Text/Adrian?6?1 Slevowski Editor's note: This journal publishes "Forging the Perfect Pharmaceutical Industry Chain - Cardinal" from "Wealth Circle" (Issue 2, 2009) Integrated Business Model" article. This article is of great value. I hope the chain companies concerned will study and discuss it carefully and learn from it. Cardinal Health, one of the three largest pharmaceutical distributors in the United States, started out in almost the same situation as most Chinese distributors today. However, it has grown from being stuck in a quagmire with an average net profit margin of only about 1% to today's annual revenue of nearly 1%. A US$50 billion giant service company, the creation of this miracle, Cardinal's unique integrated business model has played a role in turning things around.
Among all the "hidden assets", customer contact channels, loyal user groups, etc. are undoubtedly the unique advantages of dealers. Cardinal has made full use of this advantage and successfully started with frequent sales. Interact with all customers in the health care market - hospitals, pharmacies, pharmaceutical companies, health care institutions and other players. During the investigation, Cardinal saw its own limitations in cost control, talent shortages, and outdated information management in the industry. Taken together, these three problems make Cardinal's customer base face the challenge of reducing costs and providing high-quality medical care. Contradictions between services, and every problem is actually a potential opportunity.
Integrate core business and solve thorny problems for hospitals
Faced with various contradictions, Cardinal's first response can be summarized as a "tracking pill" that helps hospitals save time and costs "plan.
When the medicine is delivered to the customer's door, more than 99% of suppliers think that the service ends at this time. Cardinal did not stop at delivering drugs to hospital warehouses, but continued to extend its service reach to pharmacy management, environmental protection treatment of waste drugs and other aspects related to pills, and even extended upstream to pill testing, Encapsulation and so on.
The method of tracking pills allows Cardinal to penetrate deeper into hospitals, and the acquisition of Pyxis, a company that manufactures pill-dispensing machines, further strengthens Cardinal's ties with hospitals. This company's products are like bank ATMs. Hospitals deposit the most commonly used medicines. Patients only need to enter the doctor's prescription to be recognized by the machine and use fingerprint recognition to gain entry. In the past, hospitals had a difficult medication dispensing problem because it was easy to misread handwritten prescriptions. Coupled with the shortage of medical personnel, pills were often lost, making the medication dispensing process dangerous. Not only could it lead to patient injury or death, but it could also lead to lawsuits for the hospital. Acquiring Parker would easily put an end to these thorny issues.
Through mergers and acquisitions, Cardinal Health has made 90% of the hospitals in the United States its customers, which has brought considerable fixed income and broadened the company's channels, because hospitals that install Pyxis machines, for convenience , will be more inclined to buy drugs from Cardinal Health.
Parkers' success led Cardinal to realize that the same approach could be applied to topical products. The distribution of medical and surgical supplies is Cardinal's second largest business after clinical pharmaceuticals. It has annual sales of $6 billion - 15% of the company's total revenue - and a quarter of its profits.
In fact, the external products sold by Cardinal are not high-tech and cheap. Most of them are disposable consumer products, such as gauze, bandages, suction tubes, etc. But Cardinal has turned it into a source of profit growth by controlling costs and improving efficiency. Because Cardinal found a key point, that is customized services.
A typical surgery requires about 200 medical tools. Of course, this number will vary slightly depending on the surgery and the doctor's personal preference. Under normal circumstances, there will be thousands of different tools placed on the medicine shelves in the hospital. Before the operation, the relevant staff will manually select what is needed and then put it on a tray and send it to the operating room. This process is not only time-consuming, but also has a high chance of error.
Cardina provides complete sets of surgical medical supplies to help the hospital solve this stubborn problem. Cardinal's online customization service allows surgeons to simulate the surgical process in advance and select the equipment and items they need.
Cardinal offers 2,200 products to choose from, of which only one-third is its own. For example, approximately 200 products are used for endoscopic knee surgery. On the morning of the operation, these supplies were delivered to the hospital in sterile packaging. The tools in the bag were completely arranged according to the surgical procedure. Moreover, the doctors themselves selected the tools and supplies that suit them online in advance. Cardinal therefore integrated those ordinary gloves and gauze into sterile bags, and sold them at a good price in a customized and convenient vehicle.
