This strategic management case study plan for Cardinal Health Inc. was developed by the student using course learning resources, outside sources, and other relevant miscellaneous data and facts. The materials presented throughout this document are time and content sensitive and should be considered improper for any unintended use other than this course specific purpose even for cases when the disclaimer may not apply. A general reference list will be posted on the last page of this document. All pictures and logos were removed from sources related to Cardinal Health Inc.
and all rights belong to referenced sources. To request investor information please visit www. cardinal. com Cardinal Health helps pharmacies, hospitals and ambulatory care sites focus on patient care 2 Company Overview Company Name: Cardinal Health, Inc. Company Type: Public Fiscal Year End: June 30, 2011 2011 Revenue ($US mil. ) $102,644. 2 1-Year Revenue Growth 4. 2% 2011 Net Income (mil. ) $959. 0 Number of Employees: 31,200 Headquarters Location: 7000 Cardinal Place Dublin, Ohio 43017 Country: U. S. Website: www. cardinal. com Principal Subsidiaries: Companies Division Function
Allegiance Healthcare Manufacturer and distributor of surgical products ALP (Allied Liquid Packaging) Blow-fill-seal technology product packaging Bergen Brunswig Medical Corporation Drug wholesaler Cardinal Distribution Distribution Supply Management solution Medicine Shoppe International, Inc. Franchisor of independent community Pharmacies in US and seven other countries Pyxis Corporation Automation and Information Services R. P. Scherer Manufacturer of encapsulation products for pharmaceutical and nutritional health Cardinal Health helps pharmacies, hospitals and ambulatory care sites focus on patient care 3.
Mission Statement Our mission is to: Identify, attract, and retain the best talent from each group. Create a workplace where all talent can perform at its best. Assess/understand the diversity of your marketplace o Ensure we are responding and aligning to our customers o Ensure our customers see themselves in our vision, actions and workplace. Use external contributions to eliminate disadvantage and increase the diversity of the talent pool (www. cardinal. com) Core Values Ethical: ? We treat each other and customers fair and honest.
? We consider the highest standards of personal and professional ethics ? We deliver on our commitments ? We recognize our obligations to the communities we live and work ? We hold ourselves accountable for what we achieve and how we achieve it Performance Driven: ? We demand high standards from our customers, ourselves and our colleagues ? We expect people to take personal accountability for their actions ? We deliver our obligations to our shareholders, suppliers, and customers ? We strive for operational excellence, speed, and simplicity in everything we do ?
We recognize the difference between efforts and results ? We believe that developing and empowering employees leads to exceptional overall performance Cardinal Health helps pharmacies, hospitals and ambulatory care sites focus on patient care 4 Innovative: ? We create value by thinking beyond the obvious ? We believe that our people and their ideas is what creates value for our customers, suppliers, and shareholders ? We value innovation, teamwork, and disciplined risk taking as the best way to achieve financial performance ? We deliver products and services of unsurpassed quality.
? We accept honest mistakes as the price of entry for big ideas Collaborative: ? We have a spirit with which we create solutions ? We respect the uniqueness, dignity, and contributions of each and recognize the strength of our teams ? We share the rewards of our financial success with employees, shareholders, and customers ? We communicate openly and listen to our customers ? We encourage respectful disagreement *(Source: Cardinal Health, CAH, And Mission Statement) Cardinal Health helps pharmacies, hospitals and ambulatory care sites focus on patient care 5
Cardinal Health’s History Cardinal was founded and incorporated in 1971, as Cardinal Foods, by Robert D. Walter. Starting out as a food wholesaler, Walter recognized the food industry was rapidly consolidating and that the industry had a few large national competitors that would limit his company’s growth potential (Pearce, 2011). Giving up on the marginally profitable grocery business in 1988, Walter quickly recognized the pharmaceutical industry was highly fragmented and seized the opportunity to use his distribution skills to become a pharmaceutical distributor.
He gobbled up small distributors that specialized in shipping pharmaceuticals from one place to another. All-in-all, Cardinal kept growing by aggressive acquisitions and had absorbed over fifty companies beginning in 1980 with half of those acquisitions between 1998 and 2002 (Pearce, 2011). As shown in the chart labeled Key Dates and Timelines, their strategy was to acquire well-run companies, setting the record for acquisitions, which fueled their sales and topping the industry in profits and market capitalization in the 1990’s (Pearce, 2011).
