1. The power
of one partnership
How a single supply chain solution optimizes ROI for DCH Health System
Supply Chain Optimization
The simple insight that changes everything
When a health system dominates its market, the idea of ‘competition’ is less
about other hospitals and more about your own drive to challenge yourself and
constantly improve. It is a challenge that DCH Health System has welcomed for
more than 75 years.
DCH has a 90 percent market share in its home county in West Alabama and a
70 percent share in the broader seven-county service area. DCH bears the
daunting responsibility of being the face of healthcare for virtually every member
of the communities it serves. And every day, in every way, the system takes on the
responsibility by asking the simple question, “What if?”
Years ago, DCH used such forward thinking to tackle an opportunity long
overlooked by health systems across the country: targeting the traditional
supply chain to lower costs and improve quality of care. “What if there was a
better way?” was the question. And the answer was to switch to low-unit-of-
measure (or LUM) distribution.
DCH was an early adopter of LUM, and the health system has never looked
back. In fact, it has continued to look ahead, always asking, “What if?” And
the most recent answer has resulted in a fundamental shift in how DCH’s
supply chain works.
In 2010, DCH’s participation in a newly-formed regional purchasing coalition
prompted the healthcare system to take a holistic look at all of its supply chain
needs. Rather than taking the traditional view that med-surg and pharmacy are
separate, what if they were combined? What would a single, all-in-one solution
look like? What new efficiencies, savings and quality improvements could be
gained? And what would the impact be on ROI?
The result: rather than having multiple supply chain agreements, today DCH
manages one under a new seven-year master agreement with a single supply
chain partner, Cardinal Health. This master agreement encompasses medical/
surgical supply, pharmacy distribution, pharmacy data analytics and other
needs. All together, for the first time. And as a result, DCH and Cardinal Health
are working together to achieve a savings potential that could be in the tens of
millions of dollars.
It all began with a simple, but powerful idea that turns the traditional view of
supply chain management upside down: price and cost are far from the same thing.
About DCH Health System.
The largest healthcare provider in West Alabama,
DCH Health System serves seven counties via four
hospitals, an outpatient surgical center and nursing
home. Under local ownership and leadership for
more than 75 years, the system has continually
evolved to offer advanced caring to the communities
it serves. Today, the system includes DCH Regional
Medical Center, Northport Medical Center, Fayette
Medical Center and Pickens County Medical Center.
The cornerstone of the DCH system, DCH Regional
Medical Center is a 583-bed facility that offers a variety
of specialty units and advanced services, including
a M.D. Anderson-affiliated cancer center, cardiology,
robotic and minimally invasive surgery, and the
region’s most advanced trauma center. Northport
Medical Center is a 204-bed community hospital
that offers a full range of inpatient and outpatient
services. The facility also operates important specialty
services, including the DCH Rehabilitation Pavilion
and North Harbor Pavilion for mental health.
Fayette Medical Center, through a lease agreement
with DCH Health System, is a 61-bed rural hospital
that offers the residents of Fayette County inpatient
care, along with sophisticated diagnostic equipment,
surgical techniques and specialty clinics. A 122-bed
nursing home on-site is fully accredited and licensed
for intermediate and skilled nursing care. Pickens
County Medical Center is a 56-bed county owned
hospital in Carrollton. The facility provides inpatient
and outpatient services, including surgical services,
an intensive care unit, therapy services and imaging.
The DCH Health System also provides a
significant home health agency, as well as DME
services, bloodless medicine, sleep medicine,
sports medicine, occupational medicine, spine/
pain care, therapy and women’s services.

2. Focus on total cost,
instead of product price
“It’s how you look at it philosophically: The price of the product is
not the total cost of the product,” said Johnny Gilliland, Director of
Materials Management at DCH Health System. “That’s where many
people miss the point.”
And yet, product price is often the dominant driver in making
critical supply chain decisions. “A product price focus can actually
break the supply chain,” warns Don Greenwood, Vice President,
Strategic Accounts at Cardinal Health.
