After Carestream Health was sold to a new owner, the medical imaging company had to design its own, stand-alone distribution network. Modeling software helped supply chain managers make the right decisions.
As any first-year college student can tell you, it's not easy to go out on your own after sharing space with family members for so many years. Perhaps that's how supply chain managers at Carestream Health Inc. felt when their company was sold by Eastman Kodak Company to Onex Corporation a year and half ago.
Prior to the sale, Carestream had shared warehouses and transportation services with Kodak. After joining a new "family," however, the medical imaging company could no longer piggyback on a parent's distribution network. Now it would have to develop a stand-alone network that included warehousing and transportation facilities and services.
But Carestream's managers did not simply re-create what the company had during the Kodak years. They took advantage of a rare opportunity: the chance to design an economical and efficient distribution network from the ground up.
One is not enough
Carestream makes a variety of products that are sold to hospitals and medical distributors. These include medical and dental film, chemistry and printing systems, digital and analog X-ray imaging systems, molecular imaging systems, and health care information solutions. In 2007 the company netted about US $2.5 billion from sales of its products in more than 150 countries.
Carestream began its life as the Health Group of Eastman Kodak, a Rochester, New York, USA-based company that is best known for the cameras and film it manufactures for the consumer, professional, and industrial markets. In May of last year, Eastman Kodak sold the Health Group to Onex, an industrial conglomerate based in Toronto, Ontario, Canada. The Health Group, renamed Carestream, retained its headquarters in Rochester.
To serve the U.S. market, Kodak Health Group had used four warehouses in the United States that were owned by Kodak. One was located in Windsor, Colorado, near a manufacturing plant that made most of its flagship product, medical x-ray film. Another was in Rochester, New York, near Kodak's corporate headquarters. The group also shared warehouses in Georgia and California with Kodak's consumer goods business.
The sale to Onex meant that the former Kodak Health Group would have to strike out on its own when it came to transportation, warehousing, and distribution. In preparation for the change of ownership, the medical imaging company adopted what appeared to be a simple solution: serve all of its U.S. customers from one location.
"Prior to the split from Kodak, we tried to get everything into one warehouse," recalls Mark Ewanow, worldwide network design and inbound logistics manager. "We quickly recognized that it wasn't the best strategy."
The company had chosen the Colorado location as its central distribution point. That worked well for products that were manufactured at the nearby plant. But Carestream also manufactured some products in Rochester and was sending to Colorado—in the western half of the country—products that would later be shipped back to the U.S. Northeast. Clearly, having a single distribution point was neither efficient nor cost-effective. It was time for Carestream to rethink its plans.
Into the pool
Fortunately for Carestream, Kodak had by that time sold its Rochester warehouse to a third-party logistics company, which was willing to provide storage and handling for Carestream. The company now would be able to use that warehouse and the one near its manufacturing plant in Colorado as distribution centers and thus avoid unnecessary shipments. But that was just a first step in the process of redesigning its network. The company would also have to analyze and revise its transportation patterns.
During the Kodak years, the medical imaging unit had saved money on transportation by consolidating customer orders into full truckloads whenever feasible and delivering them to "pool points." These were locations where truckloads were broken down into less-than-truckload (LTL) shipments for final delivery to customers. The pool points were based on a network that included Kodak's four warehouses, and the truckloads were built with orders from both the Health Group and its parent company.
Now that Carestream had two warehouses instead of four—and no Kodak products to help fill the trucks—the company needed to identify pool locations that would optimize its new outbound product flow, Ewanow says. To conduct that analysis, Carestream's managers needed specialized software. After evaluating a number of packages, the company selected Supply Chain Guru, a network-design tool from Llamasoft Inc. that models a supply chain network, identifies the optimal structure, and then runs test scenarios to predict operational performance.
Accurate network modeling requires a significant amount of information, both current and historical. "The first step is modeling the existing network and getting the model in line with costs and inventory that we saw in history," says Ewanow.
