx Services, a FedEx unit, said in the statement.
The new service doesn't directly affect Cardinal's core business of product distribution, where the company buys the product from a manufacturer and sells to health care providers such as hospitals, clinics, pharmacies, and doctor's offices. In that scenario, Cardinal takes ownership of the product and the provider is the customer. Cardinal generates most of its $100 billion in annual revenue from its traditional distribution operations. Doone added, however, that the new relationship will likely piggyback on Cardinal's own distribution network if the circumstances warrant.
Cardinal will maintain its existing relationships with other third-party logistics providers, Doone said. One firm that Cardinal's 3PL business does not have a relationship with is UPS Inc., the Atlanta-based shipping giant and FedEx's chief rival. UPS has its own well-established health care logistics operation.
Last October, FedEx announced it would aggressively pursue vertical industries like health care as part of a major repositioning of the company's value proposition. The core of that strategy is a restructuring of FedEx's air and international unit, FedEx Express, to make the unit less prominent within the corporate structure. The restructuring is expected to add about $1.7 billion a year in overall annual profit by 2016 through a mix of cost cuts and productivity improvements.
Last week, the company announced a multistep initiative to expand into the market for global biopharma cold chain shipping services. Among those steps was the opening of a 88,000 square foot "Cold Chain Center" in Memphis that will connect directly with FedEx's primary air hub. The link between the two facilities will streamline the movements of cold-chain shipments through the FedEx Express network, the company said.