Distribution Strategy and the Changing Dynamics of the Pharmaceutical Supply Chain (Pt. 2)

We began this series by recognizing that the extreme storage and processing requirements of pharmaceutical products have led to numerous specialized applications to facilitate cost-efficient distribution and support improved patient outcomes.

This week I review some of the recent macro-level developments in the industry and the complexities they bring to bear on distribution strategy.

Part 2: Market Shifts Impacting Pharmaceutical Distribution

Already a challenging distribution environment, a combination of demographic trends, healthcare legislation, new drug introductions and other factors are elevating the visibility and importance of healthcare logistics and distribution activities. Pharmaceutical logistics executives are required to navigate through one of the most complex of business environments. With all of the changes occurring in the marketplace, this complexity continues to increase.

• The Patient Protection and Affordable Care Act (PPACA) includes measures that significantly impact the U.S. healthcare system, including product distribution.
• Many hospitals, physician groups and insurers are assembling into Accountable Care Organizations (ACOs), attempting to realize savings generated by improved and better coordinated care.  This shift impacts consumer services and distribution methods.
• The aging of Americans places added demands on an already taxed healthcare system. Aging baby boomers increase the overall need for healthcare products and services.  Increasing life expectancies due to prevention and medical advancements compound demand growth, and technological advancements increase demand for services.  How this change is affecting distribution models is still in evolution.
• More drugs are expiring from patent protection than are gaining regulatory approval. In the past, high gross margins overshadowed supply chain inefficiencies.  With fewer high margin drugs in the channel, pharmaceutical companies are finding new ways to achieve efficiencies and maintain profitability, taking a closer look at distribution models.
• The increased focus on specialty drugs (biologics, proteins and other complex solutions) has brought distribution procedures to the forefront.  These pharmaceutical products often cannot withstand exposure to high temperatures for extended periods of time without degradation of their active components, making conventional ambient-temperature distribution methods unacceptable for these products.  2010 was the first year that FDA-approved specialty drugs were higher than traditional drug approvals.  This trend continued in 2011 and 2012, and is expected to continue.
• The Drug Supply Chain Security Act, enacted in November 2013, will transform how the domestic supply chain operates.  The new regulations from the Food and Drug Administration are designed to ensure product safety and stringent supply chain track and trace requirements.  This places greater requirements for real-time data capture of SKU lot codes, and soon, full serialization traceability of product movement across the entire supply chain.  These new mandates for the distribution of pharmaceutical pallet, mixed-case and split-case product serialization will require changes to current product labeling and barcode requirements. High-volume distributors will require high-speed camera-based scanning, integrated with automated labeling to efficiently track and trace the shipments.

Pharmaceutical wholesalers have one of the most difficult industry positions across the healthcare supply chain, since they must respond to not only the changing macro situation, but also the needs of their suppliers and end customers.

The next post in this series will examine the growing interest of industry executives in optimizing supply chains to reduce expenses and meet the challenges of healthcare reform.

Sedlak Management Consultants is a supply chain consulting firm specializing in distribution consulting. Founded in 1958, Sedlak’s broad experience in network strategy, facility design, distribution/fulfillment, and information systems allows us to integrate the latest technology, best practices and industry benchmarks to help our healthcare clients achieve supply chain excellence.

We hope that you will find the insights contained in this series helpful to your business. If there is any way we can be of assistance with your supply chain and logistics strategy development, please feel free to contact us by filling out the form below.