In a landmark deal, XPO will lease and operate distribution centers and manage inventory over the next 10 years for Trinity Health, a multi-institutional health care delivery system that serves 88 hospitals and 126 continuing care locations in 21 states.
Trinity Health, a large not-for-profit health care provider with 88 hospitals in 21 states, has signed a 10-year contract with XPO Logistics to manage and help transform its supply chain, the companies announced Wednesday.
Under the deal, XPO will lease and operate a $26 million, build-to-suit distribution center in Fort Wayne, Ind. that is scheduled to be completed by the summer of 2017.
Traditionally, health care providers use distributors, such as Cardinal Health, who take ownership of products and resell them to hospitals and other facilities. Outsourcing medical supply to a third-party logistics company is unique for the industry, Lou Fierens, Trinity Health’s senior vice president for supply chain and fixed asset management, said in a phone interview.
Some health care providers, such as Hospital Corporation of America (HCA) and Intermountain Healthcare, have a model where they own and operate their own warehouses and trucks, and deal directly with suppliers, but there are no known 3PL relationships in the health space.
“We believe that’s going to be a much more effective model. There are drayage opportunities, better asset utilization for both sides,” Fierens said.
Trinity Health, which is affiliated with the Catholic Church, also plans to establish three regional DCs in the next five years to better ensure adequate inventory levels in its far flung, national network. Those locations have yet to be determined.
The motivation to partner with XPO is “focused on driving better cost of care and a better patient experience. It’s fundamentally aligned with our strategies” to reduce variation, Fierens told American Shipper.
Trinity wants to “create an efficient supply chain from the supplier to the bed side,” and the way to do that is to standardize care processes, reduce the number of stock by keeping units that are slow to turn, and integrate efficiency initiatives at the hospital with manufacturers through more effective inventory management, he said.
“Scale without alignment is bureaucracy,” Fierens said.
Trinity Health has spent the last three years working toward a transformation of its supply chain. The company standardized the products it supplies to its hospitals and streamlined related clinical procedures, and then implemented Lean-based “Kanban” and “Low Unit of Measure” inventory management systems.
XPO Logistics and Trinity Health said they are collaborating on the design and implementation of Trinity Health’s future network structure and supply chain flow, identifying strategic opportunities to reduce costs, eliminate waste, and improve order quality and velocity.
“What Trinity is trying to do is really exciting,” Ashfaque Chowdhury, XPO president of supply chain for the Americas and Asia-Pacific, said in the interview. “They are taking a strong look at the business model and trying to change the fundamentals of the healthcare cost structure.”
XPO, which has a dedicated healthcare vertical, became a significant player in contract logistics with the acquisitions of New Breed and Norbert Dentressangle, which included the former U.S.-based 3PL Jacobson Companies. XPO also added to its logistics capability with last year’s acquisition of Con-Way Inc. and its Menlo Logistics subsidiary.
Led by fast-charging serial entrepreneur Brad Jacobs, XPO exploded in the past four years from a small truck brokerage into a top global 3PL with $7.6 billion in gross revenues and a vast suite of services, including less-than-truckload (LTL) and truckload transportation. The company posted a loss of $191 million last year, with many one-time expenses for acquisitions and integration of new companies.
On the contract logistics side, XPO recently landed a five-year $600 million contract with Iceland Foods, a supermarket and online retailer in the United Kingdom specializing in frozen foods. The contract is the largest ever for XPO and bigger than any contract received by predecessors Con-way or ND.
XPO also won contracts from Swatch for trucking service and Matchfusion.com, as well as a multi-million pound contract renewal from General Motors in the UK.
The company’s stock has dropped by more than half since last summer because of investor caution that Jacobs is moving away from the non-asset based model he started with and may not be able to pull together all the new components in a way that achieves promised earnings. Other analysts believe XPO has a top executive team and a realistic strategy for executing on its vision.
Trinity Health taps XPO Logistics to run medical supply chain
