While many people now have personal experience using e-commerce for online grocery delivery or curbside pickup, more consumers are testing the waters of mail order and online pharmacies for their over-the-counter (OTC) and prescription medications too. The size of the global online pharmacy market is expected to increase from $68.3 billion in 2020 to $178.1 billion by 2026, according to Facts and Factors. The implications of this growth are immense for manufacturers, wholesale distributors, third-party logistics providers (3PLs) and dispensers (online and brick-and-mortar pharmacies) within the drug supply chain.
According to the 2019 report, “The Role of Distributors in the U.S. Health Care Industry,” by the Healthcare Distribution Alliance (HDA), in collaboration with Deloitte Consulting LLP, “Pharmaceutical distributors’ $450 billion in annual revenue is highly concentrated among three traditional full-line distributors: AmerisourceBergen, Cardinal Health, and McKesson. The share of the market for these three companies grew from 87 percent in 2013 to 92 percent in 2017.”
Despite the market share of the big three, consumers now have more online choices in the marketplace to fulfill drug prescriptions. Even Amazon and its online pharmacy subsidiary PillPack has entered the pharmaceutical fulfillment space. However, not every online pharmacy dispenser is created equal.
As one of the most regulated industries, mail order and online pharmacies have advantages compared to a local pharmacy. The convenience of ordering prescriptions online and having them delivered to customers’ doors, coupled with the potential for lower costs are the two biggest benefits.
However, according to SingleCare, a mail-order pharmacy operates under tight laws and regulations, and works directly with insurance companies — ensuring safe and legitimate medications. Healthcare providers send prescriptions to a mail-order pharmacy for prescription fulfillment and customer delivery. An insurance company’s pharmacy benefit manager (PBM) works directly with the mail-order pharmacy to cover costs. Only patients with insurance can utilize mail-order pharmacies.
Conversely, online pharmacies can operate from anywhere in the world with little to no U.S. regulatory oversight, according to SingleCare. Some online pharmacies also do not accept insurance. The biggest risk to using an online pharmacy is the legitimacy of the pharmaceuticals themselves. Counterfeit drugs commonly find their way through supply chains of online pharmacies. Consumers are asked to only purchase through online pharmacies that are accredited by the Verified Internet Pharmacy Practice Sites (VIPPS) program.
The realities of counterfeit pharmaceuticals and the threat they pose to consumer health made it necessary in 2013 for the U.S. Congress to enact the Drug Supply Chain Security Act (DSCSA). According to the HDA and Deloitte report, the DSCSA is intended to track and trace pharmaceuticals as they move through the drug supply chain. Specifically, the report says the DSCSA:
Protects consumers from drugs that may be counterfeit, contaminated, or stolen.
Improves the detection and removal of potentially dangerous drugs from the supply chain.
Requires end-to-end traceability of prescription pharmaceuticals through interoperable electronic systems.
Helps eliminate unregulated transactions by requiring the authorization of all trading partners.
Enables saleable returns to minimize cost and the impact of production constraints.
The DSCSA’s implementation process is a phased-in approach that began with key milestones beginning in 2015 and finalizing in 2023. The Pew Charitable Trusts provides a comprehensive overview of the DSCSA timeline and requirements for each trading partner in the pharmaceutical supply chain.
A Centers for Disease Control and Prevention report, “The Drug Supply Chain Security Act and 2D Vaccine Barcodes,” states, “The DSCSA stipulates that by 2023, the U.S. will have an electronic, interoperable system that will be able to monitor the movement of prescription drugs from manufacturing to dispensation.
“To operationalize this objective, the DSCSA requires that manufacturers imprint, in human-readable form, a product identifier to each package and case of a product that they intend to introduce into the supply chain. In addition, the product identifier must include the National Drug Code (NDC), serial number, lot number, and expiration date encoded within a 2D barcode.”
DSCSA will be even more critical as e-commerce has a greater influence in the pharmaceutical supply chain. ResearchandMarkets.com reports that the global mail-order pharmacy market is projected to increase from a value of US$ 48,977 million in 2019 to US$ 166,384.85 million by 2027. Having the electronic, interoperable systems in place is imperative with more patients and consumers turning to e-commerce for their prescription and OTC medications.
Pharmaceutical distributors are playing a more critical role in their supply chain as consolidation and vertical integration take hold. HDA and Deloitte said it best in their report by describing pharmaceutical distributors as “maintaining the integrity of today’s closed-loop supply chain by consolidating manufacturer orders, delivering products to pharmacies, and processing returns.”
Gary Ritzmann, director of sales, healthcare and cosmetics, for Schaefer Systems International, Inc., says like many industries, warehouses and distribution centers in the pharmaceutical industry face deep labor shortages. To manage their online orders 24/7, operators are turning to automated solutions to close the gap. There’s also the need to have rigid flexibility when spikes in certain SKUs occurs.
“Warehouse operators want rigid processes to manage orders appropriately, but the flexibility to absorb the peaks that occur along the way,” says Ritzmann.
Ritzmann spent a decade working for a pharmaceutical wholesaler with two distribution centers serving 1,300 independent pharmacies and over 250 home health care stores. He’s witnessed several trends over the years. The following are trends shaping tomorrow’s pharmaceutical distributor.
Wholesale consolidation. There continues to be consolidation of the wholesale business. Ritzmann says the big three wholesalers — McKesson, Cardinal Health, and AmerisourceBergen — continue to acquire smaller independent wholesalers. With a much smaller piece of the market share pie, small independent wholesalers are finding it difficult to do business with pharmaceutical manufacturers.
