DC Velocity - IdeaBook 2016

Cardinal Health: Using Network Optimization and Simulation to Increase Service Levels while Decreasing Inventory Costs

Challenge

As part of an effort to continuously optimize its supply chain to better service customers, lower inventory costs and stabilize purchase order variability, Cardinal Health leverages LLamasoft supply chain modeling technology to find optimal inventory replenishment levels while maintaining or increasing service levels.

Solution

Cardinal Health started by running network optimization and simulation for two of its replenishment sites. These sites needed to carry extra inventory to maintain service to all of their surrounding customers. Shipments varied throughout the week and caused issues with labor planning along with occasional customer service issues. Simulation enables a business to artificially ‘run the clock’ to execute the supply chain in a digital environment and predict performance. Through simulation Cardinal Health was able to quickly realize that by consolidating the replenishment shipment schedules for both sites into five weekly predicable shipments they could reduce safety stock and the number of empty trucks on the road.

Results

By implementing these slight adjustments to its replenishment sites, Cardinal Health was able to reduce inventory by $2.8 million in one site and by $1.9 million in the other, to create a combined savings in inventory reduction of $4.7 million and a total capital savings of over $430,000. By reducing the total number of shipments and adding back-haul shipments to pick up product for return following deliveries, Cardinal Health predicts it will save an additional $276,000 in transportation costs. By running multiple simulations, Cardinal was able to increase service times, reduce off-cycle orders by 33 percent, consolidate truck shipments, reduce purchase order variability by 45 percent, and decrease total inventory holding cost by over $4 million.

HEALTHCARE INDUSTRY CASE STUDY

Cardinal Health chose LLamasoft not only to define the best replenishment schedule and ideal levels of inventory, but also to increase operational alignment and ultimately help make healthcare more efficient and affordable for its customers.