Cardinal rules for supply chain excellence: interview with Scott Nelson
As logistics challenges go, running a supply chain in the high-stakes healthcare sector has to be near the top of the list. Scott Nelson of Cardinal Health keeps his operation on track by following five basic principles of logistics excellence.
Mitch Mac Donald has more than 30 years of experience in both the newspaper and magazine businesses. He has covered the logistics and supply chain fields since 1988. Twice named one of the Top 10 Business Journalists in the U.S., he has served in a multitude of editorial and publishing roles. The leading force behind the launch of Supply Chain Management Review, he was that brand's founding publisher and editorial director from 1997 to 2000. Additionally, he has served as news editor, chief editor, publisher and editorial director of Logistics Management, as well as publisher of Modern Materials Handling. Mitch is also the president and CEO of Agile Business Media, LLC, the parent company of DC VELOCITY and CSCMP's Supply Chain Quarterly.
For someone training in accounting, Scott Nelson has touched a lot of different areas of the healthcare supply chain business over the past three decades. Although he did begin his career in finance, he quickly developed an interest in operations and went on to serve in a variety of tactical roles before moving into his present position as senior vice president of supply chain at Cardinal Health.
In his current capacity, Nelson oversees national supply chain operations for the medical segment of Cardinal Health. This includes the transportation and distribution of a vast portfolio of Cardinal Health-brand and national brand medical/surgical products to healthcare providers and suppliers across the U.S.
Nelson first joined Cardinal Health in 1995 as a region controller and worked his way up the organizational ladder, serving as director of operations at the company's pharmaceutical DC in Hudson, Wis.; director of customer development in pharmaceutical generic product purchasing; and director of healthcare supply chain services. In 2009, he left Cardinal Health for a six-year stint at Resource Optimization and Innovation (ROi), an integrated provider-owned supply chain organization in healthcare, where he held a variety of operational positions, including chief operating officer, before rejoining Cardinal Health in 2015.
He spoke recently with DC Velocity Group Editorial Director Mitch Mac Donald about the unique pressures of managing a hospital supply chain, the five basic principles of logistics excellence, and the one big logistics challenge the healthcare giant has yet to overcome.
Q: Describe your operation and the role of logistics in your company.
A: The medical segment operations at Cardinal Heath consist of more than 60 replenishment and distribution centers across the U.S. and Canada. We deliver a broad line of medical products to hospitals, ambulatory care and surgery centers, physician centers, and at-home patients every day. We manage a large portfolio of ambient, hazardous, refrigerated, and frozen SKUs (stock-keeping units) across numerous supply chain nodes, adhering to stringent regulatory requirements.
There is little room for error in the hospital supply chain because it puts patients at risk. It's crucial to have the right product at the right time. This makes the role of logistics vital. Our team provides a high level of service and quality at a very low cost.
Q: How do you ensure your team is meeting those ultra-high expectations?
A: We absolutely recognize the significant responsibility and seriousness of servicing the healthcare supply chain as well as the potential consequences of a failure. A hospital supply chain survey we conducted last fall found that 18 percent of hospital staff have seen or heard of a patient being harmed due to a lack of necessary supplies.
At Cardinal Health, we make a tremendous effort to ensure everyone who works here connects with our aspiration of being the "wings" for those who care for patients. To achieve this, we must operate a highly reliable and predictable supply chain. We exert a lot of energy assessing and mitigating risk, collaborating directly with healthcare providers and manufacturers to understand the unique needs of the end-to-end supply chain, and practicing continuous improvement through operational excellence to enhance processes.
Q: What parts of your personal skill set serve you best in the work you do each day?
A: I think there are three skills that best serve me in the work I do. The first is listening to customers and co-workers. By listening to our customers, we can learn what is important to them, including the needs and issues we can help them address. Listening to my co-workers helps me understand the obstacles they face and how we can help them be more successful and rewarded in their work.
The second is learning. Our industry is constantly changing, and it's important to stay abreast of new thinking and advancements. For a culture of continuous improvement, it's critical to remain vigilant in studying what others are doing and build on great ideas.