To do this, the company needed to create a single picture of historical activity. This meant that Carestream had to pull all sorts of data from its corporate information system, including SAP applications inherited from Kodak Health, and then get that information into a format the modeling software could use. Among the data required were product types, the weights and quantities bought by its 2,000 or so customers at each of their receiving locations, and the frequency of shipments to each location.
Ewanow and his colleagues knew that indiscriminately loading all of the company's historical data into the model would skew the results. Instead they had to filter that information to some extent. Otherwise a shipping lane that was used once as an exception might be treated as a routine run in the analysis.
Soon they had the information they needed to conduct the analysis and run operational scenarios. "Getting a 'steady state' representation of history is difficult," Ewanow says. "But when you do, that gives you the confidence that the results from the software reflect the savings from any future network design."
Savings all around
When Ewanow completed the modeling exercise at the end of 2007, the results suggested that Carestream use six pool points, as opposed to the nine it had when it was Kodak Health Group. By using facilities operated by its motor carriers in Pennsylvania, Georgia, Texas, California, the U.S. Northeast, and the U.S. Midwest, Carestream could minimize its costs for shipping to all of its U.S. customers. Breaking down truckloads into LTL shipments in those geographic areas would also allow Carestream to obtain better truck utilization, Ewanow says.
Modeling Carestream's U.S. supply chain network validated the earlier decision to operate distribution centers in Rochester, New York, and Windsor, Colorado. That assessment was based not just on outbound considerations but also on inbound costs and service factors. The model showed that the distribution centers were situated properly not only for the products that it manufactured in Colorado and New York but also for those that it sourced from plants in Oregon, Mexico, and China. "One of the things that surprised some folks was that the locations we chose were pretty good locations because of the impact on inbound logistics costs," Ewanow says.
On the outbound side, Carestream could clearly see how costly it would be to serve the entire country from one point; as Ewanow puts it, the model quantified "the number of trucks we wouldn't have to run out of Colorado to serve the United States."
The medical imaging company also used the model to analyze its truck routings and shipments—and found that it was wasting resources in many cases. "We saved on the elimination of hundreds of truck movements per year," Ewanow says.
The combination of two distribution centers and the six pooling points allowed Carestream to shave US $1 million dollars from its US $50 million annual transportation budget. Those savings would have been considerably greater if fuel costs had not risen so high over the past year, Ewanow says.
Modeling beyond borders
Indeed Ewanow says that supply chain modeling and analysis will become a regular exercise for Carestream, partly because high energy prices will make transportation costs a concern for the foreseeable future. He sees a number of potential applications beyond transportation and warehousing analysis; his next exercise will be determining optimal inventory holdings and locations in the United States.
The medical imaging company also plans to apply supply chain modeling outside of the United States, using the software to analyze the optimal locations for serving its many international customers. Its first target is Europe, where Carestream has just begun examining its delivery network. Making changes in Europe will take longer than it did in the United States, Ewanow says, partly because Carestream has customers in so many countries and partly because it is constrained by thirdparty logistics contracts there that it inherited from Kodak HealthCare.
Ewanow believes that supply chain modeling will allow Carestream to "right-size" its global network and look for better ways to distribute its specialized products, taking into account the medical equipment market's shift from traditional imaging to digital technology. At the same time, modeling will help Carestream respond to changing economic trends. "We will continue to look for network opportunities as our customer base changes and fuel costs increase," Ewanow says.
Companies in every sector are converting assets from fossil fuel to electric power in their push to reach net-zero energy targets and to reduce costs along the way, but to truly accelerate those efforts, they also need to improve electric energy efficiency, according to a study from technology consulting firm ABI Research.
In fact, boosting that efficiency could contribute fully 25% of the emissions reductions needed to reach net zero. And the pursuit of that goal will drive aggregated global investments in energy efficiency technologies to grow from $106 Billion in 2024 to $153 Billion in 2030, ABI said today in a report titled “The Role of Energy Efficiency in Reaching Net Zero Targets for Enterprises and Industries.”