By 2006 there were only three major health care distributors, Cardinal, Amerisource, and McKesson, all offering the same products and services (Pearce, 2011). But, Cardinal stood far apart from its competition because a larger percentage of their overall operating income came from non-distribution activities. Their portfolio was diversified into distributing pharmaceuticals, packaging them, providing devices to hospitals that automate dispensing of drugs through their Pyxis subsidiary and providing pharmacy services through Medicine Shoppe (Pearce, 2011).
Cardinal Health helps pharmacies, hospitals and ambulatory care sites focus on patient care 6 Key Dates and Timelines Date Acquisition 1971 Robert Walter acquires Monarch Foods in leveraged buyout 1980 Walter acquires drug distributor in Zanesville, Ohio 1983 Company goes public as Cardinal Distribution 1988 Walter sells food group to Roundy’s Inc. 1991 Cardinal’s revenues exceed $1 billion 1994 Cardinal acquires Whitmore Distribution and Medical Strategies; company name change to Cardinal Health 1995 Cardinal acquires Medicine Shoppe International 1996 Cardinal acquires Pysix and PCI Services, Inc.
1997 Cardinal acquires Owen Healthcare Inc. 1998 FTC blocks Cardinal’s purchase of Burgen Brunswig; Cardinal acquires R. P. Scherer 1999 Cardinal acquires Allegiance 2000 Cardinal acquires Bergen Brunswig Medical Corp. ; Cardinal established Cardinal. com and NewHealthexchange. com 2001 Cardinal acquires Bindley Western Industries and forms ArcLight Systems, LLC 2007 Viasys Healthcare 2010 Kinray Drug Distribution 2010 Yong Yu-China based distributor Cardinal Health helps pharmacies, hospitals and ambulatory care sites focus on patient care 7 History cont’d.
Between 1986 and 1989, Cardinal increased productivity in nearly 80% of its operations with a computer automation program. This IBM-compatible software developed by employees at Cardinal, increased purchasing, inventorying, and distribution efficiency (Pearce, 2011). Coined the AccuNet system, this program was able to reduce administrative costs of hospital pharmacy operations by as much as 80% and cut Cardinal’s operating margin by 20%. It also increased the level of customer service offering clients automated inventory management and up to date drug pricing (Jagannath, 1991).
Last year, in June of 2010, Cardinal was planning to expand into the specialty pharmaceutical services with an agreement to purchase Healthcare Solutions Holding with upfront all in cash of $517 Mil (InfoGrok). In December of 2010, they acquired Kinray, an independent pharmaceutical wholesaler, and increased Cardinal’s presence in the independent pharmacy market by 40% (Brin, 2010). Cardinal Health helps pharmacies, hospitals and ambulatory care sites focus on patient care 8 Business Objectives: 1) To develop, manufacture, package, and market products for patient care 2) To develop drug-delivery technologies.
3) To distribute pharmaceuticals, medical-surgical and laboratory supplies 4) To offer consulting and other services that improves quality and efficiency in health care. Photo taken from Cardinal website Cardinal Health helps pharmacies, hospitals and ambulatory care sites focus on patient care 9 Cardinal Health Leadership George Barrett-President and CEO Cardinal Health since September 2009. He served as Vice Chairman and CEO of Healthcare Supply Chain Services at Cardinal from January 2008 to September 2009. Mr. Barrett has also served as President of IVAX Corp. , since January 26, 2006.
He was President and Chief Executive Officer for TEVA Pharmaceutical Industries Ltd. , North America. Education: Brown University and New York University. Cardinal Health helps pharmacies, hospitals and ambulatory care sites focus on patient care 10 Leadership cont’d Jeffrey W. (Jeff) Henderson-Chief Financial Officer Patricia B. (Patty) Morrison- EVP and CIO Mark Kaufman-CEO Pharmaceutical segment Michael Lynch-CEO Medical Segment Mark Blake- EVP Strategy and Corporate Development Shelley Bird- EVP Public Affairs Cardinal Health helps pharmacies, hospitals and ambulatory care sites focus on patient care 11
Business Products and Services Pharmaceutical Segment Beckloff Associates Cold Chain – Refrigerated Pharmaceutical Tote Packaging for Pharmacy Deliveries Leader® pharmacy services Medicap® franchise pharmacies Medicine Shoppe® Nuclear Pharmacy Services P4 Pathways Pharmaceutical distribution Pharmacy Solutions Specialty Pharmaceutical Distribution Specialty Pharmaceutical Services (SPS) VitalSourceSM **All information above taken from Cardinal Website Cardinal Health helps pharmacies, hospitals and ambulatory care sites focus on patient care 12.
