Stocks of masks, gloves and other personal protective equipment weigh on Cardinal Health Inc.
finances as the distributor grapples with supply chain tensions and an uncertain trajectory for the coronavirus pandemic.
The Dublin, Ohio-based drugs and medical supplies wholesaler has more PPE in its warehouses and has also diversified its supply for these products to guard against supply disruptions if demand increases again during new outbreaks of Covid-19.
The inventory reserve of $ 197 million was the main driver of Cardinal Health’s 40% drop in operating income in the last quarter, the company said this week.
âWe’ve added more warehouse space and have more inventory, so if there’s any type of resurgence, we’re here and ready,â Cardinal Health CEO Mike Kaufmann said.
There was a big race in protective gear during the first months of the pandemic in early 2020, when hospitals filled with Covid-19 patients and a global rush ensued for N95 masks, surgical gowns and other medical supplies that suddenly became scarce.
As cases declined in the United States last year and production increased, supply and demand have aligned more, Kaufmann said, and Cardinal Health has started to replenish the inventory of these products, which are bulky and normally of fairly low value but are “extremely valuable to healthcare workers,” he said.
To accommodate the additional merchandise, Cardinal Health redeveloped a distribution space to maximize efficiency. Customers like hospitals also stock up on PPE and in some cases ask Cardinal to help them manage this inventory. The company recently opened a new warehouse in Channahon, Ill. To store inventory owned by customers.
Like other businesses, healthcare providers are also grappling with logistics bottlenecks and high shipping and labor costs as the economy reopens. Rival distributor AmericsourceBergen Corp., for example, is experiencing inflation in labor and transportation, the company said on an earnings call on Wednesday.
Cardinal Health on Thursday reported quarterly revenue of $ 42.6 billion, up 16% year-over-year, and net income of $ 116 million, from $ 656 million the last year.
Company transportation costs increase dramatically as companies compete for shipping and trucking capacity and face congestion at major shipping gates. âIt really lengthens the supply chain,â Kaufmann said.
Cardinal Health also faces higher labor costs in a tight labor market where distribution and warehouse workers are in high demand.
Customers always get products when they need them, Kaufmann said, but “behind the scenes there’s a lot of work going on to make that happen.”
Write to Jennifer Smith at [email protected]
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