Sourcing Approach for Cardinal Health
Sourcing Approach for Cardinal Health
Sourcing is the process of acquiring goods or services that a business requires in order to run efficiently. Goods and services can be sourced externally or from within an organization. This paper explores Cardinal Health’s portfolio of activities in order to identify a suitable sourcing approach for the organization. The paper concludes that in order to operate efficiently Cardinal health must source core competence activities from with the organization and outsource functional activities. Core competence activities give the organization its competitive advantage and, therefore, should be controlled by the organization. Functional activities should be outsourced in order to reduce cost and enable Cardinal health to focus on its core competencies.
Company Background
Cardinal Health is an American company that has specialized in providing an assortment of services to healthcare establishments. Cardinal core service involves distribution of pharmaceutical and other healthcare products to healthcare establishment. Cardinal Health also offers support services such as; inventory management and software solutions. Cardinal Health also manufactures medical tools and equipments gloves, fluid management equipments and surgical apparel. Cardinal health portfolio of activities can be divided into two main categories; core activities and non core activities. Core activities refer to activities that are directly linked to the organization’s revenues while non-core activities refer to activities that only facilitate the core activities of the organization.
Activities Portfolio
Core Activities
- Management
Management is one of Cardinal Health’s core activities (Gottfredson & Phillips, 2005). Management encompasses the process of planning, organizing, directing and controlling all other activities of the organization. Management is a core activity in all entities because it affects all other activities of the organization. The organizational management also forms a vital source of competitive advantage. Therefore, Cardinal Health can only source this activity from inside the company.
Logistics Services
Logistics services involve tracing the managing the movement of goods from the suppliers to the consumers. Many organizations usually outsource these services. However, Cardinal Health cannot afford to outsource logistic services since this one of the organization areas of core competence (Gottfredson & Phillips, 2005). Cardinal health specializes in managing the distribution of pharmaceutical products to consumers. This means that the organization manages the transportation and delivery of these products from suppliers to the consumers. This is what comprises of logistics.
Inventory Management
Inventory management is a strategic approach of managing the process of purchasing goods. This process ensures that the organization does not run out of stock or does not buy too much stock leading to liquidity shortage or spoilage. Inventory management also enables organizations to minimize theft and fraud (Talluri & Narasimhan, 2004). Cardinal Health has also specialized in providing inventory services to other healthcare establishment. Inventory management is a vital source of revenue for Cardinal Health and, therefore, these activities can only be sourced internally.
Manufacturing
Manufacturing activities involves mass development of products. Apart from providing distribution services, Cardinal Health also manufactures medical equipments such as gloves. Manufacturing is also a vital source of Cardinal Health’s revenues and, therefore, should be sourced internally (Gottfredson & Phillips, 2005). Sourcing manufacturing activities internally will enable the organization to protect its competitive advantage by protecting its manufacturing designs and processes.
Software solutions
Information technology has become an essential part of business (Gottfredson & Phillips, 2005). Businesses need IT solution to manage their inventory, human resource, finances, communications and other activities. Many organizations normally outsource software solutions. However, Cardinal Health cannot afford to outsource this activity since it is a vital part of the firm’s revenues. Cardinal Health provides software solutions in areas such as inventory and supply management.
Research and development
Research and development activities are usually directed toward development of new products or improvement of existing products (Talluri & Narasimhan, 2004). Research and development activities are a vital source of competitive advantage organizations that deal with manufacturing and software solutions. This is because such organizations depend on inventions and innovation in order to compete. Thus, Cardinal Health needs to source research and development activities internally.
Non Core/ Routine Activities
- Recruitment
Recruitment is the process of finding suitable employees for an organization. Though employees are an essential part of an organization’s competitiveness, recruitment activities can easily be outsourced. Today, there are recruitment agencies that have specialized in providing recruitment services (Rendon, 2005). Outsourcing activity to these agencies may help the organization to reduce cost. It may also assist organizations to get suitable talent since these recruitment agencies have specialized expertise in recruitment
Employee training
Employee training is also an essential activity in the modern business environment. The business environment has become highly dynamic raising the need for firms to train their employees on a regular basis. Though training is an essential activity in an organization, this can activity can also be outsourced to entities that have specialized in training. This will enable the organization to focus on its core competences.
Accounting
Accounting refers to the task of analyzing and recording the history of the organization’s financial transactions and planning from future transaction (Freytang, 2009). This activity enables the organization to manage cost, increase revenues and foster transparency. Accounting activities can also be outsourced to organizations that are specialized in this area. There are numerous auditing and consultancy firms that can provide this service.
Promotion
Promotion is the process of informing buyers about the organization’s product in order to stimulate them to purchase the product (Freytang, 2009). Cardinal Health can outsource promotion activities from various organizations such as; advertising agencies, marketing firms, marketing research organizations and many others.
Repairs
Cardinal Health runs distribution services for healthcare establishments in 16000 locations (Cardinal Health, 2012). This organization relies heavily on motor vehicles to make these deliveries. Vehicles experience breakdown raising the need for repair activities. Cardinal Health also runs manufacturing operations and, therefore, the organization may require equipment repair services from time to time. The organization requires repair activities for its office building, warehouses and other facilities. These services can easily be outsourced from specialized organizations.
Security
Security is an essential requirement in all business. Cardinal Health needs to ensure that the property, employees and information within its premises are adequately protected. Cardinal Health also needs to ensure that goods are protected during transportation. Cardinal health can outsource security services from private security firms (Appollo Group, 2012). These security firms are highly competent in security matters thus; can provide better protection services for the organization.
Conclusion
Cardinal Health specializes in the distribution of medical and pharmaceutical products to healthcare establishments. The organization also deals with the manufacturing of medical tools and equipments, as well as, provision of support services. This paper has explored the activities portfolio of the organization with the aim of developing an appropriate sourcing approach. The paper has divided Cardinal Health’s activities into two categories; core activities and non-core activities. Core activities refer to activities that contribute directly to Cardinal Health’s revenues. These activities include; management, logistics services, inventory management, manufacturing, software solutions and R&D. Cardinal health need to source these activities internally in order to protect the organization’s competitive advantage. Non-core activities refer to activities that facilitate the core activities. These activities include; recruitment, training, accounting, promotion, repairs and security. Cardinal Health should consider outsourcing these non-core activities so as to drive down costs and enable the organization to focus on the core activities.
References
Appollo Group (2012). “Strategic Sourcing & Procure to Pay”. November 9, 2012. http://www.apollogrp.edu/sites/default/files/files/Apollo-Group-Supplier-Guide.pdf.
Cardinal Health (2012). “Product and Services”. November 9, 2012. http://www.cardinal.com/
Freytang P. (2009). “The Firm’s Sourcing Strategy”. November 9, 2012. http://www.impgroup.org/uploads/papers/4542.pdf
Gottfredson M. & Phillips S. (2005). “Strategic Sourcing: From Periphery to the Core”. Harvard Business Review
Rendon R. (2005). “Commodity Sourcing Strategies”. Journal of Contract Management.
Talluri S. & Narasimhan R. (2004). “A Methodology for Strategic Sourcing”. European Journal of Operational Research. 154: 236-250
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