The third is coaching and teaching. I get great energy from being able to share what I've learned with others and seeing the individuals and the business grow and develop.
Q: What are the biggest challenges you face in achieving logistics excellence?
A: Logistical excellence comes from optimizing the entire supply chain, but the end-to-end supply chain is constantly changing and evolving—new suppliers, channels, and nodes. Understanding the trade-offs across the continuum is incredibly complex, and being able to quickly solve the equation and provide maximum benefit while still honoring the goals of the individual links is an ever-present challenge.
Q: Why has logistics become so critical in the optimization of a supply chain strategy?
A: In today's consumer-driven world, companies need to provide speed and service at a low cost in order to survive. The supply chain is intertwined throughout all the critical functions of the business, and if there are breakdowns and inefficiencies in those interactions, none of those outcomes will be realized. Understanding, aligning, and customizing logistics to these new customer expectations is what will differentiate the winners from the losers.
Q: What are some of the biggest changes you've observed in logistics operations over the past decade?
A: The biggest changes I've observed are a greater focus on capital deployment and speed (leadtime reduction) of the supply chain, the impact of digitalization and mobile technology, and globalization of the supply chain.
Q: What are some the basic principles of logistics excellence that remain the same, despite those changes?
A: I believe there are five basic principles of logistics excellence that still remain valid today: understanding the value stream, making processes visible across the value stream, creating flow based on demand signals at the point of consumption, focusing on total cost of ownership (vs. piece price), and identifying and eliminating waste.
Q: What does the future hold? What is, if you will, the "next big thing?"
A: Digitizing assets is still a major untapped opportunity in the supply chain. We have the technology to capture real-time data at the point of use across the supply chain. This is the gateway to collecting a large and rich set of data and advanced analytics.
This is why Cardinal Health is continuing to invest in advanced data capture and analytics that can be integrated with other data platforms for valuable insights that can improve decision-making. A whole new world of opportunities to improve supply chain quality and cost will open up once assets become "smart" across the entire logistics platform.
Q: What do you consider to be the biggest logistics challenge that you've faced but were unable to overcome? What were the issues? What did you learn from the experience?
A: Gaining good visibility into true demand at the point of care in a hospital is the biggest logistics challenge we haven't been able to overcome. The healthcare industry has traditionally been slow to invest in technologies that will enable frontline providers to spend less time managing inventory and more time with patients. We recently surveyed more than 400 hospital staff and learned that physicians and nurses currently spend, on average, nearly 20 percent of their workweek on supply chain and inventory management.
There are solutions available that support patient safety, reduce costs, and improve workflows, providing necessary data and analytics to optimize supply chain efficiency, but many healthcare providers have yet to adopt them. Our survey found that 78 percent of respondents are manually counting inventory in some parts of their supply chain and only 17 percent have implemented an automated technology system to track products and inventory in real time.
The key learning from this is that we need to help healthcare providers think differently about supply chain and couple the financial and operational improvements with the clinical benefits that follow.
Q: Any closing thoughts or comments?
A: A highly effective supply chain can be a strategic asset and competitive advantage for any healthcare organization. The influence supply chain leaders wield continues to grow—not only in improving service, predictability, and cost but also in developing organizational capabilities and bringing innovative solutions to their customers.
We need to seek out and develop talent that will bring diverse thoughts and experiences into the decision-making process and help us envision a high-performing, reliable supply chain from the bedside and back.
Most of the apparel sold in North America is manufactured in Asia, meaning the finished goods travel long distances to reach end markets, with all the associated greenhouse gas emissions. On top of that, apparel manufacturing itself requires a significant amount of energy, water, and raw materials like cotton. Overall, the production of apparel is responsible for about 2% of the world’s total greenhouse gas emissions, according to a report titled
Taking Stock of Progress Against the Roadmap to Net Zeroby the Apparel Impact Institute. Founded in 2017, the Apparel Impact Institute is an organization dedicated to identifying, funding, and then scaling solutions aimed at reducing the carbon emissions and other environmental impacts of the apparel and textile industries.