It’s the difference between choosing a warehouse distributor and a
high-end logistics supply chain partner. According to Greenwood,
a traditional warehouse focuses on product price alone—with little
or no regard for the often hidden costs involved in delivering the
product from the warehouse to the hospital floor. A true supply
chain partner knows that the only cost that really matters is the
total, delivered cost.
The key to managing total cost versus product price is to see
your supply chain holistically. In other words, consider it a single,
seamless process from end-to-end that encompasses not just
every touch point along the supply chain, but also every product
purchased, from med-surg to pharmacy to lab.
To build a seamless, all-in supply chain solution, you need support
from the highest management levels of the hospital system. The
C-suite must have the foresight to buy in to the vision. And the key
to establishing that trust is to have a credible supply chain partner:
Seek one who can prove expertise in managing total cost. Because
if your focus is on product price alone, you pay for inefficiency later
(for example, needing to add personnel to manage multiple supply
chains, vs. having one seamless, continuous supply chain flow).
“If you’re managing two solutions, you never get the best of either
one,” Greenwood said.
The irony is that, among distributors, there generally isn’t enough
of a difference in product price to warrant a health system to
make a change. Indeed, Cardinal Health product pricing is roughly
comparable to other distributors. It’s the total, delivered cost that
truly matters, “and the Cardinal Health total cost is less,” Gilliland
said. “Big dollars are waiting to be saved, when you’re willing to
change to the right LUM distributor.”
Taking LUM to the next level
Before working with Cardinal Health, DCH was already using
LUM. “But about four years ago we wanted to go to the next level,”
Gilliland said. Back then, DCH reviewed the capabilities of the
leading LUM distributors and made the switch to Cardinal Health,
because it offered the best overall financial value, service and
distribution model.
“We asked ourselves—from a long-term perspective—which
supply chain partner can get us where we want to go?” Gilliland
said. “ Which can offer the right product, at the right place, at the
right time, at the right total cost?” Four years ago, the answer was
Cardinal Health.
Why LUM matters
Compared to traditional bulk delivery, low-unit-of-measure
distribution is a more efficient, straight-line model that “goes
straight from A to C, taking out all the middle-man activity,”
Gilliland said. LUM bypasses the need for a hospital storeroom and
holding a large amount of inventory.
“You need LUM when you’ve outgrown your storeroom—when
you have too much product and not enough data to manage it all
efficiently,” Gilliland said. “It’s about getting the information right.”
But not all hospitals do, and it’s a costly error.
“Driving down supply chain inefficiency drives down total cost,”
he added. “The savings are in streamlining processes, and
automation is the key. There’s no human intervention that can
result in inefficiencies and errors. LUM makes a lot of sense, but
you have to have a high level of contact to make it work,” Gilliland
concluded. “You have to have the right partner to make such a
high level of distribution work.”
2

3. Enter ValueLink® Services
The Cardinal Health LUM solution is called ValueLink® Services, an
industry-leading logistics service that dramatically reduces the
high cost of storing, maintaining and distributing supplies.
ValueLink® Services streamline and reduce inventory management
costs by delivering low-unit-of-measure orders directly to hospital
departments and other points of care. This approach bypasses
traditional, needless points in the supply chain. These points not
only drive up costs, but also the potential for administrative errors.
(Not to mention, delays in patient care.)
For DCH, ValueLink® Services benefits include:
• Reduced inventory and holding costs
• PriceLink locks in pricing, so there is no variation (no kick outs,
no exceptions)
• Fewer FTEs, resulting in a substantial savings in labor costs
“We’re able to save $200,000 a year by cutting 10 FTEs,” according
to John W. Winfrey, vice president/chief financial officer, DCH
Health System.
Staff overtime continues to trend lower as well:
Source: DCH Health System, December, 2010.
ValueLink® Services also reduce the need to replenish products
on the hospital floor during case time—when the last thing
clinicians need is unnecessary disruptions. Cardinal Health delivers
at 9 p.m., six days a week. If the product is ordered before 2 p.m.,
the product arrives with that evening’s delivery.