“The pharmaceutical wholesaler where I was employeed was a $2 billion per year business, but that accounted for less than a percent of the entire market share value. It’s more cost effective for manufacturers to send pallets of product to the three major sales channels than pick cases of product for a smaller wholesaler to distribute,” says Ritzmann. “We’ll continue to see a regional shrinkage of independent pharmacies throughout the country.”
Vertical integration of ecosystem players. The traditional role of pharmaceutical distributors is evolving as more distribution operators expand their roles into areas such as group purchasing organization (GPO) and pharmacy services administration organization (PSAO). “Vertical integration among ecosystem players…continues to blur the lines between stakeholder segments along the pharmaceutical value chain. Vertical integration is shifting traditional roles from singular competencies toward integrated offerings: Individual stakeholders playing multiple roles may able to exert greater influence over the ecosystem,” according to the HDA and Deloitte report.
Advances in technology. As e-commerce expands into pharmaceuticals and the DSCSA 2023 deadline approaches, emerging technologies are close behind (if not already being utilized in warehouses and DCs) for greater distribution efficiencies and performance. The HDA and Deloitte report cites blockchain, artificial intelligence/robotics, and Internet of Things (IoT) as the leading emerging technologies.
Blockchain. With transparency, security, and single source of truth critical to the integrity and safety of the pharmaceutical supply chain, blockchain offers an ideal solution for meeting those requirements. According to the HDA and Deloitte report, “A blockchain project launched in 2017 is bringing together leading pharmaceutical manufacturers and distributors to build an industry-owned, permissioned blockchain network based on open standards and specifications.”
Artificial intelligence (AI)/robotics. The pharmaceutical industry represents a sector where human error has life or death consequences. Using AI and robotics can minimize the opportunity for error while reducing operating costs. Picking robots can provide speed and accuracy at a time when consumers want their e-commerce orders delivered next or same day.
Internet of Things (IoT). According to the HDA and Deloitte report, “Adoption of IoT technology can help distributors provide real-time updates to their pharmacy and provider customers, allowing them to spend more time providing a reliable delivery schedule.” IoT can also play a critical role in monitoring pharmaceuticals with sensitive temperature requirements.
As operational models evolve, and emerging technologies become mainstream, automated warehouse solutions play a greater role bringing everything together in one safe, accurate and efficient package.
When it comes to pharmaceutical distribution where safety, accuracy, and regulatory requirements command compliance, specific automation comes immediately to mind — A-frames, robotics, and order scanners/verifiers. Regardless of industry, key performance indicators still rule the warehouse, says Ritzmann. Picks per hour, lines per hour, lines per order, and pieces per order must align with how the warehouse handles and stores the product.
“I've always been a big proponent of having different types of storage medium for your products depending upon velocity and cube,” says Ritzmann. “You need different types of automation in your warehouse in order to handle the product the least amount of times.”
The pharmaceutical expertise of SSI SCHAEFER in understanding the regulatory environment as well as the sensitive nature of prescription and OTC medications, makes it an ideal partner for automated solutions.
A-Frames. A-frames are ideal for high speed, high number of orders, but low number of pieces, says Ritzmann. “At our Rochester Drug distribution facility in New Jersey, we had our fastest movers in the A-frames,” he says. What makes A-frames so efficient? It’s the high flexibility of the configurable product channels. Whether your product is rectangular or cylindrical, up to 40,000 products can be picked per hour. Combine the A-frame with an automated robotic picking system and now you’re processing orders with the highest volume and low error rates. And when order fluctuations occur, the downtime is a perfect opportunity to refill the A-frame channels.
At a glance, the biggest benefits of A-frames are:
High productivity at peak times
Highly efficient with the removal of manual picking activities
Easy integration into existing systems
Piece-Picking Robots. Pharmaceutical orders require the greatest of accuracy. Piece picking robots provide the automated error-free picking solution and can be integrated into a storage system. Combine it with various conveyor systems for product serial number scanning.
At a glance, the biggest benefits of piece picking robots are:
Low operating costs long term
High functional reliability and efficiency
Constant service regardless of product size and weight or ambient conditions.
Order verifiers. With the requirements of the Drug Supply Chain Security Act, pharmaceutical distributors must meet strict protocols when handling, storing and distributing pharmaceuticals. SSI SCHAEFER can automate those protocols with its SSI order verifier to prevent picking errors and fulfill order traceability requirements. With the ability to achieve a throughput of up to 6,000 items per hour, products can be identified, checked, and documented in a single step. Picked orders are delivered in containers and emptied onto a conveyor belt where they’re separated before being transported to the reader station. A scanner then records and documents the individual products. Whether the product uses 1D barcodes or 2D matrix codes as required by the DSCSA, the order verifier reduces the number of picking errors to nearly zero.
Add a scanning machine with an A-frame for fully automated product identification and picking.
At a glance, the biggest benefits of order verifiers and scan machines:
Trackable and error-free picking
Batch and serial number documentation
Conforms to track and trace regulations
Complete shipping documentation
Easy integration into existing warehouse systems
Ideal for the pharmaceutical warehouse and distribution center
The pharmaceutical supply chain includes many trading partners, all with their own role to play in the tracking and tracing of medications to patients and customers. Compared to other industry supply chains, pharmaceuticals must be a collaborative effort to ensure the accuracy and safety of product moving through it. It is essential to find a partner that understands the requirements of the industry and has the automation to meet regulatory compliance while reducing operating costs.