The "customized distribution system" has allowed Cardinal to establish an unbreakable position in the non-traditional supply and distribution chain. Not only did Cardinal itself improve its standing with its customers and gain new revenue and profits, but its customers also benefited.
Integrate upstream business and provide comprehensive services to pharmaceutical companies
The benefits of the "distribution system" are not limited to this. Cardinal makes full use of its value and collects sales information on various drugs. For example, which products are hot-selling products, which group of users are they, etc. Pharmaceutical companies can grasp market demand in a timely manner through news feedback, thereby adjusting production strategies and creating a win-win situation for both pharmaceutical companies and Cardinal.
For pharmaceutical companies, once a drug has passed the patent protection period, no matter how popular it is, it will become as valuable as a commodity. Helping suppliers solve the problem of reducing the supply chain has become Cardinal Health The company’s biggest challenge. Customers' difficulties and worries are often your opportunities, so Cardinal acquired a packaging company that can process products for pharmaceutical companies. When pharmaceutical companies are busy developing new drugs, the manufacturing, packaging, and distribution of many drugs can be outsourced to Cardinal Health, which owns a packaging company, to eliminate complicated procedures and save costs.
As an important partner of pharmaceutical companies, Cardinal has its own deep understanding of sparing no effort in the upstream business. It provides services in formulation, testing, production, packaging and other aspects of drugs for pharmaceutical companies, and can create Creating new value allows pharmaceutical companies to focus on developing and promoting hot-selling drugs, bringing higher efficiency to both parties. Because it has an extensive distribution system, Cardinal is able to efficiently aggregate and package pharmaceuticals from multiple manufacturers. It has developed important client relationships and has access to senior executives from leading pharmaceutical companies in the industry. At the same time, it has rich experience in providing customized pharmaceutical packaging services for hospitals and Parker users, and has maintained an excellent and effective operating record.
In order to fully tap the potential of its upstream business, Cardinal has also formulated a strategy to supplement its core assets with comprehensive acquisitions. Acquired companies are mainly focused on those involved in drug formulation, production, packaging and testing.
Cardena Chairman Jim Miller, who is also chief operating officer for pharmaceutical distribution and topical products, described growth opportunities based on "volume of contact" with customers: " Wherever we can reach customers, there are opportunities. This is also an advantage of our diversified business. If we were just a pharmaceutical distributor, we probably would not be able to negotiate with many customers. But we now have more products and. services, we knocked on one door after another and found more sources of income.”
Integrating downstream businesses to improve financial efficiency for pharmacies
In U.S. medical services. , chain pharmacies mainly rely on third parties to intervene in the pharmacies’ insurance institutions for direct payment, that is, after customers pay part of the fee to the pharmacies, the pharmacies will send remittance notices to the insurance institutions for the rest. Generally speaking, cash repayment rates should be updated monthly in payment systems. But drugstore chains often suffer because they often forget recent growth rates. One study found that this cost pharmacies 59 cents per prescription.
To help pharmacies determine accurate payment amounts, Cardinal has worked with many drugstore chains to develop a system called ScriptLINE, which can automatically update cash reimbursement rates and verify cash payment amounts for drugs every day. Not only has financial efficiency improved as a result, the pharmacy's relationship with Cardinal has become even closer.
Now, Cardinal not only supplies medicines for the traditional distribution business, but also becomes an important partner to its customers by helping pharmacies establish revenue accounting systems.
In the application of the system, the ArcLight system plays an indispensable role. The data collected by ScriptLINE is passed to upstream pharmaceutical companies through it. Currently, 13 pharmaceutical companies have become customers of ArcLight, providing data on up to 1 billion prescriptions every year. The growth rate is beyond imagination.
By integrating upstream and downstream businesses, Cardinal's entire industry chain has been deeply explored and its ability to control customers is stronger. A large number of innovative services have improved customer satisfaction and competitive differentiation while earning huge profits for themselves. Cardinal knows that customers have no reason to abandon itself and turn to other competitors.
“Our core strategy is to provide a broad product line.” Due to the deepening of communication with customers, Cardinal can more easily observe, study, and understand their needs, thereby establishing a deeper and closer relationship. customer contact. "Those who win customers win the world", and the integrated business model has achieved huge profits for Cardinal.