ABI’s report divided the range of energy-efficiency-enhancing technologies and equipment into three industrial categories:
Commercial Buildings – Network Lighting Control (NLC) and occupancy sensing for automated lighting and heating; Artificial Intelligence (AI)-based energy management; heat-pumps and energy-efficient HVAC equipment; insulation technologies
Manufacturing Plants – Energy digital twins, factory automation, manufacturing process design and optimization software (PLM, MES, simulation); Electric Arc Furnaces (EAFs); energy efficient electric motors (compressors, fans, pumps)
“Both the International Energy Agency (IEA) and the United Nations Climate Change Conference (COP) continue to insist on the importance of energy efficiency,” Dominique Bonte, VP of End Markets and Verticals at ABI Research, said in a release. “At COP 29 in Dubai, it was agreed to commit to collectively double the global average annual rate of energy efficiency improvements from around 2% to over 4% every year until 2030, following recommendations from the IEA. This complements the EU’s Energy Efficiency First (EE1) Framework and the U.S. 2022 Inflation Reduction Act in which US$86 billion was earmarked for energy efficiency actions.”
Economic activity in the logistics industry expanded in November, continuing a steady growth pattern that began earlier this year and signaling a return to seasonality after several years of fluctuating conditions, according to the latest Logistics Managers’ Index report (LMI), released today.
The November LMI registered 58.4, down slightly from October’s reading of 58.9, which was the highest level in two years. The LMI is a monthly gauge of business conditions across warehousing and logistics markets; a reading above 50 indicates growth and a reading below 50 indicates contraction.
“The overall index has been very consistent in the past three months, with readings of 58.6, 58.9, and 58.4,” LMI analyst Zac Rogers, associate professor of supply chain management at Colorado State University, wrote in the November LMI report. “This plateau is slightly higher than a similar plateau of consistency earlier in the year when May to August saw four readings between 55.3 and 56.4. Seasonally speaking, it is consistent that this later year run of readings would be the highest all year.”
Separately, Rogers said the end-of-year growth reflects the return to a healthy holiday peak, which started when inventory levels expanded in late summer and early fall as retailers began stocking up to meet consumer demand. Pandemic-driven shifts in consumer buying behavior, inflation, and economic uncertainty contributed to volatile peak season conditions over the past four years, with the LMI swinging from record-high growth in late 2020 and 2021 to slower growth in 2022 and contraction in 2023.
“The LMI contracted at this time a year ago, so basically [there was] no peak season,” Rogers said, citing inflation as a drag on demand. “To have a normal November … [really] for the first time in five years, justifies what we’ve seen all these companies doing—building up inventory in a sustainable, seasonal way.
“Based on what we’re seeing, a lot of supply chains called it right and were ready for healthy holiday season, so far.”
The LMI has remained in the mid to high 50s range since January—with the exception of April, when the index dipped to 52.9—signaling strong and consistent demand for warehousing and transportation services.
The LMI is a monthly survey of logistics managers from across the country. It tracks industry growth overall and across eight areas: inventory levels and costs; warehousing capacity, utilization, and prices; and transportation capacity, utilization, and prices. The report is released monthly by researchers from Arizona State University, Colorado State University, Rochester Institute of Technology, Rutgers University, and the University of Nevada, Reno, in conjunction with the Council of Supply Chain Management Professionals (CSCMP).
"After several years of mitigating inflation, disruption, supply shocks, conflicts, and uncertainty, we are currently in a relative period of calm," John Paitek, vice president, GEP, said in a release. "But it is very much the calm before the coming storm. This report provides procurement and supply chain leaders with a prescriptive guide to weathering the gale force headwinds of protectionism, tariffs, trade wars, regulatory pressures, uncertainty, and the AI revolution that we will face in 2025."
A report from the company released today offers predictions and strategies for the upcoming year, organized into six major predictions in GEP’s “Outlook 2025: Procurement & Supply Chain.”
Advanced AI agents will play a key role in demand forecasting, risk monitoring, and supply chain optimization, shifting procurement's mandate from tactical to strategic. Companies should invest in the technology now to to streamline processes and enhance decision-making.