Using this common-sense approach, Cardinal Health helps
clinicians focus more on patient care, while making product
utilization more efficient. The approach even improves
inventory positions on Saturday, because deliveries are made
on that day as well.
The LUM system also turns space once reserved for stocking
inventory into a much-needed storage area for other items. “Our
storeroom used to be packed floor to ceiling with inventory. Now,
it’s only 10 percent used, for high-velocity, ‘stat-room’ stock such as
isolation gowns, saline solution and IV sets,” Gilliland said. In fact,
on-hand inventory has shrunk nearly 70 percent since ValueLink®
Services were first put into place in early 2007.
And further reductions are planned, with an end-goal of reducing
storeroom inventory to just about 15 percent of its 2007 high. DCH
and Cardinal Health will continue to strive for these reductions
“through refinement of processes and continued conversion of
inventory bought directly from the manufacturers to inventory
flowing through Cardinal Health distribution,” Gilliland said.
The transformation is as simple as it is critical to DCH’s bottom
line and quality of care. “We’re DCH’s storeroom,” said Walt Gunter,
Hospital Supply Representative for Cardinal Health. And the
hand-off is working: Cardinal Health delivers at a 99 percent fill rate,
picking from 2,000 product lines a day.
Fine tuning the system
Once ValueLink® Services are installed, the work isn’t over. In fact,
it’s just the beginning, as the system is continually refined to further
reduce costs and improve efficiency. And driving this constant
improvement is Cardinal Health Supply Solutions (CHSS). The
supply chain experts of Cardinal Health, CHSS consultants analyze
processes, measure performance and seek new opportunities to
optimize every aspect of ValueLink® Services for DCH.
“We’re here to bring best-in-class solutions to DCH,” said Randy Hess,
Supply Chain Executive at Cardinal Health. ”We have supply chain
experts across the country who have a 360-degree view of the
industry. We seek out best practices—wherever they may be—
and then present them to DCH. In this way, DCH benefits from the
best thinking in the industry, as we work together to make the most
of ValueLink® Services.”
3
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0.00
Overtime
FY07
Overtime(percentage)
Overtime trends, FY07-11 (to-date)
Overtime
FY08
Overtime
FY09
Overtime
FY10
Overtime
FY11
4.00

4. Choosing the best
solution (again)
ValueLink® Services were in place and
working well in 2009, when DCH and seven
other IDNs joined a new regional purchasing
coalition formed by a regional GPO. In 2010,
the coalition issued a sole-source med-surg
RFP and awarded the contract to a vendor
other than Cardinal Health.
Suddenly, DCH was faced with a difficult
decision: Should it switch to the new,
recommended supplier, or stay with
ValueLink® Services? “Any new supplier
would have to be able to handle the
advanced LUM system that we were already
using,” said Winfrey.
Cardinal Health recommended that DCH
do its due diligence and see the new
vendor on-site—and then compare that
experience with a visit to the Cardinal Health
distribution facility in Birmingham. “We
suggested that DCH shouldn’t decide to
switch based solely on a PowerPoint pitch,
because it doesn’t reflect the complete
picture,” Greenwood said. “What counts is
what’s in the contract.”
“Kicking the tires.”
DCH took the advice and visited the potential new supplier’s warehouse in Atlanta.
That visit was followed up by one to the Cardinal Health medical distribution
center in Birmingham.
The main difference quickly became clear: The Atlanta supplier was essentially a
manufacturer first that had also become a distributor, while Cardinal Health was
a dedicated LUM distributor above all else.
The evidence was everywhere: 90 percent of the products in the Atlanta warehouse were
labeled with that manufacturer’s logo, according to what DCH later told Cardinal Health.
Worse yet, the warehouse was mostly bulk storage, floor to ceiling, with little room
dedicated to true LUM.
“It was a nice looking warehouse in Atlanta, but then I realized the difference when I visited
Cardinal Health,” Winfrey said. Seeing a sophisticated LUM “was like day and night. I could tell
the difference right away, and I’m a CFO!” Winfrey said.
