Creating the first, pharma-only 3PL network

August 27, 2014
Sanjeeth Pai, Cardinal Health Specialty Solutions

Pharmaceutical Commerce, Pharmaceutical Commerce - September/October 2014,

The drive for lower costs, safer products

Cardinal Health Specialty Solutions transportation network.

Credit: Cardinal Health

For years, manufacturers have been challenged to lower the cost of moving pharmaceuticals from Point A to Point B, while keeping them safe every mile of the way. These challenges are more pronounced today than ever before, as manufacturers address three ongoing issues. First, there is the mounting cost pressures resulting from the ‘patent cliff’ that began in 2010, with one of the biggest waves of drug patent expirations in history. [1] As the patent expires for one top-selling drug after another, lower-priced generics are taking market share and profits away from manufacturers every day.

The second challenge is the waste that’s inherent in pharmaceutical transportation, particularly of cold chain products. If carried by unrefrigerated trucks, these products need to be transported in coolers, which creates excess packaging and increases costs. Imagine a tiny vial requiring a large cooler filled with gel packs, and you begin to see the problem.

Finally, there is the challenge of product security. While the cargo theft of pharmaceuticals in the US continues to fall according to the Pharmaceutical Cargo Security Coalition (PCSC), it remains a constant concern of transportation managers and requires ongoing vigilance as part of an overall cost and risk management strategy. [2]

Shared-resources logistics is a creative solution for addressing all three of these challenges. In fact, other industries—such as consumer packaged goods—have already used this approach to significantly cut costs. For example, in 2010, Kimberly-Clark teamed up with Colgate to co-load freight and share truck capacity. The goal was to help offset rising transportation costs as they both delivered to the same locations: a limited number of CVS Caremark retail stores. According to Kimberly-Clark, the collaboration cut total truck miles by 10% and line-haul and fuel-haul costs by 18%. [3]

By sharing resources—from warehousing to truck capacity to shipping lanes—manufacturers can optimize their transportation operations, eliminating the high cost of less-than-truckload shipments and empty back hauls.

Sharing resources in pharmaceutical distribution

In 2007, we began to develop our own approach to shared-resources logistics at Cardinal Health Specialty Solutions. At the time, we were transporting products for approximately 80 pharmaceutical manufacturers. Through an in-depth analysis of ordering and shipping data we identified key locations where the vast majority of products were being delivered.

With the understanding that comingling these products would save manufacturers money, we worked with our carriers to develop a new shared-logistics solution. The result was the Exclusive Pharmaceutical Transportation Network (EPTN), which combines the best practices of shared-resources logistics: consolidating warehouse space, comingling freight from different manufacturers and creating more efficient shipping lanes to common destinations.

What sets EPTN apart from other shared-logistics models is that it’s the first and only 3PL network in America that is dedicated exclusively to the pharmaceutical industry, covering 70% of all trade volume shipped. Other logistics providers offer some pharma-only services—such as warehousing. But EPTN is the only comprehensive solution, providing both warehousing and transportation services for all types of pharmaceuticals, including brand names, generics, over-the-counter and specialty.

These drugs arrive at their destinations in 48 hours or less via eight routes that deliver to the East, South, Midwest and Colorado. All deliveries are point-to-point ‘milk runs’: once a product is loaded onto a truck it stays there, without being sorted or removed until unloaded at its destination. Currently, there are nearly 40 of these destinations: a mix of wholesale, specialty distribution and retail relocations.

The network is not exclusive to Cardinal Health distribution centers and products and is open to the entire US pharmaceutical industry, from manufacturer to wholesaler to point-of-sale. EPTN can accommodate any size of load, from a single package to a pallet. Manufacturers pay only for the space needed on the truck.

By consolidating shipments from multiple manufacturers, EPTN lowers transportation costs for manufacturers an average of 10—15%. The savings are in addition to regular discounts from Cardinal Health contracted freight rates. Also, because EPTN has regular routes, there’s less need for expediting shipping and the related, higher costs.

Lowering costs further

After narrowing the shipping lanes to eight, we began to look at the trucks themselves to create more efficiency and cost savings. Turning to data analysis once again, we identified the common destinations that different types of products have, from controlled to ambient to cold chain. Instead of using a separate truck for each product type bound for the same destination, we wanted to combine all three onto a single truck.

The solution was to build an entire fleet of trucks refrigerated to 40°F (regardless of the temperature outside), accommodating cold chain products without the need for special packaging and handling. Each truck is calibrated and quality monitored to ensure temperature control. Ambient products can safely travel at 40°F for the 48-hour or less length of the network’s routes.

Keeping products safe

The final cost management measure was to ensure the safety of products from warehouse to destination. Because of EPTN’s shared-resource, point-to-point delivery, there are zero third-party touches. Unlike traditional LTL shipping, products are handled less. And that minimizes the potential for damages and claims, as well as product shortages and losses. So the root cause for product write-offs is eliminated.

The EPTN network embraces other safety best practices as well. For example, contracted team drivers are required to have background checks. The trailers and seals are unmarked, and the trucks are always attended. Each truck is also GPS-tracked along the entire route, from origin to destination. An additional safeguard—a geofence—tracks the movements of each truck. If it deviates from the intended route, the carrier is automatically notified and the truck contacted. If necessary, law enforcement is also notified.

Looking to the future

Shared-resources logistics is a creative, proven way for manufacturers to lower costs and keep products safe in transit. To date, EPTN has focused on outbound shipping. The next step is to add backhauling, filling the trucks with products inbound to any destination, not just Cardinal Health. To us, shared-resources logistics means just that: a solution for us all to work more collaboratively, be more efficient and focus more on what matters most: the patients we all serve.

References

[1] US Pharmacist. Drug Patent Expirations and the “Patent Cliff.” June 20, 2012.

[2] Pharmaceutical Commerce. Cargo Theft of Pharmaceuticals Continues to Fall in the US. March 3, 2014.

[3] JOC.com. Shipper Focus: Kimberly-Clark Sharing the Load. May 27, 2013.

ABOUT THE AUTHOR

Sanjeeth Pai is vice president, 3PL at Cardinal Health Specialty Solutions.