The author of this annual study is researcher and consultant Michael Sadowski. He wrote the first report in 2021 as well as the latest edition, which was released earlier this year. Sadowski, who is also executive director of the environmental nonprofit
The Circulate Initiative, recently joined DC Velocity Group Editorial Director David Maloney on an episode of the “Logistics Matters” podcast to discuss the key findings of the research, what companies are doing to reduce emissions, and the progress they’ve made since the first report was issued.
A: While companies in the apparel industry can set their own sustainability targets, we realized there was a need to give them a blueprint for actually reducing emissions. And so, we produced the first report back in 2021, where we laid out the emissions from the sector, based on the best estimates [we could make using] data from various sources. It gives companies and the sector a blueprint for what we collectively need to do to drive toward the ambitious reduction [target] of staying within a 1.5 degrees Celsius pathway. That was the first report, and then we committed to refresh the analysis on an annual basis. The second report was published last year, and the third report came out in May of this year.
Q: What were some of the key findings of your research?
A: We found that about half of the emissions in the sector come from Tier Two, which is essentially textile production. That includes the knitting, weaving, dyeing, and finishing of fabric, which together account for over half of the total emissions. That was a really important finding, and it allows us to focus our attention on the interventions that can drive those emissions down.
Raw material production accounts for another quarter of emissions. That includes cotton farming, extracting gas and oil from the ground to make synthetics, and things like that. So we now have a really keen understanding of the source of our industry’s emissions.
Q: Your report mentions that the apparel industry is responsible for about 2% of global emissions. Is that an accurate statistic?
A: That’s our best estimate of the total emissions [generated by] the apparel sector. Some other reports on the industry have apparel at up to 8% of global emissions. And there is a commonly misquoted number in the media that it’s 10%. From my perspective, I think the best estimate is somewhere under 2%.
We know that globally, humankind needs to reduce emissions by roughly half by 2030 and reach net zero by 2050 to hit international goals. [Reaching that target will require the involvement of] every facet of the global economy and every aspect of the apparel sector—transportation, material production, manufacturing, cotton farming. Through our work and that of others, I think the apparel sector understands what has to happen. We have highlighted examples of how companies are taking action to reduce emissions in the roadmap reports.
Q: What are some of those actions the industry can take to reduce emissions?
A: I think one of the positive developments since we wrote the first report is that we’re seeing companies really focus on the most impactful areas. We see companies diving deep on thermal energy, for example. With respect to Tier Two, we [focus] a lot of attention on things like ocean freight versus air. There’s a rule of thumb I’ve heard that indicates air freight is about 10 times the cost [of ocean] and also produces 10 times more greenhouse gas emissions.
There is money available to invest in sustainability efforts. It’s really exciting to see the funding that’s coming through for AI [artificial intelligence] and to see that individual companies, such as H&M and Lululemon, are investing in real solutions in their supply chains. I think a lot of concrete actions are being taken.
And yet we know that reducing emissions by half on an absolute basis by 2030 is a monumental undertaking. So I don’t want to be overly optimistic, because I think we have a lot of work to do. But I do think we’ve got some amazing progress happening.
Q: You mentioned several companies that are starting to address their emissions. Is that a result of their being more aware of the emissions they generate? Have you seen progress made since the first report came out in 2021?
A: Yes. When we published the first roadmap back in 2021, our statistics showed that only about 12 companies had met the criteria [for setting] science-based targets. In 2024, the number of apparel, textile, and footwear companies that have set targets or have commitments to set targets is close to 500. It’s an enormous increase. I think they see the urgency more than other sectors do.
We have companies that have been working at sustainability for quite a long time. I think the apparel sector has developed a keen understanding of the impacts of climate change. You can see the impacts of flooding, drought, heat, and other things happening in places like Bangladesh and Pakistan and India. If you’re a brand or a manufacturer and you have operations and supply chains in these places, I think you understand what the future will look like if we don’t significantly reduce emissions.