“The fact is, LUM operations look very different from traditional, bulk storage,” according to
Everett Posey, Director of Operations for the Cardinal Health facility in Birmingham.
Rather than forklifts moving tall stacks of large boxes that are destined for loading docks,
highly-skilled technicians use Voice-Directed Picking Units to fill small totes for use
right on the hospital floors.
“It’s a faster, more efficient, more ergonomic system that helps ensure quality,” Posey said.
By literally ‘talking’ to the system (and the system ‘talking’ back), technicians locate, pick
and sort products by tote. Then, totes are sorted by departments and like-departments are
sorted by pallets. Product totes are taken right from the Cardinal Health truck to the floor,
so no clinician has to rifle through a storeroom to find what’s needed. “Mr. Winfrey was super
attentive to every detail,” Posey said.
Winfrey noted, “It’s clear that this is DCH’s warehouse—I didn’t see that in Atlanta.”
Greenwood explained, “We have a dedicated IT platform for DCH’s use of low-unit-of-
measure—and a dedicated area of our Birmingham facility just for DCH.”
Then there was the distance issue: Cardinal Health was hours closer; “we couldn’t afford to
wait around for the other supplier to build a warehouse in Tuscaloosa,” Winfrey said. Plus,
DCH could see gaps in the other supplier’s capabilities. There were some unknowns in the
availability of some products and more certainties with the Cardinal Health solution.
Winfrey sums up the comparison this way: “Birmingham was all serious; Atlanta was all
‘salesy.’ Cardinal Health was educating us.” And that level of collaboration is key, according to
Gilliland. “In a LUM environment, errors are amplified; you have to have the right systems to
make it all work. The vendor that the regional purchasing coalition had selected did not have
these systems. It was not a true LUM distributor.”
4

5. Not a warehouse: A high-level
logistics and distribution center
After comparing the two facilities side by side, DCH realized it was not an
apples-to-apples comparison. One was a warehouse; the other, a true LUM
distribution center. So after the two site visits, the decision made itself.
DCH’s CFO had seen enough and recommended to his CEO that
DCH should keep the Cardinal Health med-surg solution.
“Cardinal Health has been doing low-unit-of-measure from the beginning.
They know what they’re doing. They’re more than a trusted advisor; they’re
an extension of our staff.” Gilliland added.
Then, DCH asked a key “What if” question that redefined how the system
would look at supply chain management for good. Following the decision
to keep the current med-surg solution, “we decided that we ought to look
at what an all-in Cardinal solution would look like,” Winfrey said.
The hospital system already had a relationship with Cardinal Health outside
of med-surg. In fact, DCH had a pharmacy distribution contract that was set
to expire in just a few months. What if it suddenly all came together?
Broadening the solution
DCH asked Cardinal Health, What would a more integrated, med-surg and
pharmacy distribution supply chain relationship look like? “We knew there
was so much we weren’t tapping into,” Winfrey said. The time had come to
take full advantage of the $99 billion organization.
To start its pharmaceutical review, Cardinal Health first performed a Desk
Audit, which is a current spend analysis over a defined period. “The results
were compelling, due to potentially significant pricing discounts,” said
George Plava, Vice President, Pharmacy Solutions, at Cardinal Health.
And, there were other savings opportunities beyond a pricing discount
alone (most notably, switching from me-too drugs to a formulary).
DCH was ready to take the next step. As with the med-surg review process
in Birmingham, DCH visited the Cardinal Health pharmaceutical center
in Houston. Plava invited DCH to visit the Cardinal Health team that had
created the Desk Audit. “In other words, meet the people behind the
analysis,” Plava said.
In Houston, one of the first things DCH noticed was that Cardinal Health
had a depth of pharmacy expertise that the hospital system had never
seen before in a distribution supplier. In particular, two advantages
impressed DCH the most. The first was the pharmacy distribution
expertise of Cardinal Health; the purchase prices were competitive,
and it was clear that the company was adept at taking advantage of
contracting opportunities.
