The Modern Pharmaceutical Wholesaler and the Approaching Transformation

Photo by Rafael Vila

The modern pharmaceutical supply chain is an amazing thing.  No other supply chain handles the combination of volume, variety, value and complexity, and does it as efficiently and accurately as the U.S. pharmaceutical supply chain.  And it does it on an overnight order-to-delivery cycle from wholesaler to pharmacy.  Wholesalers are the key to the efficient operation of the pharmaceutical supply chain, and that’s why I am personally drawn to that segment.

The heart of the modern drug wholesale business—the thing that makes it live, kicking or screaming—is the modern pharmaceutical distribution center (DC).  That magical combination of people, processes, data and automation produces a dance every night across the country where individual drug packages are picked from cases and combined with other individual drug packages to fulfill the orders of pharmacies everywhere.  It is musical to watch and understand, and the crescendo occurs around 10:30pm every night local time at every pharma DC.  Today’s successful wholesalers have figured out how to deal with this specific complexity by organizing their people, processes, data and automation in a stabilizing way to make it all manageable, repeatable and very efficient, and thus making it possible to carve out a thin but well-earned and reliable profit.

Over the last 20 years only a few companies have found a way to surf this traditional complexity to profitability.  But faced with the supply chain transformation that will occur soon as the result of widespread serialization and pedigree requirements, the complexity these companies face seems likely to take another jump–perhaps by as much as double.  With the forced addition of serialization and pedigree, those existing wholesaler formulas will have new destabilizing parameters added to them, which will require wholesalers who wish to remain successful to re-jigger their people, processes, data and automation into a new stabilizing way.  One that embraces and fully integrates serialization and pedigree into their processes, data and automation.

Yes, the costs are going to be higher.  You can’t expect this kind of transformation of a complex and already highly efficient process without adding cost, but the companies who figure out how to minimize those added costs–and who figure out ways to capitalize on new capabilities that are enabled by the new data granularity–are going to remain profitable.  Those who don’t may find it hard to remain in business.  This is nothing new, it’s just the way things work.


So far the transformation I’m writing about will likely occur in California for U.S. wholesalers, which, if that’s as far as it goes, probably wouldn’t qualify it for the word “transformation”.  Even as big as the California pharmaceutical market is, wholesalers could probably get by taking a Band-Aid approach and then hope the whole thing stops there and eventually goes away.

But the recent FDA SNI Guidance provides a hint that the FDA believes they already possess the authority they need to develop, if not impose, nationwide serialization and pedigree or track and trace regulations.  If that isn’t enough, it seems only a matter of time before Congress enacts a law that explicitly mandates the FDA to impose them nationally.  The FDA recently asked the members of the House Committee on Energy and Commerce Subcommittee on Health for additional authority along those lines (among other things).

People watching the development of the Buyer-Matheson “Safeguarding America’s Pharmaceuticals Act” bill fully expect it to be reintroduced in the future and they keep telling me that the more it gets revised, the more it sounds like the enacted California legislation.  I don’t have an insider view of that bill and its trajectory so, like most of you, I’ll just have to watch where it ends up.  Indications are that the European Commission (EC) may take some action sooner or later as well (though probably not following California).

Bottom line, the trend is clearly slanted toward widely mandated serialization and some kind of pedigree, which will usher in exactly the kind of transformation that I’m talking about.  Savvy supply chain members are aware of this and are trying to figure out the new parameters in their business formula that will ensure their future in that kind of environment.


There have been some interesting developments in the last 12 months in the ideas being discussed and debated at industry forums and in the halls outside industry events.  I have observed a significant shift in attitudes creeping in about how a serialization-based supply chain pedigree system might operate.  I believe this shift is a direct result of the growing realization that RFID will not be the predominant carrier technology at the unit level.  In the next few posts I will try to explain this shift and its potentially far-reaching implications to the business formulas of wholesalers and others.  Stay tuned.