Businessmodel of Cardinal Health

Customer Segments

Cardinal Health provides a range of pharmaceutical and medical products and services, principal serving customers in the pharmaceutical sector. The Company’s customers can be organised into two core categories:

• Retail and Distribution Customers, including various grocery stores, retail pharmacy chains, specialist medical and pharmaceutical distributors, pharmacy services providers, and other commercial retail businesses; and
• Medical and Healthcare Customers, including healthcare facilities such as hospitals and clinics, medical research and laboratory companies, ambulatory surgery centres, and other healthcare providers. In 2016, Cardinal Health’s five largest customers, including its largest client CVS Health, accounted for 40% of the Company’s total revenue for the year.

Cardinal Health principally serves customers in its home market of the US, which accounts for the bulk of the Company’s business. The Company also serves an international customer base, primarily customers in China and Canada.

Value Propositions

Cardinal Health provides value to its customers in the following ways:

• Its industry standing and reputation, with the Company established as one of the largest and most well-known distributors of medical and pharmaceutical products, controlling a significant share of its market and serving a number of high-profile clients;
• Its broad products portfolio, with the Company offering an extensive range of products and services, including branded and generic pharmaceutical, specialty pharmaceutical, over-the-counter healthcare and consumer products, as well as pharmacy management services;
• Its international reach, with the Company serving a large domestic customer base in the US, as well as customers in China and Canada;
• Its relationships with suppliers, with the Company maintaining longstanding relationships manufacturers and suppliers of medical and pharmaceutical products, ensuring that it is able to distribute an extensive range of products to its customers; and
• Its industry expertise and experience, with the Company employing specialist personnel across its operating segments, as well as a team of experienced industry executives. ### Channels

Cardinal Health operates a website at www.cardinalhealth.com, through which it provides information on its products, services, and corporate activities. The Company does not operate an online sales channel, however, it does provide customers access to an online portal, through which they are able to manage their transactions and orders.

Cardinal Health makes its sales directly to customers through its in-house sales force, which operates out of the Company’s network of offices. The Company’s sales and service force is organised by geographic region, with the Company operating offices in the US, Canada, and China.

Cardinal Health additionally operates its own service, pharmacy, and distribution facilities around the world, ensuring that it is able to serve clients quickly and efficiently through nearby facilities. The Company operates through a total of more than 300 facilities worldwide.

Customer Relationships

Cardinal Health does not sell products to its customers on a self-service basis. The Company, however, does operate an online client portal that enables customers to manage their transaction history and account details without interacting directly with members of the Company’s sales and service personnel.

Cardinal Health consults directly with its customers in order to establish the unique details of each individual sales and distribution contract. The Company works closely with its clients over a period of time, seeking to establish longstanding relationships and securing recurring business.

Cardinal Health provides ongoing support to its customers. The Company’s large clients are afforded their own account management teams, which are available to handle enquiries and queries at all times. Other customers are able to contact the Company’s support personnel over the phone and by email, in order to receive tailored assistance.

Cardinal Health provides various online resources to its customers, including product information and terms and conditions. It also operates a number of social media accounts – including with Facebook, Twitter, YouTube, and LinkedIn – through which it is able to provide company updates and maintain customer relationships.

Key Activities

Cardinal Health operates as a healthcare services and pharmaceutical products distributor. The Company aligns its operations into two reportable business segments: Pharmaceutical, which is concerned with the distribution of branded and generic pharmaceutical, specialty pharmaceutical, over-the-counter healthcare and consumer products, as well as the operation of nuclear pharmacies and cyclotron facilities and provision of pharmacy management services; and Medical, which is concerned with the distribution of medical, surgical and laboratory products, and the provision of services to hospitals, ambulatory surgery centers, clinical laboratories and other healthcare providers.

The Company also manufactures, sources and develops its own Cardinal Health brand medical and surgical products through its Medical segment. Cardinal Health serves various retail and distribution customers and healthcare facilities across the US, Canada, and China.

Key Partners

Cardinal Health works closely with a number of companies and organisations to ensure the efficient delivery and sale of its products. These partners can be organised broadly into the following categories:

• Supplier and Vendor Partners, comprising pharmaceutical manufacturers and other medical product suppliers that provide product to the Company or resale, as well as suppliers of services, technologies, equipment, and materials that are utilised across the rest of the enterprise;
• Distribution and Logistics Partners, comprising various distribution and logistics companies, including specialist pharmaceutical distributors, that assist the Company in the delivery of its products to customers around the world;
• Group Purchasing Organisation Partners, comprising various group purchasing organisations, with which the Company works to jointly operate group purchasing programs; and
• Strategic and Alliance Partners, comprising various market-leading companies, principally within the pharmaceutical space, with which the Company collaborates on joint marketing, branding, and development projects. Cardinal Health has agreed numerous partnerships in recent years. This includes group purchasing organisations Innovatix, Vizient, Intalere, and Asembia, as well as with high-profile pharmaceutical companies such as Pfizer.

Key Resources

Cardinal Health’s key resources are its products and intellectual properties, its supplier relationships and supply chain infrastructure, its research and development facilities, its sales and distribution facilities, its partnerships, and its personnel.

Cardinal Health owns a number of patents and intellectual properties that are utilised in the Company’s manufacture and distribution of products. Searches of records published by the US Patent and Trademark Office identified a number of patent applications in which Cardinal Health is named as applicant or assignee, including applications entitled ‘Modular cassette synthesis unit’, ‘Bone plate’ and ‘Apparatus and methods for sealing vascular punctures’.

Cardinal Health also owns and or leases a number of physical properties that are key to its operations. This includes 24 primary pharmaceutical distribution facilities and one national logistics centre, six specialty distribution facilities, more than 140 nuclear pharmacy and cyclotron facilities, and more than 70 medical-surgical distribution, assembly, manufacturing and other operating facilities.

Cost Structure

Cardinal Health incurs costs in relation to the procurement of products and merchandise, the operation of research and development facilities, the operation of supply chain and distribution infrastructure, the management of its partnerships and supplier relationships, the implementation of marketing campaigns, and the retention of its personnel.

In 2015 Cardinal Health recorded cost of goods sold in the amount of $115.00 billion, and distribution, selling, general, and administrative expenses – including occupancy and employee benefit costs – in the amount of $3.65 billion.

Revenue Streams

Cardinal Health generates revenue through the sale of various pharmaceutical and medical products, as well as the provision of various related services. The Company derives revenue via sales and distribution contracts and other service-related fees.

In 2016 Cardinal Health generated revenue for the year in the amount of $121.55 billion, up considerably on the $102.53 billion recorded by the Company in 2015. The Company attributed this increase in revenue to general sales growth from existing and new pharmaceutical distribution customers and from acquisitions. The Company’s Pharmaceutical segment attributed for the vast majority of the Company’s revenue, recording revenue for the year of $109.13 billion.