5
The data makes the difference
“Even more impressive was Pharmacy Solutions by
Cardinal Health, in particular, the Drug Cost Opportunity
Analytics,” according to Tim Martin, Director of Pharmacy at
DCH Health System. The advantage goes beyond purchasing
analytics and into clinical and demographic information
as well. The net result is a better understanding of the
relationship between drug cost and utilization behavior.
“When we did this internally, it was more laborious and off the
cuff,” Martin said. “Cardinal Health can slice and dice purchase
and clinical data better than we’ve ever seen. In the past,
other companies have said they could do this—but this is the
first time that it’s really all come together.” Martin said.
“We couldn’t do this level of analysis with an additional one
to two FTEs in-house, even if we had the expertise,” Martin
added. “Now, we’re identifying opportunities through
the data that we’ve never had before,” analyzing product
movement, product line analysis—even utilization down to
the individual prescriber level. The result is the clearest view
ever of the cost/utilization equation.
Utilization is the hidden factor that controls true costs, and
utilization can be managed. For example, let’s say you
prescribe a name brand drug to 1,000 patients at $100 each,
for a total cost of $100,000. Substitute a generic drug as part
of a formulary, and you lower the cost to $50 per patient.
Suddenly, you can expand the patients served to 2,000, while
keeping your $100,000 investment the same. The key is to put
the right clinical protocols into play, let the data drive what’s
in the formulary, and use the formulary to control cost.
According to Plava, “If you don’t perform the analytics
correctly, you can lose the price advantage quickly.” And this
is where the true value of outsourcing to the right partner
comes in. Pharmacists shouldn’t have to do technical data
analysis. Yet, they need the insights that the data provide.
“The goal is to give them the tools they need to be as
productive as possible. And by doing so, we help decrease
DCH’s overall clinical costs,” Plava said.
Following the site visit in Houston, DCH agreed to extend
its pharmacy distribution agreement with Cardinal Health.
And then, DCH completed the picture by adding the critical
Pharmacy Solutions piece as well—the analytics that help
manage utilization more effectively and improve both cost
and quality of patient care at the same time.

6. A total Cardinal Health solution
What began as a med-surg review prompted by a regional purchasing
coalition has led to a full, seamless supply chain solution for DCH:
• Med-surg distribution
• Plus, pharmacy distribution
• Plus, pharmacy data analytics
Two other key components were folded into the solution as well:
Presource®: a customized kitting program that maximizes the safety
and financial return of procedure-based packs. “We do more than just
put kits together,” Greenwood explained. “We take a holistic look at
what each department needs, run the analytics, and create custom
solutions that maximize value while minimizing waste.” Presource® is
available for virtually every procedural need in the operating room,
catheterization lab, interventional radiology, emergency room, labor/
delivery and nursing floors.
Lab distribution: Cardinal Health has more experience—and more
resources—to customize solutions than any other company today.
“We offer not only the most products, but also the lowest delivered
costs,” Greenwood said. “Plus, analytical tools help DCH optimize
utilization, so they’re being as efficient as possible while making the
most of every purchase. That’s good for lab technicians and patients
alike.” Services also include updating DCH on new products, emerging
technologies—and even product price promotions, so the best values
are always available to DCH.
“Now, there’s one, simplified Master Agreement for everything,”
Greenwood said, which extends over a seven-year period. DCH gets
the benefit of lower pricing right away. Then Cardinal Health and DCH
collaborate daily to continually add more efficiency, resulting in even
more savings that could add up to tens of millions of dollars over the
course of the agreement. “You handle product pricing on the front end,
and then you work together to make each other more efficient—it’s
better for all of us,” Gilliland added.
“DCH is the best kind of customer you can have,” said Brandon Price,
Region Director for Hospital Supply at Cardinal Health. “You can
never achieve the level of savings possible without a great customer
relationship. But true partners can do great things.”