Business Products and Services Medical Segment Clinician Apparel and Patient Protection Products (Convertors®) Fluid suction and collection products Hand Care Solutions (Gloves) Laboratory Products and Services Physician office products Presource® products and services (View our Laboratory Products catalog) Endura™ Performance Apparel (Scrubs) Surgery center products Surgical masks, drapes and gowns ValueLink® **Source-Cardinal website Cardinal Health helps pharmacies, hospitals and ambulatory care sites focus on patient care 13 Business Products and Services.
The pharmaceutical segment of Cardinal takes products from several manufacturers and segments them into site specific deliveries such as hospitals, physician offices, surgery centers, retail pharmacies (Walgreens and CVS), mail-order facilities, and other alternate care facilities. They offer one of the most secure, economical, and efficient source of pharmaceuticals, specialty products, and services that add value to healthcare providers (www. cardinal. com). Similarly, the medical segment offers medical-surgical products such as gloves, gowns, masks, and surgical drapes to physician offices, hospitals, and ambulatory care centers in the U.S. and Canada.
They also assemble surgical and procedural kitting for specific procedures into one kit which lets the physician focus on the patient. To improve patient safety and efficiencies, Cardinal offers a consultative approach to their clients (www. cardinal. com). Cardinal Health helps pharmacies, hospitals and ambulatory care sites focus on patient care 14 Revenues: Net Income: EPS: $102. 6Bn $959. 0Mil $2. 72 $98. 5Bn $642. 2Mil $1. 77 $99. 5Bn $1. 15Bil $3. 18 $90. 9Bn $1. 3Bn $3. 57 Total Assets: Liabilities: Debt Long Term:
Shareholder Stock equity: $22. 8Bn $13. 4Bn $2. 18Bn $5. 8Bn $19. 9Bn $11. 5Bn $1. 89Bn $5. 3Bb $25. 1Bn $11. 4Bn $3. 3Bn $8. 7Bn $23. 4Bn $10. 4Bn $3. 7Bn $7. 7Bn ? Current financial approach is disciplined and has strong performance ? Balanced deployment of cash to generate optimal long-term returns for shareholders, including differentiated dividend ? Multiple growth drivers layering in for future growth, driving profits and margin expansion ? Strategic priorities are aligned with TSR (Total Shareholder Return) ?
History of increasing dividends? Financial improvement due to spin-off of CareFusion (CFN) Cardinal Health helps pharmacies, hospitals and ambulatory care sites focus on patient care 15 Cardinal Health, Inc. -Market Competition Amerisource Bergen: Amerisource Bergen operates mainly in the U. S. and Canada. They service pharmacies and healthcare providers by acting as a go-between the drug makers and physician offices, pharmacies, hospitals and other providers that dispense drugs. They distribute generic drugs, branded drugs and OTC (over-the-counter) pharmaceuticals as well as medical supplies and other products from their two dozen facilities.
Their specialty division focuses on complex biopharmaceuticals such as vaccines, plasma products, and cancer drugs. They also provide some packaging (www. amerisourcebergen. com). McKesson: McKesson is known as the largest pharmaceutical distributor in North America that delivers prescription and generic drugs and health and beauty products to over 40,000 pharmacies throughout the US and Canada. They are also a major medical supplies wholesaler delivering medical and surgical equipment to health care sites such as surgery centers, long-term care facilities, and physician offices.
They also offer technologies and support that helps pharmacies, health care providers, and insures manage supply chain, clinical, financial, and administrative operations (www. mckesson. com). Cardinal Health helps pharmacies, hospitals and ambulatory care sites focus on patient care 16 Market Competition cont’d Owens & Minor: Owens and Minor basically prepare hospitals for surgeries by being the leading distributor of medical and surgical supplies carrying over 200,000 products from 1200 manufacturers. Some of the products are needles, syringes, sterile procedure trays, sutures, gloves, gowns, and intravenous products.
Their primary involvement is hospital products and services from over 50 distribution centers across the US. They also offer consulting services. Cardinal Health helps pharmacies, hospitals and ambulatory care sites focus on patient care 17 Cardinal Health helps pharmacies, hospitals and ambulatory care sites focus on patient care 18 Cardinal Health Competitive Position New Market Entrants Cardinal has a great brand name and image but so does McKesson. New entry needs a large amount of financial resources and other intangible assets to enter. High fixed costs & stringent intellectual properties. Cardinal Operating margin.