Q: There are different categories of emission levels, depending on the role within the supply chain. Scope 1 are “direct” emissions under the reporting company’s control. For apparel, this might be the production of raw materials or the manufacturing of the finished product. Scope 2 covers “indirect” emissions from purchased energy, such as electricity used in these processes. Scope 3 emissions are harder to track, as they include emissions from supply chain partners both upstream and downstream.
Now companies are finding there are legislative efforts around the world that could soon require them to track and report on all these emissions, including emissions produced by their partners’ supply chains. Does this mean that companies now need to be more aware of not only what greenhouse gas emissions they produce, but also what their partners produce?
A: That’s right. Just to put this into context, if you’re a brand like an Adidas or a Gap, you still have to consider the Scope 3 emissions. In particular, there are the so-called “purchased goods and services,” which refers to all of the embedded emissions in your products, from farming cotton to knitting yarn to making fabric. Those “purchased goods and services” generally account for well above 80% of the total emissions associated with a product. It’s by far the most significant portion of your emissions.
Leading companies have begun measuring and taking action on Scope 3 emissions because of regulatory developments in Europe and, to some extent now, in California. I do think this is just a further tailwind for the work that the industry is doing.
I also think it will definitely ratchet up the quality requirements of Scope 3 data, which is not yet where we’d all like it to be. Companies are working to improve that data, but I think the regulatory push will make the quality side increasingly important.
Q: Overall, do you think the work being done by the Apparel Impact Institute will help reduce greenhouse gas emissions within the industry?
A: When we started this back in 2020, we were at a place where companies were setting targets and knew their intended destination, but what they needed was a blueprint for how to get there. And so, the roadmap [provided] this blueprint and identified six key things that the sector needed to do—from using more sustainable materials to deploying renewable electricity in the supply chain.
Decarbonizing any sector, whether it’s transportation, chemicals, or automotive, requires investment. The Apparel Impact Institute is bringing collective investment, which is so critical. I’m really optimistic about what they’re doing. They have taken a data-driven, evidence-based approach, so they know where the emissions are and they know what the needed interventions are. And they’ve got the industry behind them in doing that.
The global air cargo market’s hot summer of double-digit demand growth continued in August with average spot rates showing their largest year-on-year jump with a 24% increase, according to the latest weekly analysis by Xeneta.
Xeneta cited two reasons to explain the increase. First, Global average air cargo spot rates reached $2.68 per kg in August due to continuing supply and demand imbalance. That came as August's global cargo supply grew at its slowest ratio in 2024 to-date at 2% year-on-year, while global cargo demand continued its double-digit growth, rising +11%.
The second reason for higher rates was an ocean-to-air shift in freight volumes due to Red Sea disruptions and e-commerce demand.
Those factors could soon be amplified as e-commerce shows continued strong growth approaching the hotly anticipated winter peak season. E-commerce and low-value goods exports from China in the first seven months of 2024 increased 30% year-on-year, including shipments to Europe and the US rising 38% and 30% growth respectively, Xeneta said.
“Typically, air cargo market performance in August tends to follow the July trend. But another month of double-digit demand growth and the strongest rate growths of the year means there was definitely no summer slack season in 2024,” Niall van de Wouw, Xeneta’s chief airfreight officer, said in a release.
“Rates we saw bottoming out in late July started picking up again in mid-August. This is too short a period to call a season. This has been a busy summer, and now we’re at the threshold of Q4, it will be interesting to see what will happen and if all the anticipation of a red-hot peak season materializes,” van de Wouw said.
The report cites data showing that there are approximately 1.7 million workers missing from the post-pandemic workforce and that 38% of small firms are unable to fill open positions. At the same time, the “skills gap” in the workforce is accelerating as automation and AI create significant shifts in how work is performed.
That information comes from the “2024 Labor Day Report” released by Littler’s Workplace Policy Institute (WPI), the firm’s government relations and public policy arm.