6
The key is collaboration
A supply chain partner should never assume what the solutions
are before truly understanding the system’s challenges. Even
though Cardinal Health already had a long-standing relationship
with DCH, the concept of an all-in solution was new. So the
$99 billion distributor approached the challenge with no
assumptions, following these guiding principles:
1. Listen first.
2. Then tap into the vast, market-leading resources
of Cardinal Health to tailor the most effective,
proactive approach.
3. Collaborate closely with DCH to finalize the approach.
4. Provide client references to reinforce that similar
approaches are succeeding elsewhere.
5. Then work closely together to continually implement,
refine and improve, based on ongoing learning.
“The best partnerships are based on close collaboration and
transparency,” said Greenwood. “Put everything on the table
and work together toward a common goal. Then measure
your progress, every step of the way. This is how we began
our relationship with DCH—and how we strive to make it even
stronger, every day.”
DCH’s advice to system executives everywhere
“Before you sign on (to a distribution system), go out and kick the
tires; visit the distribution center and see its capabilities. If they’re
good at what they do, they’ll demonstrate it,” Winfrey said.
“Don’t reinvent the wheel yourself; take advantage of ours,” Plava
said. “Don’t rush your decision,” Greenwood added. “Be sure to
see the system in action for yourself, ask others who already use
it and do your own due diligence.”

7. 7
Bringing the new solution to life
In the true spirit of partnership, the work doesn’t end once the
agreement is reached. “Cardinal Health isn’t just writing a contract
and walking off,” Greenwood said. There’s an implementation plan in
place to ensure internal buy-in at DCH. CFO Winfrey presents the fully
integrated solution to a gathering of department heads, who then
champion the more enlightened approach to every employee.
To help manage the relationship day-to-day, there’s a Cardinal Health
on-site Materials Services Manager, Jody Forehand, who’s there five
days a week.
“Quality is free, when you have the
right supplier.”
With those words, Winfrey sums up the underlying financial value of
the DCH-Cardinal Health partnership. Thanks to the efficiencies of
a single supply chain, DCH is able to make the most of every dollar
invested—and of every opportunity to improve patient care. “This
is what’s needed on the floor to take care of the urgent needs of
patients,” Winfrey said. “We save money and take care of our patients
at the same time.”
Gilliland adds, “It’s all about the patient, and we’re here to give the
clinicians what they need to care for them best.”
A look into the future
“Eventually, we’d like to do full distribution, as seamlessly as possible,
from Cardinal Health all the way to the floor,” Winfrey said. DCH
continues to focus clearly on a future vision of what’s possible, “and
we see Cardinal Health working with us to do the same,” Gilliland said.
Winfrey sums it up best: With a single, all-in supply chain solution
from Cardinal Health, “Now we have more control of our fate.”
About Cardinal Health
Headquartered in Dublin, Ohio, Cardinal Health, Inc.
(NYSE: CAH) is a $99 billion healthcare services company
that improves the cost-effectiveness of healthcare. As
the business behind healthcare, Cardinal Health helps
pharmacies, hospitals, ambulatory surgery centers and
physician offices focus on patient care while reducing costs,
improving efficiency and quality, and increasing profitability.
Cardinal Health is an essential link in the healthcare supply
chain, providing pharmaceuticals and medical products to
more than 60,000 locations each day. The company is also
a leading manufacturer of medical and surgical products,
including gloves, surgical apparel and fluid management
products. In addition, the company supports the growing
diagnostic industry by supplying medical products to clinical
laboratories and operating the nation’s largest network
of radiopharmacies that dispenses products to aid in the
early diagnosis and treatment of disease. Ranked #17 on the
Fortune 500, Cardinal Health employs more than 30,000
people worldwide. More information about the company
may be found at cardinalhealth.com.

8. Cardinal Health
7000 Cardinal Place
Dublin, Ohio 43017
cardinalhealth.com
© 2011 Cardinal Health. All rights reserved. CARDINAL HEALTH,
the Cardinal Health LOGO and Essential to care are trademarks or
registered trademarks of Cardinal Health. All other marks are the
property of their respective owners. Lit. No. 5IPS6119 (02/2011)