Expanded value metrics will drive decisions, as success will be measured by resilience, sustainability, and compliance… not just cost efficiency. Companies should communicate value beyond cost savings to stakeholders, and develop new KPIs.
Increasing regulatory demands will necessitate heightened supply chain transparency and accountability. So companies should strengthen supplier audits, adopt ESG tracking tools, and integrate compliance into strategic procurement decisions.
Widening tariffs and trade restrictions will force companies to reassess total cost of ownership (TCO) metrics to include geopolitical and environmental risks, as nearshoring and friendshoring attempt to balance resilience with cost.
Rising energy costs and regulatory demands will accelerate the shift to sustainable operations, pushing companies to invest in renewable energy and redesign supply chains to align with ESG commitments.
New tariffs could drive prices higher, just as inflation has come under control and interest rates are returning to near-zero levels. That means companies must continue to secure cost savings as their primary responsibility.
Specifically, 48% of respondents identified rising tariffs and trade barriers as their top concern, followed by supply chain disruptions at 45% and geopolitical instability at 41%. Moreover, tariffs and trade barriers ranked as the priority issue regardless of company size, as respondents at companies with less than 250 employees, 251-500, 501-1,000, 1,001-50,000 and 50,000+ employees all cited it as the most significant issue they are currently facing.
“Evolving tariffs and trade policies are one of a number of complex issues requiring organizations to build more resilience into their supply chains through compliance, technology and strategic planning,” Jackson Wood, Director, Industry Strategy at Descartes, said in a release. “With the potential for the incoming U.S. administration to impose new and additional tariffs on a wide variety of goods and countries of origin, U.S. importers may need to significantly re-engineer their sourcing strategies to mitigate potentially higher costs.”
Freight transportation providers and maritime port operators are bracing for rough business impacts if the incoming Trump Administration follows through on its pledge to impose a 25% tariff on Mexico and Canada and an additional 10% tariff on China, analysts say.
Industry contacts say they fear that such heavy fees could prompt importers to “pull forward” a massive surge of goods before the new administration is seated on January 20, and then quickly cut back again once the hefty new fees are instituted, according to a report from TD Cowen.
As a measure of the potential economic impact of that uncertain scenario, transport company stocks were mostly trading down yesterday following Donald Trump’s social media post on Monday night announcing the proposed new policy, TD Cowen said in a note to investors.
But an alternative impact of the tariff jump could be that it doesn’t happen at all, but is merely a threat intended to force other nations to the table to strike new deals on trade, immigration, or drug smuggling. “Trump is perfectly comfortable being a policy paradox and pushing competing policies (and people); this ‘chaos premium’ only increases his leverage in negotiations,” the firm said.
However, if that truly is the new administration’s strategy, it could backfire by sparking a tit-for-tat trade war that includes retaliatory tariffs by other countries on U.S. exports, other analysts said. “The additional tariffs on China that the incoming US administration plans to impose will add to restrictions on China-made products, driving up their prices and fueling an already-under-way surge in efforts to beat the tariffs by importing products before the inauguration,” Andrei Quinn-Barabanov, Senior Director – Supplier Risk Management solutions at Moody’s, said in a statement. “The Mexico and Canada tariffs may be an invitation to negotiations with the U.S. on immigration and other issues. If implemented, they would also be challenging to maintain, because the two nations can threaten the U.S. with significant retaliation and because of a likely pressure from the American business community that would be greatly affected by the costs and supply chain obstacles resulting from the tariffs.”
New tariffs could also damage sensitive supply chains by triggering unintended consequences, according to a report by Matt Lekstutis, Director at Efficio, a global procurement and supply chain procurement consultancy. “While ultimate tariff policy will likely be implemented to achieve specific US re-industrialization and other political objectives, the responses of various nations, companies and trading partners is not easily predicted and companies that even have little or no exposure to Mexico, China or Canada could be impacted. New tariffs may disrupt supply chains dependent on just in time deliveries as they adjust to new trade flows. This could affect all industries dependent on distribution and logistics providers and result in supply shortages,” Lekstutis said.