“We continue to see a labor shortage and an urgent need to upskill the current workforce to adapt to the new world of work,” said Michael Lotito, Littler shareholder and co-chair of WPI. “As corporate executives and business leaders look to the future, they are focused on realizing the many benefits of AI to streamline operations and guide strategic decision-making, while cultivating a talent pipeline that can support this growth.”
But while the need is clear, solutions may be complicated by public policy changes such as the upcoming U.S. general election and the proliferation of employment-related legislation at the state and local levels amid Congressional gridlock.
“We are heading into a contentious election that has already proven to be unpredictable and is poised to create even more uncertainty for employers, no matter the outcome,” Shannon Meade, WPI’s executive director, said in a release. “At the same time, the growing patchwork of state and local requirements across the U.S. is exacerbating compliance challenges for companies. That, coupled with looming changes following several Supreme Court decisions that have the potential to upend rulemaking, gives C-suite executives much to contend with in planning their workforce-related strategies.”
Stax Engineering, the venture-backed startup that provides smokestack emissions reduction services for maritime ships, will service all vessels from Toyota Motor North America Inc. visiting the Toyota Berth at the Port of Long Beach, according to a new five-year deal announced today.
Beginning in 2025 to coincide with new California Air Resources Board (CARB) standards, STAX will become the first and only emissions control provider to service roll-on/roll-off (ro-ros) vessels in the state of California, the company said.
Stax has rapidly grown since its launch in the first quarter of this year, supported in part by a $40 million funding round from investors, announced in July. It now holds exclusive service agreements at California ports including Los Angeles, Long Beach, Hueneme, Benicia, Richmond, and Oakland. The firm has also partnered with individual companies like NYK Line, Hyundai GLOVIS, Equilon Enterprises LLC d/b/a Shell Oil Products US (Shell), and now Toyota.
Stax says it offers an alternative to shore power with land- and barge-based, mobile emissions capture and control technology for shipping terminal and fleet operators without the need for retrofits.
In the case of this latest deal, the Toyota Long Beach Vehicle Distribution Center imports about 200,000 vehicles each year on ro-ro vessels. Stax will keep those ships green with its flexible exhaust capture system, which attaches to all vessel classes without modification to remove 99% of emitted particulate matter (PM) and 95% of emitted oxides of nitrogen (NOx). Over the lifetime of this new agreement with Toyota, Stax estimated the service will account for approximately 3,700 hours and more than 47 tons of emissions controlled.
“We set out to provide an emissions capture and control solution that was reliable, easily accessible, and cost-effective. As we begin to service Toyota, we’re confident that we can meet the needs of the full breadth of the maritime industry, furthering our impact on the local air quality, public health, and environment,” Mike Walker, CEO of Stax, said in a release. “Continuing to establish strong partnerships will help build momentum for and trust in our technology as we expand beyond the state of California.”
That result showed that driver wages across the industry continue to increase post-pandemic, despite a challenging freight market for motor carriers. The data comes from ATA’s “Driver Compensation Study,” which asked 120 fleets, more than 150,000 employee drivers, and 14,000 independent contractors about their wage and benefit information.
Drilling into specific categories, linehaul less-than-truckload (LTL) drivers earned a median annual amount of $94,525 in 2023, while local LTL drivers earned a median of $80,680. The median annual compensation for drivers at private carriers has risen 12% since 2021, reaching $95,114 in 2023. And leased-on independent contractors for truckload carriers were paid an annual median amount of $186,016 in 2023.
The results also showed how the demographics of the industry are changing, as carriers offered smaller referral and fewer sign-on bonuses for new drivers in 2023 compared to 2021 but more frequently offered tenure bonuses to their current drivers and with a greater median value.
"While our last study, conducted in 2021, illustrated how drivers benefitted from the strongest freight environment in a generation, this latest report shows professional drivers' earnings are still rising—even in a weaker freight economy," ATA Chief Economist Bob Costello said in a release. "By offering greater tenure bonuses to their current driver force, many fleets appear to be shifting their workforce priorities from recruitment to retention."